What is more beautiful than a second home under the southern sun and enjoy lazing around? That is the dream of many people. But if you want this dream to come true, you must make sure that you are well-informed. Or else some dark fiscal clouds might spoil your fun. We would like to provide you with a few tips about the procedure of purchasing a second home abroad and about the pitfalls you should be aware of. In this article the focus lies on Italy. The rules below apply for whoever purchases a second home in Italy for private purposes. If you want to take up permanent residence in Italy, other rules may apply. Neither do we elaborate on commercially exploiting real estate in Italy through a company.
Purchase of the holiday home
When purchasing real estate, just like in Belgium, a registration fee or VAT is due.
Only the sale of a new building by a real estate developer is subject to VAT (imposta sul valore or IVA). According to the Italian tax law, a building is considered new until five years after the end of the construction works. (Note that this is different from the Belgian tax law: a building is considered new here until December 31th of the second year following the year of the first use). Also the sale of a renovated building (again by a real estate developer) can be subject to IVA. The following VAT rates may apply:
- 4%: purchase of a first principal residence (thus not applicable in case of a holiday home);
- 10%: modest houses (compare with our ‘klein beschrijf’ or reduction in registration fee) and some renovated houses;
- 22%: luxury houses.
In case the sale is subject to VAT, the registration fee amounts to the fixed amount of 200 euros. The mortgage fee and cadastral duty each amount to 200 euros. In all other cases registration fees are due (imposta di registro). In view of the recent amendment of the indirect taxes law, the fee amounts to 9% since January 1st 2014. On top of that there are the imposte ipotecarie (mortgage fee due for listing in the public registries) and the imposta catatstale (cadastral duty), each for a fixed amount of 50 euros (so 100 euros in total).
This might lead to the conclusion that purchasing Italian real estate fiscally costs you approximately the same as the purchase of Belgian real estate (10% registration fee in Flanders). However, there is good news: in Italy the (lower) cadastral value is used as taxable basis and not the market value. This favourable rule applies for the sale between a private purchaser and a private seller (might be an entrepreneur as long as the sale is not subject to IVA) of a building destined for occupancy, if the real price was mentioned in the notarial deed. It is advisable to explicitly mention in the notarial deed the application of the cadastral value as taxable basis.
Owning a holiday home in Italy
Since 2012 no more personal income taxes (imposta sul reditto delle persone fisiche) are due on owning an Italian home, that is not being leased. These goods are subject, however, to a local real estate tax, the imposta municipale unica. The basic rate for second homes amounts to 0.76% but the municipalities can grant discounts. The taxable basis is fixed on 160 times the cadastral rental value.
You purchased a holiday home of which the cadastral rental value has been determined by the Italian tax authorities on 2000 euros. The municipality where the house is located grants no discount. On an annual basis you pay: 0.76 % x 2000 x 160 = 2432 euros.
Letting a holiday home in Italy
If you let the holiday home, you earn a rental income which is of course subject to taxes. The taxable basis for rented real estate equals (1) the cadastral value, which has been determined by the tax authorities on the basis of an analysis of similar properties OR (2) 95 % of the actually received rental income (the other 5 % is a fixed sum for maintenance of the house). The highest amount of (1) or (2) is used as starting point. The real estate income is added by other possible Italian incomes and is subject to the progressive income tax rate. That costs you between 23 % (income under 15.000 euros) and 43 % (income above 75.000 euros).
In addition there may be regional and local taxes. Moreover when signing a rental agreement indirect taxes are due: registration fee or VAT. If you let the property in private, that is in principle the registration fee (imposta di registro) which amounts to 2 % of the annual rent (with a minimum of 67.00 euros).
Selling the holiday home
If you sell the house within five years after the purchase and make a capital gain, then you will have to pay taxes in Italy. The capital gain is considered as an income (reditti diversi).
Under Belgian law all goods of residents are subject to the Belgian inheritance tax, wherever these goods are located. It might also happen that Italy deems itself authorized to apply inheritance tax because the immovable property is located in Italy. Belgium and Italy have no mutual agreement to solve this problem.
However, there is no need to panic: the internal Belgian tax law has a solution. The actually paid inheritance tax in Italy for the immovable property that is located in Italy can be deducted from the inheritance tax due in Belgium. Moreover very wide exemptions are provided in the Italian inheritance tax. Of course you should take into account not only the Italian inheritance tax but also the Flemish, Walloon or Brussels inheritance tax…
Keep the other local regulations also in mind, among others which building permissions do you need, which other formalities must be completed,…
You must keep in mind a lot of additional taxes and legal formalities if you wish to purchase a second home abroad. The text above gives you a general explanation which might help you to fulfil your Italian dream. Before making specific investments, we advise you to discuss your intentions in detail with experts at home and abroad. This way you make sure that your southern adventure does not end with a cold shower.
Source: Kluwer, a Wolter Kluwer Business