Italian Tax Issues

We offer expert legal advice for taxation on Italian real estate.

The way in which property in Italy should be acquired will depend on a variety of personal, legal and tax issues in both the UK and Italy. The following guidance highlights some of the main considerations. The appropriate ownership structure will depend on personal circumstances. The most common ways the acquisition can be made include:

• Individual ownership, jointly with spouse or with other individuals;
• Via an Italian Limited or Unlimited company;
• Via a company in another tax-favourable overseas location;
• Via a trust.

Buy your home in Italy via an Italian company

You can buy a property in Italy via an Italian company, and these take a number of forms. There is the SNC (societa’ in nome collettivo) a partnership with unlimited liability; an SAS (societa’ in accomandita semplice) which is a limited partnership with your liability limited to the capital you invested; the SAPA (societa’ in accomandita per azioni) is a partnership exposing the managing partners to unlimited liability; the SPA (societa’ per azioni) is an incorporated limited liability company; while the SRL (societa’ a responsibilita limitata) is a private company with your potential liability limited to your share within it.
Buy your home in Italy via a UK company

Structuring ownership

For most Brits, buying a property personally (or jointly with a partner) would be considered the ‘normal route’. However, for overseas property purchases corporate ownership could be a beneficial alternative for planning to mitigate local property taxes, reclaiming VAT suffered on costs and planning around forced inheritances.

Acquisition Generally no UK taxes arise on the purchaser. In some jurisdictions it is usual practice for a portion of the sum paid to be in the form of cash. This practice is not recommended for a variety of reasons; for future tax purposes it will result in difficulties when attempting to evidence the price paid when calculating any capital gains tax due.

Annual taxes
UK Income Tax arises on rental profits, where the property is let, along the same principles as for UK let property. Adjustments are likely to be needed to any calculations used for local jurisdiction reporting.  Where the property is owned by a company, and is available for personal use, a charge to UK tax on any benefit arising can apply to the owners. An exemption is available for most cases, but will depend on how the purchase is funded.

For property used personally, the potential for an annual pre-owned assets tax charge should be considered where a property is purchased with funds previously received as a gift, where the donor may have use of the property. For furnished holiday lettings, as your overseas Italian property is within the EU, favourable UK rules could apply such as:

10% UK rate of Capital Gains Tax;
possibility of holding over or deferring any capital gain;
rental profits can fund pensions;
capital allowance deductions.

Selling / gifting the property
The disposal of overseas property usually gives rise to a capital gain in the local jurisdiction and in the UK, if the owners are resident in the UK. Double tax relief generally ensures that overseas tax paid is deductible in the UK. Gains realised by certain non-resident companies can be attributed to their UK resident shareholders. Gains can also arise if the company is liquidated. In each case, relief may be available on tax paid in both jurisdictions.

Inheritance issues
Individuals who are UK domiciled are liable to UK Inheritance Tax on their worldwide assets. However, estate taxes are normally charged on immovable property in the foreign country, with the UK giving credit for any foreign tax paid. Forced distribution of assets on death can mean that local and UK inheritance taxes arise, and planning for this by way of structuring from the outset and / or having borrowing in place against the property may be appropriate.
Taxes payable to own a property in Italy

Other overseas taxes and charges include Italian VAT (currently at rates of 4%, 10% and 22%), the local equivalent of stamp duty, and notary, legal and land registry fees.

The taxes to be paid by the purchaser on the acquisition of a residential property can include:

IVA (VAT) – on the acquisition of new properties directly from the developer/builder or, for older buildings, if the seller opts for the VAT regime.
mposta di Registro (Registration tax) – at a fixed rate (€168) if VAT is applied on the transaction. Various charges apply (from 1% to 7%) if VAT is not in point. Generally, if VAT is applied the Registration tax is stated in a fixed amount. If the transaction is VAT exempt the Registration fee is proportional.
Imposta ipotecaria e catastale (Mortgage tax and Cadastral tax) – generally fixed if VAT is applied on the transaction. Various charges (from 1% to 2% each) if VAT is not applied.

Ongoing taxes
IRES (for companies only), IRAP (regional tax for Limited and unlimited companies), IRPEF (for unlimited companies and individuals) (Income taxes) – on income such as rental fees or if the property is not rented on the re-evaluated cadastral value. Currently rates: IRES 27.5%; IRAP 3.9%; IRPEF 23% – 43%.

Imposta municipale (IMU) (Local municipality property tax) – Currently rates (depending on locations) from the 0.76% up to 1.06% on the re-evaluated cadastral value.

Selling / gifting the property
If you sell or gift the property, tax may arise on any capital gain, or the value of the gift, or both. Typical taxes include:

Imposta sostitutiva sulla plusvalenza (Substitutive tax on capital gains) – for individuals selling a building held no longer than five years and who opt for this tax. Currently rate 20%. If the building is owned for more than five years, then the gain is tax exempt.
Imposta sulla plusvalenza (Ordinary taxation on capital gains) – Currently rates: IRES 27.5%; IRAP 3.9%; IRPEF: 23% up to 43%.
Imposta di Registro (Registration tax) – Various charges (from 1% to 7%).
Tassa di successione (Inheritance tax) – on owner’s death (no tax under €1m euro for each child, over a value of €1m currently rate is 4%).
Tassa di donazione (Gift tax) – on lifetime gifts (no tax under €1m for each child. Over a value of €1m currently rate is 4%).

If you require further information or assistance, please complete the on-line enquiry form here or email us at: clientservices@giambronelaw.com.