Tag Archive for: Italian Property Attorney

Buying properties in Italy: avoid pitfalls

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Buying properties in Italy is a major decision. You must proceed with caution, always do your research and seek independent legal advice.

Continued slow economic growth in Italy helps to keep property prices low and therefore is attractive for those looking to invest. Interest rates show no sign of substantially increasing in 2016 either in The UK or in the Eurozone. 2016 is therefore looking to be another year with many Brits purchasing Italian property.

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Buying properties in Italy can go from dream to disaster…

Every year, clients contact us, whose Italian property purchase started out as an impulse decision. However, at some point during the purchase, the dream turned in to a nightmare. All sorts of additional costs appeared. That could easily have been avoided if they had sought legal advice prior to purchase.

At the very least, mistakes made during the purchase process can cause legal headaches, uncertainty and stress – the last thing anybody buying a home wants.

Recently, some clients contacted us to resolve a case where they had purchased a property without a Certificate of Habitability. The new owners didn’t realise that this certification was essential until they tried to get water and electricity supplied to the property. Utility companies refused to hook up the property because the owners didn’t have the relevant paperwork.

The ramifications can be serious. Take for example, a client who didn’t have a survey and now finds his roof collapsing, or the owners of a property that lacks planning permission for some of the outbuildings on their recently acquired land.

Authorities such as the Financial Conduct Authority (FCA) do not regulate property purchases in Italy. You are not protected if things go wrong, even if you use an FCA-registered financial adviser or mortgage broker in the UK to make the deal on your behalf.

Don’t succumb to pressure to sign anything. You may find yourself liable to pay fees or a deposit before you’ve had a chance to think carefully. Make sure you check all the paperwork. That the titles are correct and that you have all the necessary permissions, licences, certificates and planning consents. Furthermore, you must make sure you account for all the tax you’ll be liable to pay, both in the UK and in Italy.

Finally..

Before you sign any kind of paperwork relating to an Italian property purchase, always seek independent legal advice. Ensure your lawyer is fluent in both English, and Italian and that they have a good understanding of Italian property law.

For more comprehensive information about the Italian property purchasing process, you might like to read our guide. If you would like to discuss your situation or, if we can be of assistance, please get in touch.

You may also be interested in Buying A Property in Italy. Insider Tips from Our Clients

Italy’s 2019 Stability Law – Flat-Rate Tax Scheme

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Italy’s 2019 Stability Law – Flat-Rate Tax Scheme

By introducing the flat-rate tax scheme in 2018, the Italian government’s objective was to boost employment. In addition, the government aimed to reduce undeclared taxable income and employment irregularities. In the 2019 stability law, the government broadened the flat-rate tax scheme.

The scheme therefore now extends to individuals operating in, ‘the arts and independent professional activities’ sector. This includes individuals generating income from investment property rentals and second homes.

As well as replacing Irpef, Irap and additional taxes, the scheme establishes a tax rate of 5% for the first 5 years. This subsequently rises to 15% from the sixth year onwards. Neither VAT nor other taxes are payable.

The flat-rate tax scheme also provides an opportunity to regularise previously undeclared activities to the Italian tax authorities.

Foreign property owners may not realize that they need to declare income from rental or investment properties, even if it is seasonal and infrequent. However,  property owners may be subject to heavy penalties in case of an audit by the Italian tax authority.

Flat-rate tax calculations in the 2019 Stability Law

Taxable income in the flat-rate scheme is determined by applying profitability coefficients. These coefficients vary according to business activity. A profitability coefficient of 40% on revenues is applicable to accommodation, lodging, lettings and B&B activities.

To illustrate this:

Mr. Hunt owns a property in Tuscany, which he starts using as a seasonal holiday letting business. Mr. Hunt opts to apply for the flat-rate tax scheme.

Revenues from Mr. Hunt’s first year of lettings are € 40.000.

Based on a 40% profitability coefficient, taxable revenues would therefore amount to €16.000. At a 5% tax rate, Mr. Hunt would be liable for a tax payment of €800.

Had Mr. Hunt opted to use the personal income tax scheme, he would have paid tax of approximately € 4.300.

As you can see from the example above, for the purposes of calculating income tax, expenses are not included – income tax calculation is exclusively on revenues. Only social security contributions (INPS) are deductible from revenues.

The flat-rate tax scheme requires social security cover

It is worth bearing in mind that anyone wishing to take advantage of the flat-rate scheme, must have social security cover. Contributions are a percentage of revenues. However, a reduction of up to 35% of contributions is available and in certain cases an exemption is possible.

Any individual planning to start-up a business activity in Italy qualifies for the flat-tax scheme, provided that the individual has not carried out the same activity in the past three years and that revenues do not exceed €40.000 per annum.

Foreign residents and non-residents, who generate an income from letting their property in Italy, wishing to benefit from the flat-tax scheme, must notify the Italian tax authorities through a Notice of Business Start-Up.

Finally …

If you need help to understand your personal situation, please get in touch with us or seek advice from a qualified accountant registered with the ODCEC, the Italian professional accounting association of certified public accountants, auditors and advisors.