Tax and estate planning matters. Think long term when buying property in Italy
Owning a second home in your home country presents administrative and logistical challenges. However, at least that second home is within linguistic, tax and legal frameworks that are familiar to you. The challenges escalate with a foreign property. Italy is a popular choice for second home ownership. In recent years foreign ownership of Italian property has increased as people take advantage of favourable property prices. If you are considering buying a property in Italy, you should carefully think through Italian estate planning aspects. In particular tax and succession matters.
You should always seek independent tax and estate planning advice, from experts in Italy as well and at home.
There are a number of tax issues to consider in Italy and in your home country. Any of the following may trigger a tax event in either or both your home country and Italy:
– Disposal of property or investments to fund the purchase of an Italian property.
– Transferring money to Italy.
– Associated property purchase tax (local equivalent of closing costs / stamp duty).
– Local service taxes on the running of the property.
– Income tax from letting the property.
– Estate and transfer taxes on the death of an owner.
– Capital Gains Tax on the transfer or sale of the property.
If you are resident outside of Italy, you may be liable to pay income tax on all income, regardless of where this arises. For example, UK residents who generate an income by letting an Italian property will be subject to UK income tax on the rental income. There will also be a liability to pay tax in Italy. There may be some double taxation relief available. However, it is essential that prior to purchasing a second home and commencing any rental activity that you seek advice both at home and in Italy.
Capital Gains Tax
Foreign nationals who own a property in Italy may be subject to Capital Gains Tax at home. If the Italian property is not the owner’s main residence, when the owner sells or transfers the property title, there may be a tax payment on any profit. There will also be a liability in Italy.
Individuals who are domiciled, for example, in the UK are subject to UK Inheritance Tax (“IHT”) on their worldwide assets in the event of their death. UK IHT does not therefore just apply in respect of assets physically located in the UK if an individual is domiciled in the UK. In addition, Italian Estate Tax will apply to the entire net value of the decedent’s estate, including movable and immovable assets in Italy.
Italian estate tax rates depend on the relationship of the beneficiary with the deceased. Spouse and children: 4% of the estate value, with an exemption of EUR 1 million for each beneficiary. Siblings and close relatives (up to fourth degree of kinship): 6%. Each sibling is entitled to an allowance of EUR 100,000. Any other beneficiary: 8%, with no allowances.
There may be some double taxation relief available. Because each case is different, it is crucial to take advice before purchasing a property in Italy.
Estate planning. Make an Italian will
It is essential to take advice on the succession implications of owning a property in Italy at an early stage. Buyers should consult an Italian solicitor and a solicitor in their home country. A specialist estate planning lawyer will have experience of managing all aspects which arise with cross-border assets or estates.
Generally, succession to a property is subject to the law of the country where that property is physically situated. However, a 2015 EU Regulation known as, “Brussels IV”, makes it possible to nominate a jurisdiction to rule your succession. Even if your home country is not part of the EU, Brussels IV is still applicable to non-EU nationals who own assets in Italy.
It is wise to make a separate will in Italian, to ensure that your property passes to your chosen beneficiaries after your death in the most tax efficient way.
Based on Roman law, Italy has, “Forced Heirship” rules. These govern what portion close family members must receive from an Italian estate. Seeking professional advice is therefore essential to understand how these rules apply to your specific circumstances.
Even though having an Italian will is not a legal requirement, it can save costs, time and misunderstandings for those you leave behind. In addition, your local solicitor will wish to confirm that your home country will takes precedence in Italy.
People put off estate planning because they think they do not own enough, they are not old enough, it will be costly or confusing, they will have plenty of time to do it later, they do not know where to begin or who can help them, or they just do not want to think about it.
Estate planning should be an ongoing process, not a one-time event. You should review and update your plan as your family and circumstances change. This would include when you make an international investment.
At De Tullio Law Firm, we have over 55 years of expertise managing cross border succession and estate planning matters. We operate throughout Italy. Our firm is a full member of STEP, the world’s leading association for trust and estate practitioners.
Please contact us if you are buying or already own an Italian property and have any questions about your estate planning.
For more in depth information about Italian succession, you might find our Succession Guide useful.