Last year’s announcement by the UK Chancellor of the Exchequer may feel remote or inconsequential to British nationals living in Milan, Rome or a village in Tuscany but the Autumn Budget 2025 reaches directly into the finances of many who now live, work and retire in Italy. It confirms a major change in the way the United Kingdom taxes individuals: the old emphasis on domicile is giving way to a system built around residence, source of funds and long-term connection to a country. That change now runs through income tax, capital gains tax and, crucially, inheritance tax.

On the surface, basic and higher income tax rates have not changed. The real movement lies in frozen thresholds to April 2031, scheduled increases in the taxation of dividends, savings and property income from 2026 and 2027, and a new inheritance tax framework that gives greater weight to where you have lived and for how long. For anyone whose life spans the United Kingdom and Italy, those dates are not a mere technical curiosity.  They define how pensions, property and investments will be taxed over the rest of this decade. In what follows, we describe the position separately for British expatriates now tax resident in Italy, UK residents with Italian assets, and Italian residents with continuing interests in the UK.

 

BRITISH EXPATRIATES TAX-RESIDENT IN ITALY: PENSIONS, CASHFLOW AND INHERITANCE

If you are British and now tax resident in Italy, but still entitled to United Kingdom pensions or other UK income, the income tax freeze to April 2031 matters directly. The Personal Allowance remains at £12,570 and the higher-rate income tax threshold at £50,270 throughout that period, while the State Pension and private pensions rise year by year. As the State Pension grows and your own SIPP or other pension withdrawals keep pace with inflation, more of your pension income is pushed into bands whose limits do not move. The State Pension gradually fills the Personal Allowance and more of your private pension is taxed at 20 per cent and, in many cases, at 40 per cent, without any real increase in your standard of living.

For an Italian-resident expatriate this has a second layer. Where the United Kingdom continues to tax your income, either because you still meet the Statutory Residence Test or because the income is treated as arising in the UK, the tax collected there reduces the sterling you actually receive. Italy then taxes the same amounts under its own rules and allows credit for UK tax under the UK–Italy convention on income tax and capital gains tax. The more that is taken in the UK, the less scope there is for Italian relief, and the higher the combined burden becomes on each pound of pension or rental income on which your life in Italy depends.

Alongside this income picture sits a more far-reaching change. From 6 April 2025 the long-standing non-domicile regime falls away and United Kingdom inheritance tax moves to a framework that gives far greater weight to residence and connection over time. Years spent in the UK before departure, and the nature and extent of your continued links with the country, now influence whether your worldwide estate, including assets in Italy, falls within the UK inheritance tax net. A move to Italy, or an historic argument about domicile, can no longer be assumed to keep your pensions, your Italian home and your investments outside that net.

There is a particular hazard for expatriates whose estate lies in both countries. The tax treaty most individuals know and rely on is the UK–Italy Double Taxation Convention, which covers income tax and capital gains tax. It does not extend to inheritance tax. There is no modern, comprehensive treaty between the United Kingdom and Italy whose clear purpose is to eliminate double taxation on death. From 6 April 2027, unused UK pension funds and most pension death benefits are brought within the inheritance tax estate, while Italy continues to levy succession duty according to its own rules on worldwide assets or assets situated in Italy, depending on your connection to the country. Without careful planning, the same pension pot or family home can be assessed under two different inheritance regimes, with only limited scope to claim relief.

DateMeasure which comes into effectDeadlines: planning steps that should be completed by that date
6 April 2025Start of residence-based rules for income and inheritance tax; withdrawal of non-dom regimeComplete a full UK–Italy residence and domicile review; identify treaty residence; align wills and succession plan in both systems; review trusts and companies holding UK or Italian assets
26 November 2025Tightening of “property-rich” capital gains rules for certain structures, including protected cell companiesReview and, where appropriate, simplify or restructure offshore vehicles that hold UK property; decide whether any disposals or rebasing should occur under the old rules
6 April 2026Higher United Kingdom dividend tax rates and removal of favourable treatment for some non-resident dividend casesRebalance portfolios between UK and non-UK shares; test the combined UK and Italian tax cost of dividend income; adjust investment strategy to manage double taxation
6 April 2027New, higher rates for UK property and savings income; unused pension funds and most pension death benefits brought into the inheritance tax estateReassess the viability of UK buy-to-let property; revise pension drawdown and death-benefit nominations; decide how much pension capital should remain inside the estate at death
1 April 2028High Value Council Tax Surcharge on English residential property valued at £2 million or moreDecide whether to retain, sell or restructure high-value English homes; factor the new annual surcharge into long-term holding and succession plans
6 April 2029National Insurance saving on pension salary sacrifice capped at £2,000 per employee per yearFor those still UK-employed, redesign salary and pension funding arrangements so that contributions remain efficient under the new cap
April 2031End of current income tax threshold freezeUse the intervening years to stage withdrawals, disposals and lifetime gifts; manage income and gains so that frozen bands are used deliberately rather than by default

UK RESIDENT INDIVIDUALS WITH ITALIAN PROPERTY AND INVESTMENTS

If you live in the United Kingdom but own a home, a rental property or investments in Italy, you sit within the UK system on your worldwide income and gains, while Italy may still tax Italian-situated assets. In that context, the way in which the United Kingdom now treats structures that hold property is important. Changes to the non-resident capital gains tax regime are being introduced to deal with arrangements that interpose offshore companies or protected cell companies between the individual investor and UK property. The aim is to look through the layers and test each cell or vehicle on its own for whether it is essentially a property-holding structure, so that gains on disposal fall within United Kingdom capital gains tax even if the company itself is located elsewhere. Some of the detail of the legislation is still being refined, but the direction is clear.

This has direct consequences for UK residents with Italian assets. If you hold Italian property, or interests in funds which in turn hold UK or Italian property, through structures outside both the United Kingdom and Italy, both tax authorities will want to know which gains arise, where, and in whose hands. The United Kingdom now has rules designed to prevent the use of complex structures whose main purpose is to reduce or defer UK tax, and these rules are accompanied by closer enquiry and better information sharing. Italy applies its own rules to look through entities in low-tax jurisdictions. The result is an increased chance that both countries will claim the right to tax the same gain, with relief depending on detailed treaty provisions and the accuracy of your reporting. At the same time, the administrative effort needed to keep complete records of base costs, intra-group transfers and movements of value, often over many years, has grown significantly.

ITALIAN RESIDENT INDIVIDUALS WITH UK PROPERTY AND INVESTMENTS

If you are tax resident in Italy but still own property or investments in the United Kingdom, your central concern is the return that remains after both systems have taken their share. The freeze in United Kingdom income tax thresholds until April 2031, together with specific increases from 2026 and 2027 in the tax on dividends, savings and property income, raises the UK charge on rent and on certain investment income. A buy-to-let property in England that once paid tax at 20 per cent on its net rental profit will face a higher property income rate from April 2027. The sterling you have left to remit to Italy will fall, even though Italian income tax and, where relevant, the wealth tax on foreign property remain payable.

There is, in addition, a new annual charge on certain high-value English properties. From 1 April 2028 a High Value Council Tax Surcharge is introduced for residential properties in England valued at £2 million or more by reference to 2026 figures. The surcharge is a fixed amount each year, rising in bands with property value, and sits on top of ordinary council tax. For an Italian-resident owner of a London house or flat above the £2 million threshold, this becomes another recurrent cost alongside United Kingdom income tax on any rent, Italian income tax and Italian wealth tax. It therefore needs to be taken into account when deciding whether to retain such a property as a long-term holding or occasional pied-à-terre.

You also face greater exposure when you sell. Italian-resident individuals who dispose of United Kingdom property, or shares in companies that derive most of their value from United Kingdom property, continue to fall within the non-resident capital gains tax regime. As the United Kingdom sharpens its rules for identifying property-rich entities and requires each cell or sub-fund to be tested separately, more disposals fall into tax than before. At the same time, Italy taxes gains under its own law on worldwide income. Relief under the UK–Italy convention depends on correct classification, timely claims and consistent figures on both sides. An assumption that a company or fund is “offshore” and therefore outside United Kingdom capital gains tax is now much less likely to hold.

There is a further inheritance question for Italian residents who have spent many years in the United Kingdom or still use trusts or family companies which hold UK assets. The move to a residence-based approach for inheritance tax from 6 April 2025 means that earlier links with the United Kingdom may still bring your estate into its scope, particularly where you have pensions or property there. The nil-rate band and the additional residence nil-rate band are frozen until at least 2031, and from 6 April 2027 unused pension funds and most pension death benefits form part of the taxable estate. If you have a long record of United Kingdom residence, or long-standing structures formed there, you should not assume that Italian residence alone has cut the inheritance link. A legal review of your residence and domicile history, your trust and company arrangements and your wills in both countries is now necessary.

SECURING PEACE OF MIND

The changes in the Autumn Budget 2025 are not routine. Taken together, the long freeze in income tax thresholds, the move from an old domicile focus to a residence-based inheritance tax regime from 6 April 2025, the inclusion of undrawn pension funds in the taxable estate from 6 April 2027, the tightening of rules for structures that hold property and the new council tax surcharge for high-value English homes alter the way in which your income and estate will be viewed on both sides of the Channel for years to come. They require a response that is both specialised and coordinated. The sensible course is a cross-border review that looks at your residence position, pensions, property, investments and succession plan in the United Kingdom and Italy as one connected picture.

We invite you to contact us so that we can address your legal status, inheritance exposure and estate planning and models your income flows, pension strategy and investment structure in both the UK and Italy. A coordinated review now is the most reliable way to restore clarity and to protect your family’s position in both jurisdictions.

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This article was originally published on italyadviser.com.

February 1 2026
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