A taxpayer resident in Italy and sole heir of an Italian-American citizen who died in 2021 and who was resident in the United States, posed a question to the Italian Revenue Agency concerning the taxation of an inherited pension fund settlement.
The deceased had worked for a long time in the US and owned a pension fund managed by a US company, which included two pension plans fed by contributions from the deceased and his employer.
The taxpayer’s question
In 2023, the heir received the settlement of the pension fund, which was not subject to withholding in the US and was declared as ‘pensions, annuities, alimony and/or insurance premiums’ in the US tax model, being tax-free in the US.
The applicant asked whether this amount should be taxed in Italy as:
- capital income within the meaning of Articles 44 and 45 of the Consolidated Income Tax Act (with application of the 26% substitute tax on the increase in value of the fund from inheritance to liquidation); or
- employment income, considering that pensions are treated as employment income pursuant to Article 49 of the TUIR. In the latter case, the petitioner also asked to confirm the application of separate taxation pursuant to Article 7(3) of the TUIR, given that the amounts are received by the heir, and what is the taxable base to be subject to separate taxation.
The Revenue Agency’s reply
The Italian Revenue Agency has examined the case, confirming that the payment received is assimilated to pensions and allowances treated as such, pursuant to Article 49(2) of the Consolidated Income Tax Act, even if paid by foreign entities, recalling the clarifications provided in reply No. 5, published on 11 January 2024.
It is also concluded that this payment is subject to separate taxation, as provided for in Article 7(3) of the Consolidated Income Tax Act, since it is an amount received as an heir. With regard to the taxable base, it is clarified that the entire amount received is subject to separate taxation.
In conclusion, the Italian Revenue Agency confirmed that the pension fund settlement must be taxed as pension income, with the application of the separate taxation regime, excluding the possibility of applying the substitute tax provided for capital income.