Trusts: upfront taxation allowed even when no tax is due – the Italian Revenue Agency's clarification at Telefisco
During the "Speciale Telefisco" event held on 24 September, the Italian Revenue Agency (Agenzia delle Entrate) clarified that the option for upfront taxation of trusts may be exercised even where the application of the tax-free allowances exhausts the entire taxable base, so that no tax is actually payable.
The general rule and the derogating option
As a general rule, Article 4-bis of the Consolidated Law on Inheritance and Gift Tax (TUS) identifies the taxable event for inheritance/gift tax purposes as the moment when the trustee distributes the assets to the beneficiaries ("exit taxation"). This codified the settled case law of the Italian Supreme Court (Corte di Cassazione), which had already led the Revenue Agency, with Circular 34/E/2022, to abandon the view that the act of settling assets into the trust was itself taxable ("upfront taxation").
Under paragraph 3, however, the tax charge may, by way of derogation, be brought forward. In that case, the settlor (for trusts established inter vivos) or the trustee (for testamentary trusts) may elect to pay the tax at the time the assets are transferred into the trust. The tax rates and allowances applied are those corresponding to the relationship between the settlor and the beneficiaries. Taxation is thereby exhausted, and subsequent distributions to the beneficiaries become irrelevant for tax purposes.
It should also be recalled that the recent Omnibus Decree (Legislative Decree 148/2026, in force since 12 August 2026) extended the effect of the option to mortgage and cadastral taxes as well. We have already published an article on this topic, to which we refer (Trusts and the Omnibus Decree: the “upfront taxation” option is extended to mortgage and cadastral taxes).
The point of contention addressed by the clarification
Trusts are frequently used within families as a vehicle for generational wealth transfer. As a result, the beneficiaries are usually the settlor's descendants, each of whom is entitled to a tax-free allowance of EUR 1 million. It was unclear, however, whether the optional regime could apply where the taxable value of the contribution attributable to each descendant was equal to or lower than the applicable allowance: in that scenario, electing for upfront taxation would exhaust the tax charge even though no tax was actually paid. Some commentators argued that, with no tax to pay, the option would have no effect.
The Revenue Agency's answer
In response to this interpretative doubt, the Revenue Agency confirmed that the option may be exercised even when no tax is payable because the allowances provided for by Articles 7 and 56 of the Consolidated Law are not exceeded.
The reasoning is that the reduction of the allowances pursuant to Article 57 of the Consolidated Law can itself be regarded as a form of "taxation" at the time the trust is established.
The effects of this interpretation
The clarification is of considerable practical significance, given certain benefits deriving from the upfront taxation option:
it allows the tax charge to be settled from the moment the trust is established, protecting against any future legislative changes that might make it more burdensome;
by exercising the option, the value of the assets is crystallised at the date of contribution, as the Revenue Agency has held since Circular 48/E/2007 with regard to the upfront taxation regime. Since any increase in the value of the assets accrued during the life of the trust will not be taxed upon final distribution, where the contributed assets can reasonably be expected to appreciate, the financial advantage may be significant.
Issues still open
Paragraph 4 of Article 4-bis refers to a decision of the Director of the Revenue Agency for the implementing rules. Almost two years after the provision was enacted, there is still no sign of this decision, which in many cases leaves taxpayers practically unable to exercise an option provided for by law. According to some commentators, the referral is merely procedural, so the absence of the decision does not legally prevent the option from being exercised; nevertheless, several practical difficulties remain.
Among the points the decision should clarify, we highlight:
for trusts established before the 2024 reform, how the option is to be exercised and whether the taxable base is the value of the assets at the time of the original contribution (the view considered correct) or their value at the date the option is exercised;
how the option is to be exercised when no tax is actually payable because the taxable base is entirely absorbed by the allowances;
whether the upfront taxation option can be combined with the preferential regime under Article 24-bis.
