A client recently came to me with a situation which, at first, seemed to be a fairly typical UK/Italy private client matter.
He was an Italian national who had lived in the United Kingdom for many years, was registered with AIRE, had a UK home, a UK employment contract, UK payroll, UK pension contributions and a salary taxed through PAYE.
His professional and financial life was, in substance, centred in London.
The reason he contacted me, however, had nothing to do with tax planning in the conventional sense. There had been a serious family emergency in Italy. His elderly mother had become unwell and, initially, he had asked his UK employer whether he could work from Italy for a short period, on the understanding that this would be temporary, exceptional and driven entirely by family circumstances. It was not a relocation, it was not a lifestyle move, and it was certainly not the beginning of a “digital nomad” arrangement.
It was simply a son trying to look after his mother.
As often happens in real life, the facts then moved faster than the tax analysis. What had started as a short period in Italy became several weeks. Several weeks became a pattern of travel between London and Italy. The informal arrangement with the employer became a matter for HR. A power of attorney was signed in Italy so that the son could, if necessary, deal with banks, care arrangements and property matters. The family began considering whether one of the Italian properties should be sold to fund care costs. Then the parent died, the power of attorney ceased to be usable, and what had been a possible estate planning exercise became a live succession matter.
To make the position more complex, the family did not hold assets only in Italy. There was also a small apartment in France, a French bank account and an old investment product held outside the UK. By the time the client asked for advice, the matter was no longer just about counting days in Italy. It had become a full cross-border file involving UK statutory residence, Italian tax residence, remote working from Italy, PAYE, possible foreign tax credit, Italian succession tax, French asset reporting from a UK perspective, property valuations, anti-money laundering evidence, banking traceability and UK Capital Gains Tax on a future disposal of inherited foreign real estate.
This is exactly the type of case where a quick answer based on “183 days” is not enough.
Many internationally mobile individuals still believe that if they spend fewer than 183 days in Italy, they are automatically safe from Italian tax residence. That is a useful instinct, but it is not a complete analysis. For a person living in the UK, the first question is usually whether they remain UK resident under the Statutory Residence Test, which requires a structured review of UK days, automatic residence tests, automatic overseas tests and, where necessary, sufficient ties. The analysis does not stop with the number of days spent outside the UK; it also considers the pattern of life, homes, work, family connections and prior years.
The Italian side is equally important. Since the reform of the Italian tax residence rules, physical presence has become even more prominent, but the analysis still requires a careful review of residence, domicile, personal and family connections, economic interests and the centre of vital interests. In this case, the client’s presence in Italy was not the result of a planned move back to Italy. It was caused by a medical emergency involving an elderly parent. That distinction does not remove the tax risk, but it changes the evidential and technical narrative. A person temporarily present in Italy because of a serious family crisis is not in the same position as someone who has chosen to relocate their life and work to Italy.
One of the most important points in the advice was to separate physical presence in Italy from actual work performed in Italy. This distinction is often overlooked. A day spent in Italy may be relevant for tax residence purposes, but it is not necessarily a day of Italian-source employment income. Conversely, if a UK employee performs employment duties while physically present in Italy, even if the contract is with a UK employer and the salary is paid through UK PAYE, there may be a question as to whether part of the employment income is attributable to duties performed in Italy.
The correct approach was not to rewrite the past artificially or to reclassify days in a way that did not reflect reality. The correct approach was to build a clean and defensible file: travel dates, boarding passes, UK days, Italian days, French days, working days, annual leave, sickness absence, compassionate leave, weekends, public holidays, HR authorisations, medical evidence, payslips, PAYE records and evidence that the ordinary place of employment remained the United Kingdom. In cross-border tax, the contemporaneous evidence is often as important as the technical rule.
The power of attorney created another practical issue. Before the parent’s death, a broad Italian power of attorney had been signed to allow the client to assist with bank accounts, medical costs, property management and, if required, the sale of an apartment to finance long-term care. That is a sensible step in many family situations, particularly where the elderly parent is no longer able to manage matters personally. However, a power of attorney does not continue after death. Once the donor dies, the attorney is no longer acting as attorney; he is acting, subject to Italian succession law, as heir or potential heir.
That distinction matters. Bank accounts should not be moved informally after death. Cash should not be deposited without a clear explanation of source. Property documents should not be signed under a power of attorney which has ceased to be effective. An estate agent may continue preliminary marketing activity, but binding sale documentation should not be entered into until the succession and title position has been regularised. This is the point at which tax, succession law, notarial practice, banking procedure and anti-money laundering all intersect.
The Italian estate in the anonymised case included an apartment in Rome valued at approximately €370,000, a separate garage valued at around €30,000, a car, an Italian current account, a postal savings product and a modest amount of cash held at home. There had also been a lifetime gift of another property several years earlier. That historic gift did not necessarily create an immediate tax liability, but it could not simply be ignored because lifetime transfers often need to be considered when reconstructing the family estate position.
In many parent-to-child Italian succession cases, the actual inheritance tax payable may be low or nil because of the Italian allowance available for transfers to children. However, no inheritance tax does not mean no compliance. Where Italian real estate is involved, the succession return, cadastral position, mortgage and cadastral taxes, property valuations, bank procedures and land registry updates still matter. A succession with no proportional inheritance tax can still require careful professional handling.
The French assets added a further layer of complexity. The family also held a small apartment in Nice, a French bank account and an old life assurance or investment product. That meant the file had to be looked at across three jurisdictions. It was necessary to understand who legally owned the French property, whether it had ever been rented, whether local French taxes were up to date, whether a French notary needed to be involved, and how the UK-resident heir should report future income or gains from those assets. The French bank account was not necessarily a UK tax problem on receipt, but it was certainly a traceability and reporting issue if the funds were later moved to the UK or generated income.
From a UK perspective, one point had to be made very clearly: receiving an inheritance is not, in itself, income. A UK-resident heir does not normally pay UK Income Tax simply because he inherits assets from Italy or France. The UK tax issues usually arise later. If inherited cash produces interest, the interest may be taxable. If inherited investments produce dividends or gains, UK reporting may be required. If an inherited Italian or French property is rented, rental income may be taxable in the UK. If the property is sold, UK Capital Gains Tax may need to be considered.
The future sale of the Italian apartment was one of the most important parts of the advice. The client initially assumed that the UK gain would be calculated by reference to the amount paid by his mother many decades earlier, when the property had originally been purchased. That is not normally the right starting point for a UK-resident heir. Where an individual inherits a property and later sells it while UK resident, the base cost for UK Capital Gains Tax purposes will generally be the market value of the property at the date of death. In practical terms, this means that the historic gain accrued during the parent’s ownership is not usually taxed again on the heir in the UK.
Using simplified numbers, if the Italian apartment had a market value of €370,000 at the date of death and was later sold for €398,000, the starting point would be a gross uplift of €28,000, not the difference between the sale price and the price paid by the parent decades earlier. That is why a professional valuation at the date of death is not administrative housekeeping; it is tax protection. The same principle may also be important for the French property if it is later sold while the heir is UK resident.
The deductibility of costs also required careful handling. Estate agent commission, legal or notarial fees directly connected with the sale and certain professional costs incurred to complete the disposal may be relevant in calculating the UK capital gain. Capital expenditure incurred after the inheritance may also be relevant where it improves, preserves or regularises the property and is still reflected in the asset at the time of sale. In the case I reviewed, there was a cadastral issue with the Italian apartment because the historic plan did not fully match the current layout. A surveyor had to be instructed, and a technical filing was likely to be needed before a sale could complete. Those costs could potentially be more relevant for UK CGT than the client expected, because they formed part of the capital story of the asset.
By contrast, not every practical cost is deductible. Flights to Italy or France are normally personal travel costs, not incidental costs of disposal. Clearing furniture from a flat or cellar may be a practical estate administration cost, but it is not automatically a capital enhancement cost. Routine repairs are generally more difficult to claim than genuine improvements or technical regularisation costs. Costs incurred by the deceased before death are not usually deducted again by the heir, because they should already be reflected in the market value at death. The practical advice was therefore to keep every invoice, but classify the costs later.
The client’s UK salary also mattered. His taxable employment income after pension salary sacrifice was around £100,000, which meant that he was already likely to be within the higher-rate environment for UK tax purposes. As a result, any taxable gain on a foreign residential property would likely fall into the higher UK CGT rate category. The planning point was not to avoid tax artificially; it was to document the correct base cost, identify the correct deductible costs and avoid paying UK tax on a gain that was not properly taxable in the first place.
There was also the question of cash. The Italian estate included bank balances and some physical cash, and the French side included a small bank account. The client wanted to know whether he should open an Italian bank account, deposit the cash and then transfer funds to the UK. The tax answer and the banking answer were not the same. Inherited cash is not automatically taxable income in the UK, but from an anti-money laundering perspective the source of funds must be clear. The correct sequence was to notify the banks of the death, open the succession process, obtain balances at the date of death, document the inheritance entitlement, receive funds through traceable channels and retain the succession filings and bank correspondence. If physical cash is deposited, the source should be documented carefully. The worst outcome is not necessarily a tax charge; it is having legitimate funds that are poorly documented.
The real lesson of this case is that cross-border family tax issues are rarely one-dimensional. The tax residence analysis cannot be separated from the employment pattern. The employment pattern cannot be separated from HR records. The succession cannot be separated from banking procedure. The future sale of the property cannot be separated from valuation evidence. The UK CGT computation cannot be separated from Italian and French documentation.
The order of action matters. First, establish residence. Then document the working pattern. Then separate employment tax from succession tax. Then identify the Italian and French assets. Then regularise the property position. Then obtain values at death. Then sell only when title and succession are clear. Then compute UK tax on the correct basis if the client remains UK resident.
Had the client started by moving funds informally, relying on an expired power of attorney, ignoring the day-count, selling the property without a valuation and treating the French assets as an afterthought, the file would have become much harder to defend. Instead, the correct advice was to slow the process down, gather the evidence and structure the file before taking irreversible steps.
A family emergency should not become a tax problem simply because the right questions were not asked at the right time.
If you are UK resident and have family, property, inheritance, bank accounts or succession issues in Italy, France or elsewhere in Europe, it is important to take advice before moving funds, selling assets or assuming that one country’s tax treatment automatically solves the position in another. The key is to understand where you are resident, where you worked, what you inherited, where the assets are located, what you are selling and which tax system is looking at which part of the story.
That is where proper cross-border tax advice adds real value.
Vectigalis Tax advises internationally mobile individuals, entrepreneurs and families on complex UK, Italian and international tax matters, including tax residence, remote working from Italy or Europe, UK/Italy and UK/Europe double taxation, Italian succession and inheritance issues, French and other European assets from a UK perspective, UK Capital Gains Tax on foreign property, foreign tax credit claims and cross-border estate planning.
For an initial consultation, please contact:
Dr Angelo Chirulli
FCA ADIT TEP CPA (ITA)
Vectigalis Tax
angelo@vectigalistax.co.uk