You may be thinking about or planning a move to Italy right now, and if so, you’re not alone. Italy has long been a desirable destination for millions around the globe, however these are particularly strange and interesting times, especially for those living in the UK and considering the twin challenges of Covid19 and Brexit.
Covid19 has created a new layer of uncertainty about the future of our lives. It has brought into sharp perspective the attention we place upon our health, and the health of our loved ones. It has raised awareness about how interconnected we all are, and made us more appreciative of our collective impact upon our environment, and perhaps the delicate balance of life around us.
Prior to the pandemic those of us in the UK have been living through the many divisive and chaotic consequences of UK’s stumbling exit from the EU. The subsequent turmoil is leaving a lasting impression for many people.
For example many Europeans who have made the UK their life for decades have been shocked and hurt just knowing that their residency status has been open to question. “For the first time in my life, I’ve started thinking the UK is maybe not my country,” says Dimitri Scarlato, UK resident of 15 years,1 about the psychological and mental toll of Brexit.
In this turbulent context many people have moved, brought forward life plans or made career changes, (or have been forced to consider them) and are still changing their current life plans, including where to live.
Taking a different path after Brexit and Covid19
The pandemic has birthed a trend toward moving away from big cities, and the boom in remote and homeworking activity is a natural motivator for families and individuals to consider relocating.
People are asking ‘Why pay big-city rents for an undersized apartment if you can pursue an equally attractive career from a house in the hills? ‘
Speaking of hills, Europe is hard-pressed to find more iconic or picturesque hills than those of Tuscany!
Ironically, Siena in Tuscany was a thriving urban city over 700 years ago, when the plague hit and the city lost 60% of its inhabitants – including thousands who moved out of the city to the Tuscan countryside, to flee the Black Death.
Here’s 5 reasons why moving from London to Tuscany is attractive today, and especially for British citizens contemplating life after Brexit;
1. Remote working is possible.
As the pandemic crisis has progressed, workers and businesses have adjusted remarkably quickly to the new reality of working from home at least part-time, virtual meetings and remote working, along with adapting to online collaboration in its many forms. Working from a home office is not only possible but often expected and facilitated by employers and customers.
When considering a home office, it’s worth noting Tuscany has excellent infrastructure including fibre-optic broadband in many small towns and not only in the larger cities (as in many other areas in Italy too). Remote working can really work where the following is in place:
- Your employer or customer accepts remote working;
- high speed internet access is available;
- the area has an enviable lifestyle, with reasonable infrastructure, and;
- is within reach of a major centre, to provide greater health infrastructure and more of the conveniences we’ve all become used to in our lives.
2. Freedom of movement.
Italian citizens and residents can move freely throughout 27 EU countries without special visa requirements.
In a recent referendum in Switzerland Swiss voters resoundingly voted to support free movement of people between Switzerland and the EU, as a valuable benefit of close relations with the European Union.
The ability to travel freely between 27 countries for work or leisure provides unique opportunities for anyone. Once British citizens secure permanent residency they can move similarly between EU countries much more easily.
3. The current financial (tax) advantages of moving to Italy today for both working people and retirees.
The Italian government has introduced attractive tax measures to new tax residents in Italy and Italians moving back to Italy, like never before.
There are 3 principal tax concessions that can be summarised here, briefly.
For working new residents. The first applies to anyone who arrives and works in italy today either as an employee or an entrepreneur providing goods or services to others, and who has not been tax-resident in Italy any time within the past 2 years.
These laws provide that at least 70% of gross employment income is completely exempt from income tax for most new tax residents, for 5 years. This means that only 30% of your income is actually taxable. That’s pretty unique.
This tax exemption is increased to 90% if a new resident moves to one of the following southern Italian regions: Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia, Sicily.
If you are a sportsperson the tax exemption is 50% for 5 years, and for Professors and researchers the standard exemption available is 90% and it’s available for 6 years.
Furthermore the tax exemption period can be extended beyond 5 years providing a further 50% tax exemption each year if the new resident has children or buys a home in Italy within 12 months of arrival, with longer extension periods of tax exemption available for professors and researchers.
For pensioners. The second measure attracting new residents is the retirees capped rate of tax on pension and foreign income of 7%, where retirees are entitled to a foreign pension if they move to less populous areas in southern Italy. The chosen municipality must have less than 20,000 residents and be within the regions of either Sicily, Calabria, Sardinia, Campania, Basilicata, Puglia Abruzzo or Molise.
New residents must have been non-Italian tax resident for 5 years prior to moving to Italy, and the tax concession lasts for 9 years.
The exceptional feature of this measure is that the tax rate applies to all foreign source income, not only pensions, with no wealth taxes or requirement to disclose wealth held outside Italy. It is also possible to exclude certain incomes from the program where a new resident is already paying foreign income tax.
For High income and wealthy new residents. The third measure is the New tax resident flat tax regime, designed for higher net wealth taxpayers who can elect to pay a fixed maximum €100,000 per year for 15 years, in exchange for no obligation to report any further income or assets from activities abroad.
Clearly this includes entrepreneurs and wealthy families moving or returning to Italy and who have made their wealth abroad. Italy is inviting foreigners and Italians alike in this category, to move to Italy. There is also a specific Investor Visa scheme available for non-EU citizens moving to Italy. (Read more in detail about these three tax concessions, with examples, here.)
When planning your move to Italy to take advantage of these tax concessions, professional advice is always recommended.
4. Comparing property prices and holding costs.
Whilst London prices have increased on average by 70% over the last 10 years and the average house price today is £477,000 in London, Italy’s house prices today are on average 30% below the values of 2010, and hence there are numerous affordable locations. Notably, there are wide price variances across all property types in Italy and only the biggest city markets are showing price growth in general. (UK home prices source: Propertydata.co.uk)
In Italy, capital gains tax only applies to property sold within 5 years of buying and therefore is a deterrent to short-term trading, however longer-term owners are spared this cost. In the UK capital gains tax laws on non-home property (especially for foreign owners) have been changing, and owners are expected to advise HMRC of a property’s capital gain and pay the tax within 30 days of the property’s sale (from 2020, source:lawsociety.org.uk).
The rate of tax you pay on capital gains from the sale of UK property depends upon your UK income at the time of sale. The higher your UK income when you sell, the higher your tax burden. This presents a planning opportunity to time your sale appropriately if you are changing countries, so you should take advice before selling your UK property.
For those holding UK property it’s very important to remember that UK Inheritance tax applies to any UK property held at date of death of the owners, regardless of residence. (UK inheritance tax rate is 40% of the value of an asset above the exemption threshold of £325,000.)
Italy applies a small annual tax on property and this includes foreign property. Tax is calculated differently depending upon the location of the property – whilst tax on EU based property is calculated on council rate-linked valuations, non-EU properties are taxed based upon purchase price or market valuation of each non-EU property. From 1 January 2021 this includes UK property.
The Italy renovations Super-bonus
This article does not deal with the Italian Super-bonus providing unique tax concessions for property renovations, however this program allows a property owner to access significant tax deductions up to 110% of qualifying renovations costs. These include potentially costs of improving energy efficiency of property, solar panels, seismic activity structure improvements, double-glazing windows, insulation, and heating installations. The renovations tax credit can even be traded to the contractors renovating your property and therefore deducted from your upfront costs (or eliminating total renovations cost).
Italy has a unique fiscal and tax system and any international move like this one should be planned carefully, taking into account specific and experienced local advice.
With good investment and pension planning, your international and local financial assets like pensions and investments can be structured in a tax efficient manner for those who become resident for tax purposes in Italy, and without the need necessarily to use Italian banks or financial intermediaries.
5. For British nationals the clock is ticking
Time is running out when considering how to take advantage of the current process for registering your residence in Italy. So if a move to Tuscany or anywhere in Italy for that matter is on the cards, or has been a dream for a long time, this reality may well affect the timing of your plans. You can rent or buy to establish residency in Italy as a British citizen with few other requirements, before December 31.
On 31 December 2020 the Brexit transition period will end and whatever deal the UK has or has not made with the EU will be implemented in full. Consequently the presently-available residency rights of British citizens in Italy will cease for new arrivals (unless the UK and EU create a favourable alternative arrangement between now and then).
British citizens looking for Italian residence thereafter will need to apply to stay in Italy in the same way a non-EU citizen applies for temporary visas today (read more about what British citizens need to do now to secure residency rights before 31 December 2020, here).
With good advice, an international move such as this one could be the opportunity of a lifetime – and perhaps for many, just at the right time.
The above does not represent financial or taxation advice and is for general purposes only. Tailored information should be sought for your specific situation.
Daniel Shillito is past-president and VP, The British Chamber of Commerce for Italy, and an international investments, pensions and property consultant focused on Italy.
1. The Guardian, “All I hear is anger and frustration ..” article, 4 April 2019.