Buying and Financing Property in Italy
Italy is undoubtedly one of the most beautiful and attractive locations in which an Australian, or any other nationality, could hope to holiday or purchase a property. Ask people why they move to Italy and the most common response is simply “lifestyle”.
Previously, one of the main constraints on purchasing property in Italy has been access to finance, with many Australian and other expatriates needing to purchase properties on a pure cash basis. Apart from the cash flow impact, this will often be tax inefficient for people renting out their properties for a large part of the year – from both an Italian and Australian perspective. Australian tax rules now allow you to treat offshore properties in much the same fashion as Australian domestic investment properties - with the same qualifying requirements.
With access now available to Euro loans in many situations, potential purchasers now have much greater flexibility; although the ability to borrow will vary depending on where you are buying and the type of property you are considering. For example, buying un-renovated projects in the country will often fail to attract any interest from lenders, whilst completed homes and apartments can be purchased with borrowings of 70-80% of the property value.
The borrowing process itself can be lengthy and complex so remember to allow yourself plenty of time to view properties and locations, organize a pre-approval from a lender and obtain advice before you buy.
Italy's property market is quite diverse across it's varied geography, so that a strong or increasing local market can exist right alongside another depressed or unchanged market. There is always interest from international buyers for Lake Como, and the Amalfi coast, however interest has spread to the islands of Sardegna and Sicily in the south and the neighboring lakes around Como in Italy's north. Traditional hotspots in Tuscany and Umbria are now showing remarkable value (especially northern Tuscany) as a result of the prolonged economic challenges, and Abruzzo and Le Marche continue to show increased interest from foreign buyers.
If you would like us to assist in arranging finance, or any other aspect of your purchase in Italy, please complete an Inquiry Form and we will respond promptly and courteously.
A Summary of Tax and Legal Issues
The taxation and legal issues associated with the purchase and ownership of property in Italy are complicated, and below we offer only a summary of the main issues - in the expectation that purchasers will seek appropriate professional advice both in Italy and their country of residence prior to any purchase so that they understand the full implications of purchasing property. In that regard, we can assist in providing access to both tax and legal advice in Italy and Australia/UK.
Owners of Italian property who are non-resident will be liable for taxes payable in Italy; potentially including income taxes, capital gains and inheritance taxes - there is currently no wealth tax in Italy. Where a double tax treaty exists between Italy and your own country of tax residence (e.g. Australia or the UK) then Italy will largely retain the primary right to tax the property, and you will be able to offset any tax payable in your country of residence by the tax paid in Italy. Note that you will be treated by Italian law as a resident of Italy when you spend 183 days or more throughout the year (non consecutive days included) in the country.
As mentioned, non-residents are required to pay tax in Italy on their Italian rental income. Usually an amount of 30% is allowed for repairs and maintenance deductions so that 70% is taxable at a progressive rate of tax depending on how much total Italian taxable income you have. This could change in 2011 as Italian parliament is considering a flat rate of 20% on rental property income. There is an also an ongoing annual local property tax, approximately 0.4% - 0.7% of the official value of the property. Gains from the sale of real property held for more than five years are not taxable in Italy - but may be subjecto capital gains tax in your country of residence (e.g. Australia). Gains from the sale of property held for less than five years are taxed as income. Capital gains are calculated as selling price less acquisition costs and related expenses. Generally speaking property inheritances by spouses and direct descendants or ascendants of the owners of Italian property are subject to inheritance tax at a rate of 4% on the amount exceeding €1,000,000 per beneficiary.
Italian residents may be liable for taxes on income, capital gains and inheritance. As mentioned, the taxation system is extremely complex, and it is essential to get professional advice. Anyone thinking of buying a property in Italy should examine their tax status carefully. By doing so, you will be better prepared and almost certainly save themselves money over time.
There are two main legal issues to consider, purchase/transfer and inheritance. When entering into a purchase you may think you recognise terms from your previous house-buying process. However, they may have completely different meanings, or not apply at all in Italy – so it's best to "start afresh". We recommend that you engage your own lawyer or solicitor who is versed in Italian property law. This could be an "avvocato" based in Italy acting on your behalf, or a lawyer from your home country. In Italy the "Notaio" or Notary Public, handles the property transaction and legal requirements, acting essentially, for both the buyer and seller, however you will naturally want to protect your own interests.
Inheritance issues can arise surrounding Italian property depending principally upon whether or not the deceased person was considered a citizen of Italy prior to their death. If the majority of their estate was in Italy then this is one strong indicator, but there are others. If Italy is deemed the nation of the deceased, it's important to note that under Italian law, some members of the family gain the right to receive a fixed portion of the property of the deceased, even contrary to the terms of their will.