Tax liabilities if you live or own property in Italy
Your tax liabilities in Italy will depend on whether you are considered resident or not. If you remain resident in the UK you will only be liable for tax on your Italian source income. If you become resident in Italy then you will be subject to tax on your worldwide income.
You will be considered resident in Italy if you:
- spend more than 183 days cumulatively a year in the country, and
- satisfy any of the following conditions:
(a) your habitual abode is in Italy, or
(b) your centre of vital interests (social, professional and economic base) is in Italy, or
(c) you are registered in the Population Registry as living in Italy
Income Tax
Personal income tax (Imposta sul Reddito delle Persone Fisiche – IRPEF) is levied on:
- Income from employment and self-employment
- Business income
- Income from real estate
- Investment income (dividends and interest)
- Capital gains
- Miscellaneous income
The tax year is the calendar year, with income tax returns for the previous year due by 30th June (paper returns) or 31st July (electronic returns).
Advance tax payments must be made each year, equal to 99% of the preceding year’s liability. 40% must be paid by 16th June and the remainder by 30th November.
The tax rates for 2008 are:
|
Income |
Tax rate |
| Up to €15,000 |
23% |
| €15,001 - 28,000 |
27% |
| €28,001 - 55,000 |
38% |
| €55,001 – 75,000 |
41% |
| Over €75,000 |
43% |
Additional regional and municipal taxes apply on taxable income as calculated for income tax purposes.
Various deductions are available, including social security contributions, alimony payments, 41% of renovation expenses for the main home up to €48,000, and a main residence deduction.
Your liability may also be reduced by an amount equal to 19% of certain expenses, including interest up to €3,615 per year for the property paid to EU lenders on mortgages for purchase of a residential home; specialist and general medical fees exceeding €129; funeral expenses up to €1,549 and life and health insurance premiums up to a maximum of €1,291.
Rental Income
Any rental income from Italian property is liable for tax regardless of your residency position. 85% of the income is taxed at the progressive scale tax rates (a flat 15% deduction is allowed in lieu of actual expenses). There is also tax on deemed income based on the cadastral (registered) value – except for the main home.
It is mandatory to register any rental contracts with the authorities. The registration charge is currently €167.
Interest
Italian-source interest (for both residents and non-residents) is subject to a final withholding tax, at either 12.5% (if the redemption period is for 18 months or more) or 27% (if the redemption period is less than 18 months). If you are a UK resident, the UK/Italy Double Tax Treaty provides for a maximum withholding tax of 10%. Tax paid in Italy on Italian-source interest can be offset against any UK liability arising on the same income in order to avoid double taxation.
If you are resident in Italy, foreign-source interest (eg, from a UK or Isle of Man bank) is also liable to local tax. It may be taxed at the above withholding tax rates or else added to other kinds of income and taxed at the progressive rates.
Capital gains on real estate
If you sell your property after five years of ownership the gain is free from tax. If you sell within five years you can choose to have it taxed as ordinary income at the scale rates or at a fixed rate of 20%. If the property is your main habitual home (prima casa) and you reinvest the proceeds in another main home within one year, you do not have to pay any tax even if you owned it less than five years. This obviously does not apply to non-residents.
Inheritance and gift tax
This tax has been reinstated after being abolished. It applies to residents on their worldwide assets and to non-residents on their Italian assets. The taxable basis is related to the value of the assets and the relationship with the donor.
| |
Tax free allowance
(each beneficiary) |
Tax rate |
|
Children & spouses |
€1,000,000 |
4% |
|
Siblings and relatives up to the 4th degree |
€100,000 |
6% |
|
More distant relatives and non-relatives,
including unmarried partners |
n/a
|
8%
|
These allowances are lifetime amounts, and a running total must be kept if an individual receives more than one gift, or a gift plus an inheritance from one donor.
When real estate is transferred, cadastral tax (1%) and mortgage tax (2%) will also be due. If the property is the beneficiary’s primary residence these two taxes are fixed at €168.
There is a UK/Italian Double Tax Treaty which applies specifically to taxes arising on death only. Where tax is imposed in both countries on the same assets on the same event, double tax relief will be applied. Unlike the UK, transfers between spouses are not exempt in Italy, so there may be tax in Italy on the first death but not in the UK. This tax is payable and cannot be offset against any future tax liability in the UK on the second death.
Italy applies a forced heirship law, but if the deceased is not an Italian citizen it does not apply.
Wealth tax
There is no wealth tax in Italy.
Municipality Tax on Real Estate (ICI)
The ICI (imposta comunale sugli immobili) is imposed on the ownership of real estate. Rates range from 0.4% to 0.7% of the “cadastral value” of the real estate. This valuation is usually lower than market value.
Local Taxes
There are sometimes small separate local taxes such as for the collection of refuse TARSU (tassa per lo smaltimento dei rifuiti solidi urbani). The rate applicable depends on the size of the property and the number of individuals living in the property.
See also:
The author, David Franks of Blevins Franks, is a specialist in the expatriate financial sector.
First published in Homes Overseas Magazine August 2008.
Some information contained within this article may have changed since it was first published. Homes Overseas strongly advises you to seek current legal and financial advise from a qualified professional.
