Trying to understand the Italian tax system can be rather daunting, so we have written this simple guide, to outline the basics.
Explaining the VALORE CATASTALE and RENDITA CATASTALE
Both of these are tax values that are given to property and land. They are very closely linked and are used to calculate the taxes, both when you buy a property and also when you pay the annual council tax. The ‘Rendita Catastale’ is a figure given to property, calculated using various factors, such as the size of the property, the materials used, the year it was built, etc. If you buy a property and then carry out a renovation project, the rendita catastale will change once the project has been completed. From this figure, it is possible to find out the ‘Valore Catastale’, which is used to calculate purchase taxes. Usually the valore catastale of a property is around 50% – 75% of the market value of the property, or even less.
N.B. The rendita catastale is fixed for each property, but the equation to find the valore catastale changes slightly depending on whether the property will be bought as a primary residence or second home.
BUYING A PROPERTY AS YOUR MAIN RESIDENCE
(when the seller is a private individual)
If you are buying a property in Italy with the intention of applying for residency within 18 months of purchase, you are entitled to a tax incentive, paying 2%, instead of the usual 9%, of the valore catastale (unless the property is classified as a luxury property and in this case the tax is 9%) This tax is called the ‘Imposta di Registro’, or registration tax. In addition, there are 2 small taxes of 50 euros each to pay – imposte ipotecarie and catastali – which are a mortgage tax and stamp duty.
BUYING A PROPERTY AS A SECOND HOME OR HOLIDAY HOME
(when the seller is a private individual)
If you are buying a property, but will not be making it your main residence within 18 months, you will pay the 9% tax rate on the valore catastale. In addition, you will pay the 2 small taxes of 50 euros, for stamp duty and mortgage tax.
NB. If you declare that you will become resident within 18 months of the purchase, but don’t do so, you will be liable to pay the difference in the 2% and 9% tax, plus a fine of 20% of this amount. The tax office has 5 years in which to ask for this money, from the date of the purchase.
BUYING A PROPERTY FROM A DEVELOPER OR CONSTRUCTOR
(when the property has been completed within 5 years of the purchase)
As your main residence – you pay 4% of the purchase price, plus 200 euros registration tax, 200 euros mortgage tax and 200 euros stamp duty.
As a second home – you pay 10% of the purchase price (unless the property is classified as a luxury property, in which case you pay 22% of the purchase price). Plus, you pay 200 euros registration tax, 200 euros mortgage tax and 200 euros stamp duty.
If you buy a property from a developer or constructor, but the property has been completed more than 5 years ago, the taxes are calculated in the same way as for a private individual.
The tax for agricultural land is 12% of the declared value of the land. However, if the land surrounds the property, it is possible to pay the tax on the tax value of the land, in the same way as the house.
TAXES WHEN SELLING A PROPERTY IN ITALY
If you are selling a property in Italy, there are 2 taxes which you may be liable to pay, if you have owned the property for less than 5 years.
If you are selling within 5 years of having purchased a property where you have had residency, you should re-purchase another property in Italy within 1 year of the sale, otherwise you will lose the tax benefits of the original purchase.
If you are selling within 5 years of having purchased a property, and you sell for a higher price than the purchase price, you may have to pay capital gains tax (but, any costs for renovation and improvements to the property can be used to offset the tax, as long as there are invoices for the work). If the property was a second home, then you pay capital gains tax. If you had residency at the house for more than 50% of the time that you owned it, then you don’t have to pay capital gains tax.