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How Decreto Omnibus 148/2026 changed the entry-tax decision for UK discretionary trusts holding Italian real estate — and why acting now matters
A common assumption among UK trustees is that an English discretionary trust is, in essence, invisible to foreign tax systems. The trust holds the asset; the beneficiaries hold nothing until a distribution is made; therefore, nothing has happened abroad. In Italian law, that assumption is wrong in a specific and expensive way.
Italy recognises English-law trusts under the Hague Convention on the Law Applicable to Trusts and on their Recognition, ratified by Italy as Law n. 364 of 16 October 1989. Recognition does not mean exemption. It means Italy accepts the trust as a legal arrangement — and then applies its own tax rules to when assets are transferred into or out of the trust.
Yes, when Italian-situs real estate is involved. Italian inheritance and gift tax — governed by Legislative Decree n. 346 of 31 October 1990 (D.Lgs. 346/90), as substantially amended by Legislative Decree n. 139 of 18 September 2024 and further by Legislative Decree n. 123 of 12 August 2025 — applies to the transfer of wealth connected to Italian territory, regardless of where the trust was established or governed.
For a non-resident settlor, Article 2, paragraph 2-bis of D.Lgs. 346/90 (as amended) restricts the taxable base to Italian-situs assets. An English discretionary trust holding a Venetian villa and UK equities is therefore taxed in Italy only on the villa. The UK equities are outside Italian jurisdiction entirely.
This matters immediately. A UK settlor who settled a trust holding Italian property — whether a family holiday home or a rental investment in Rome — is not outside Italian tax law simply because the trust deed was drafted in London under English law.
The default rule under Article 4-bis of D.Lgs. 346/90 is tassazione in uscita: taxation on exit. Italian inheritance and gift tax arises when assets leave the trust and reach a beneficiary. The taxable base is the value of the asset at the moment of distribution.
Article 4-bis, paragraph 3 creates an irrevocable alternative. The settlor — or, in the case of a testamentary trust, the executor / the trustee appointed under the will — may elect tassazione in entrata, meaning entry taxation. If the election is made, tax is calculated and paid at the time assets are contributed to the trust, not when they are distributed. The election is made once. It cannot be reversed.
The strategic logic is straightforward. If a settlor contributed a Tuscany farmhouse to a discretionary trust in 2021 at a value of €600,000, and that property is now worth €850,000, the exit-tax default will apply to €850,000 — or whatever value obtains at the time of distribution, which may be higher. The entry election, if made today, would apply to the current value. For assets held in trust for many years, the difference is material.
Until 11 August 2026, a gap remained. The 2024 and 2025 legislative reforms clarified that inheritance and gift tax applied on entry when the election was made, but they left open whether the entry election also covered the imposta ipotecaria (mortgage tax, 2% on real estate transactions) and the imposta catastale (cadastral tax, 1% on real estate transactions). Both taxes apply to the transfer of Italian land and buildings. Without clarity on whether they were included in an entry election, the total cost of the election could not be calculated with certainty.
Decreto Omnibus n. 148 of 7 August 2026 (published in the Gazzetta Ufficiale n. 185 of 11 August 2026, in force 12 August 2026), Article 13, resolved this expressly. Where a settlor makes an irrevocable election for entry taxation and Italian real estate forms part of the trust assets, the mortgage tax at 2% and the cadastral tax at 1% are paid at the same time as inheritance and gift tax — at contribution value, not distribution value. The election now covers all three levies together. The cost is finally calculable.
This is the practical consequence: for a UK trust holding Italian real estate valued today at €700,000, where the beneficiaries are the settlor's children (lineal descendants), the entry-tax election would trigger inheritance and gift tax at 4% on the value exceeding €1,000,000 per beneficiary — meaning, if the value per beneficiary falls below that threshold, no tax is payable [text appears to be cut off] gift tax is due. Mortgage tax of €14,000 and cadastral tax of €7,000 would be payable upfront. That is the locked-in cost. The alternative is paying all three taxes on whatever value the property holds when distributions are eventually made.
This is the contrast that surprises almost every UK trustee. In English law, inheritance tax and the transfer of an estate are events that crystallise on death. A trust deed is a private arrangement; HMRC applies its own trust taxation rules (ten-year anniversary charges, exit charges under the relevant property regime), but Italian succession law is simply not engaged until an Italian asset passes by way of death or gift.
Italian law operates differently. Under D.Lgs. 346/90 as now in force, the contribution of an Italian-situs asset to a trust — even an English-law trust constituted entirely in the UK — is itself a taxable event if the entry election is made, or creates a latent liability that crystallises on distribution if it is not. There is no equivalent of the English relevant-property regime; Italy does not impose periodic anniversary charges. Instead, Italy applies its own succession and gift tax at the moment of wealth transfer, which the trust mechanism neither eliminates nor indefinitely defers.
For UK trustees accustomed to calculating ten-year charges under Schedule 34 of the Finance Act 2004 and Inheritance Tax Act 1984, the Italian framework requires a separate analysis run in parallel. Both systems apply simultaneously. A distribution from a UK discretionary trust holding a Rome apartment triggers English exit charges and Italian exit-tax consequences at the same time.
The Revenue Agency's Response to Ruling No. 81/2026 (Risposta n. 81/2026, Agenzia delle Entrate) addressed a related scenario: a trust where a beneficiary who was non-resident at the time of contribution subsequently becomes Italian-resident. The ruling confirmed that Italian residence of a beneficiary at the time of distribution can engage Italian tax jurisdiction even where neither the trust nor the settlor was Italian-resident at any earlier point. UK families with children who have moved to Italy — for work, for a partner, for lifestyle — should treat this as a live risk.
Nemo plus iuris ad alium transferre potest quam ipse habet — no one can transfer to another more rights than they themselves possess. Italian law applies this principle strictly in the context of succession.
Italy's forced heirship rules, embedded in Articles 536 to 564 of the Italian Civil Code (codice civile), reserve a mandatory share of an estate — the forced heirship share (legittima / quota di riserva) — for children and surviving spouses. These provisions apply to Italian-situs immovable property regardless of the nationality or domicile of the deceased, under Regulation (EU) 650/2012 on succession (Article 35, public policy exception, and Article 27 on the choice of applicable law). A UK national who chooses English law as the applicable law of their succession under Article 22 of Regulation (EU) 650/2012 cannot thereby strip Italian property of its forced heirship protection if Italian courts find that doing so would manifestly contradict Italian public policy.
Whether the trust structure itself circumvents forced heirship is a separate question the Italian Court of Cassation has not definitively resolved. The practical risk is real. Italian children of a UK settlor who receive less than their forced heirship share from an Italian property held in trust may bring a riduzione action — a claim to reduce the disposition — before Italian courts. That risk exists independently of whether the entry or exit election is made.
In our files, the most common error is treating the entry-tax election as a question to be deferred until a beneficiary actually needs a distribution. By that point, the property value has risen, the settlor may no longer have legal capacity to make the election, and the irrevocability of the choice has become an argument for delay rather than a prompt for timely advice. Trustees discover that the election window was always open — but that they waited through the years of maximum appreciation before entering it.
The election should be assessed within the first six months after contributing Italian real estate to any trust structure. The Decreto Omnibus now makes the full cost calculable. There is no administrative reason to wait.
If the English trust already holds the Italian property, is it too late to make the entry-tax election?
No. The entry-tax election under Article 4-bis, paragraph 3 of D.Lgs. 346/90 can be made at the time of contribution or at a later point before a taxable distribution occurs, provided the election has not already been declined or a distribution already made. The election is irrevocable once exercised, but the absence of a prior election does not foreclose the option. Italian counsel should assess the precise timing and documentation required given the specific trust structure and contribution date.
Does the 4% inheritance tax rate always apply between a UK settlor and their children for Italian real estate inside a trust?
The 4% rate applies to direct-line transfers (parent to child) on the value exceeding €1,000,000 per beneficiary. Below that threshold, no inheritance and gift tax is due on the transfer itself, though mortgage tax at 2% and cadastral tax at 1% on the real estate value are payable regardless when the entry election is made. For transfers to siblings, the rate is 6% with a €100,000 threshold per beneficiary; for unrelated beneficiaries, it is 8% with no threshold.
What is the risk if we do nothing and leave the trust on exit-tax default?
The exit-tax default is not inherently wrong, but it is a bet on property values remaining flat or falling. Italian real estate in sought-after locations — coastal Liguria, central Tuscany, historic city-centre Rome — has appreciated significantly over the past decade. The exit-tax base will be the distribution-date value. In addition, if a beneficiary is Italian-resident at the time of distribution, as confirmed by Agenzia delle Entrate Response to Ruling No. 81/2026, Italian tax jurisdiction is fully engaged regardless of where the trust was constituted. Doing nothing is a choice with a cost attached to it.
HREFLANG BLOCK:
Editorial Team — Panato Law Firm Staff
