Recently I was quoted in the Financial Times about the Italian wealth tax on property, and how this tax is rising for UK property owners living in Italy. For those of you interested, in this article I have the luxury of going into a lot more detail.
This tax affects not only British people but all nationalities – essentially anyone who owns property outside of Italy and lives in Italy.
You may have read other press articles on this topic (aside from the Financial Times), and some suggesting a tax increase for British expats of 10x the amount before, providing a huge shock to those expats.
Yet those articles are a little mischievous since they focus on the worst case scenarios, and a tax calculation method and situations that are very unlikely to apply to you personally (you should always seek professional advice for your own situation).
It’s important to note if this affects you, that;
- Italy has not changed the IVIE (wealth) tax methods or applications at all, and ;
- The wealth tax increase on UK property is a direct result of Britain’s exit from the EU, which changes the classification and valuation of UK property, for Italian tax residents.
It brings UK property into line with the same calculation methods of other non-EU countries like the USA, Australia, Canada or the middle East and Asia (in fact, most of the world).
So what is the Italian wealth tax impact, specifically ?
The IVIE tax in Italy is calculated on non-EU property at the rate of 0,76% of the purchase price (if available) or market value of that property.
Note this method continues to apply to all non-EU property owned by Italian tax residents, and it hasn’t changed.
What are the implications and choices for your life in Italy?
It pays to get the facts and to seek professional advice.
Once you’ve worked out the annual tax change that might affect you if you own UK property, of course the harder decision becomes what to do about it.
To sell or not to sell !
Considering the costs and benefits of whether to sell or keep property is part of good financial planning.
Recently I’ve been helping a couple move to Italy from the UK for work and lifestyle reasons (let’s call them Bill and Mary). They have chosen to sell their UK home, which had grown in value quite considerably over the past 5 years, and they’re buying a great home on lake Como.
Bill and Mary didn’t need to sell their UK property. We considered together all their options, and their desire to start a new lifestyle in Italy that’s not going to be temporary. They took this decision to sell, considering the annual taxes on foreign property described above, as well as considering the UK’s own inheritance taxes applying to UK property, and most importantly, they considered their ability to buy very well in Italy.
If you own UK property since 2010 the chances are the value of your property has risen by around 30% (average price increase), or 40% in London – or possibly more, depending on your property’s location.
Italian property instead has not grown to this extent in any area. Some cities have grown over the last 2-3 years prior to Covid, however property prices in Italy has been flat or lower overall, since 2010.
From a buying perspective, this represents the opportunity to buy in many parts of Italy at 2010 or 2015 prices.
Bill and Mary have taken their London property gains and turned them into a bigger place with a view on beautiful lake Como, with a ‘calmer lifestyle’, and they have a good amount of savings left over for the future as a result of their decision. (They’re also taking advantage of Italy’s tax concessions for new residents saving them from being taxed on 70% of their income for 10 years).
Of course selling and moving are very personal decisions, which vary amongst families who could be faced with different situations.
Redirecting your wealth for retirement
Other clients of ours are not looking to buy Italian property – and they may not need to sell in the UK, in order to buy (or rent) in Italy.
For these clients, the decision can feel more difficult because they are torn between keeping the property in the UK, and deciding what to do with the money if they were to sell instead.
Having a property in the UK does provide a sense of flexibility and security for many of our British clients contemplating this question.
Today many clients are in fact considering the question, for obvious reasons, “what happens if I want to go back to the UK?”.
With regard to using UK property sale proceeds wisely, there are definitely ways to redirect this wealth into tax-effective investment solutions, when you are based in Italy. Competent and qualified investment managers can from all over the world can still be accessed.
These types of solutions will help you plan your retirement cashflow more easily, and from a practical viewpoint, tend to be much less onerous to manage, compared with managing a foreign property.
Ultimately you need to work out whether or not you need to hold UK property in the long term (a decision many non-Italian citizens in Italy have been making for some time, regarding property in other non-EU countries).
This latest brexit-triggered tax rise creates the opportunity to formulate future plans, and that’s something worth discussing.
Please note that selling any UK property may result in UK tax consequences and therefore requires UK specialist tax advice. You should not consider any article you read online as specific, tailored personal advice that you can rely upon (let alone any facebook comments!), and you ought seek professional advice before acting on any tax information.
I provide my clients with financial planning solutions that include taking into account tax implications and the Italian tax environment, aside from degrees in Accountancy and financial planning I worked for 10 years as a CPA within a Tax and accounting professional practice. Today we work closely with Italian commercialiste in creating effective tax solutions and advice for expats, for clients retiring to Italy, and for professionals who move to Italy.
For more information contact me via my contact details below.