Regulatory and Tax Updates on Inheritances and Generational Transfers

Planning for business succession requires a tailored approach that considers both family dynamics and the operational needs of the business, which must be future-proofed. Below, we analyse the key aspects of this complex process.

INDICE

1. Business succession planning: the right time and effective strategies
2. Avoiding conflict: separating ownership and governance
3. Tools and strategies for effective succession
4. The 2025 Tax Reform: implications for succession planning
5. Tailored solutions based on the nature of the assets and family objectives
6. Ensuring business continuity through a gradual transition

1. BUSINESS SUCCESSION PLANNING: THE RIGHT TIME AND EFFECTIVE STRATEGIES↑

When should succession planning begin? This topic is often perceived as sensitive within business families. However, addressing it early can prevent conflict and confusion between ownership and governance. The ideal time to begin planning for the next generation’s involvement is while the transition still seems distant. This proactive approach allows for a smoother and more strategic handover.

2. AVOIDING CONFLICT: SEPARATING OWNERSHIP AND GOVERNANCE ↑

Family dynamics can complicate the generational handover of business responsibilities. For this reason, modern company law offers innovative solutions to clearly separate share ownership from business management. These mechanisms can ensure equitable financial rights for heirs while entrusting operational leadership to those with greater managerial aptitude and inclination. Open and transparent communication among family members is essential for identifying the most suitable individuals to take on leadership roles and avoiding future misunderstandings.

3. TOOLS AND STRATEGIES FOR EFFECTIVE SUCCESSION ↑

A well-planned succession involves several steps:

• Transfer of ownership, involving the planned handover of business shares to successors;
• Governance, which may transition at a different time from ownership, with family members gradually assuming managerial roles; and
• Corporate restructuring, which may involve establishing a holding company at the top of the business structure to consolidate assets and shield daily operations from potential family disputes. The use of a trust can also be a strategic choice, especially for managing real estate, non-core assets, or even the holding itself.

Legal instruments for generational transfers

Various legal tools can facilitate an orderly generational transition:

• The family pact, allowing the entrepreneur to appoint a successor in advance, derogating from the general prohibition on succession agreements;
• Donation of shares, transferring only the bare ownership to heirs while the entrepreneur retains control by exercising voting rights in the shareholders’ meeting as the usufructuary;
• Trusts, a versatile instrument enabling highly tailored solutions, often unachievable under standard Italian civil law.

4. 2025 TAX REFORM: IMPLICATIONS FOR SUCCESSION PLANNING ↑

From 1 January 2025, the Tax Reform introduces significant changes to the inheritance and donation tax framework, including:

1. Introduction of self-assessment for inheritance tax: Taxpayers must now independently calculate and pay inheritance tax, similar to direct taxes. The new system requires submission of a telematic declaration within 12 months of the date of death, signed by a single heir, which will also include the tax calculation. Previously, the tax authority provided the amount due based on the submitted declaration. This shift underlines the importance of professional support in managing the new procedures.
2. More flexible payment options: The reform introduces the possibility of paying inheritance taxes in instalments where amounts exceed €1,000. However, mortgage and cadastral taxes related to real estate transfers must still be paid immediately. Additionally, heirs under 26 who are sole beneficiaries may request the release of funds from the deceased’s bank accounts even before filing the inheritance declaration.
3. Changes to donation rules and aggregation of lifetime gifts: The reform confirms that tax authorities can only challenge the existence of indirect donations if they are clearly evidenced through tax proceedings. It also removes the aggregation of lifetime donations for inheritance tax purposes. This results in separate exemptions for gifts and inheritances, allowing heirs to benefit from both allowances.
4. New framework for trusts: Another significant reform concerns indirect taxation of trusts. The settlor may now choose to subject the trust contribution to taxation at the time of transfer into trust, or alternatively, defer taxation until assets are distributed to beneficiaries, based on their actual enrichment. This flexibility enhances estate planning options.

Exit vs Entry Taxation

Legislative Decree 139/2024 introduced important improvements regarding the use of trusts in wealth planning, reinforcing the principle of exit taxation for trusts but also allowing settlors to opt for entry taxation. This enables more agile fiscal management of trust assets, with the option to choose the most suitable taxation moment based on personal circumstances and expected changes in tax rates.

The residence of the settlor at the time of the contribution to the trust is key to determining applicable taxation. If the settlor is resident in Italy, trust contributions are subject to tax regardless of any subsequent foreign transfers. For non-residents, taxation applies only to assets located in Italy, and varies depending on whether one considers the contribution or the eventual distribution to beneficiaries. This dual approach requires a detailed assessment to determine both timing and scope of taxation.

Opting for entry taxation may be advantageous if one anticipates future increases in tax rates or reductions in exemptions. By fixing the tax regime at the time of the trust contribution, the settlor may safeguard against heavier future liabilities. However, this option requires immediate liquidity to cover the taxes due, and may not be optimal if tax rates or estate values are expected to remain stable or decline.

Relief for generational transfers of businesses and shares

The reform confirms and expands tax relief for generational transfers of businesses and company shares. These incentives apply to transfers of stakes in partnerships or limited companies, as well as business enterprises or branches thereof, provided that the beneficiaries commit to continuing operations and maintaining control or ownership for at least five years. The scope of this relief is extended to include transfers of shares or interests in holding companies, and companies established in the EU, EEA, or countries with information exchange agreements—further enhancing fiscal and governance benefits.

5. TAILORED SOLUTIONS BASED ON THE NATURE OF ASSETS AND FAMILY OBJECTIVES ↑

Every family has unique needs that require bespoke solutions. A combined use of trusts for managing real estate and holding companies for operating company shares provides flexibility and helps preserve the integrity of the family’s estate. These tools are essential for striking the right balance between economic rights and administrative powers, taking into account the diverse skills and interests of the heirs.

6. ENSURING BUSINESS CONTINUITY THROUGH A GRADUAL TRANSITION ↑

To ensure that the generational handover does not jeopardise business continuity, a gradual transition is essential. Future heirs may begin as observers on the board of directors, progressively taking on roles with specific responsibilities. Alternatively, it may be beneficial to entrust management temporarily to external professionals tasked with mentoring the future leaders of the business.