Lump sum tax regime: higher annual flat tax and grandfathering provision

The 2026 Italian Budget Law raises the annual substitute tax under the lump sum regime from €200,000 to €300,000 for the main applicant and from €25,000 to €50,000 for dependent applicants (ie, certain qualifying family members moving to Italy with the main applicant) but crucially applies the increase only to individuals who will move their residence (habitual abode under Article 43 of the Italian Civil Code) to Italy on or after 1 January 2026. Taxpayers who have already moved their habitual abode to Italy by 31 December 2025 are grandfathered and remain subject to the prior lower annual lump-sum tax.

All other requirements to access the Regime remain unchanged.

This change follows the 2024 increase of the annual substitute tax from €100,000 to €200,000, which also applied only to individuals who moved their habitual abode to Italy after the 10th of August 2024. The decision to grandfather again those already resident in Italy at the time of the change in law underscores the Regime’s stability for those already settled in Italy, supporting the message that those already resident will enjoy continuity.

For the future, the lump-sum tax regime remains very attractive for HNWI and UHNWI in many different scenarios. For instance, the benefit of the substitute taxation could significantly reduce taxation on withdrawal of entire pension plans or of significant amounts from such pension plans, carried interests, and exit situations. In addition, the lump sum regime remains ideal for estate planning (including donations) purposes and for the reorganization of trusts and foreign asset structures.

It is worth noting that the legislator did not introduce an explicit prohibition on the cumulative use of the lump‑sum tax regime and the impatriate regime (as initially proposed). In practice, this means that - subject to meeting each regime’s distinct eligibility, timing and election mechanics - new Italian residents may combine the impatriati relief to qualifying Italian source employment/self-employment income and the lump sum regime in relation to foreign source income. The coexistence of the two favorable regimes was recently confirmed by a series of private rulings issued by the HNWIs Office of the Italian Revenue Agency and offers an extremely favorable tax planning option.