Inheritance: the tax authorities cannot ‘destroy’ the annuity
Previous calculations of taxable income based on statutory rates are invalid
Key points
The tax authorities demanded inheritance tax of 216,000 euros from a 77-year-old woman who had inherited an annuity of 18,000 euros a year. Upon receiving this astronomical bill – equivalent to 12 years’ worth of the annuity subject to tax – the woman naturally launched a legal battle which, via the tax division of the Court of Cassation, ended up before the Constitutional Court. The Constitutional Court, in judgment 89/2026 filed yesterday (drafted by Luca Antonini), declared the former Article 17 of Legislative Decree 346/1990 to be unlawful, the provision that gave rise to the surtax and which remained in force until the reorganisation of the matter following the implementation of the tax delegation (Legislative Decree 139/2024).
It is a curious case, particularly as it concerns inheritance tax, which is at the centre of recurring debates about how low the rate is compared with many other countries.
But if the tax is so light, how could it have given rise to claims so excessive that they were declared unlawful by the Constitutional Court on the basis of the principle – the crux of the matter, as it offers a more general lesson – that legislation cannot go so far as to ‘fiscally destroy an institution’?
The calculation
The crux of the matter lies in how inheritance tax is calculated in the case of an annuity, which is similar to the method used for usufruct. In a nutshell, the taxable amount is calculated as the ‘present value’ of the future payments generated by the annuity. And this present value is based on a coefficient that is inversely proportional to the interest rate, because if interest rates are high, the expected future nominal value naturally decreases.
In the case of usufruct, however, the coefficient used to determine the value of the annual payment is in turn multiplied by the interest rate , which, when low, drastically reduces the taxable amount. This multiplication does not, however, apply to annuities, the value of which is ‘already known in re ipsa’, as the judges note in their judgement. The consequence is that the taxable amount soars when interest rates are low and the coefficients are high.
