Taxes on UK property set to rise significantly after Brexit for Italian residents
Britain’s exit from the European Union will change how the property tax is calculated for UK property owners, and will likely result in annual property tax increases.
The tax, known as the IVIE, is currently applied to all foreign property owned by Italian tax residents. This change does not affect financial assets or investments and should not be confused with the IVAFE tax that applies to such assets, you can see my previous article on this topic.
Right now you will know that you need to report the properties you own to the Italian government. It’s reported in your Quadro RW form and included in your annual tax reporting requirements.
Currently the Italian government taxes this property by applying the IVIE tax rate of 0.76% to the local council valuation of the property. This is the methodology that applies to EU properties.
For example, let’s say you purchased a UK property in 2007 for £500,000.
The local council has valued your property in the past and assigned a rate band to the property, for purposes of applying local Council tax. Let’s say in this example the rate band applied values your property for council tax purposes at £150,000
Your annual IVIE tax in Italy would be 0.76% X £150,000.
Which results in £1,140 tax due (translated to euros of course).
Post-Brexit tax on UK property:
For property that is outside the EU area, owners who are tax resident in Italy are liable to pay the IVIE tax based not upon the council band valuation, but based upon the purchase price of the property (or the current market value of property where evidene of the purchase price paid doesn’t exist).
Since the UK will be an ex-EU country after brexit, the tax base upon which the IVIE tax is calculated will change to the purchase price or market value.
Using the example above, the new potential future IVIE tax calculation after brexit will become:
IVIE tax of 0.76% X £500,000
Which results in £3,800 tax due (translated to euros of course).
That’s an increase in tax, annually of £2,660 in this example.
If you are a new resident to Italy and you adopt the New Tax resident regime this change won’t affect you because the IVIE tax doesn’t apply to such taxpayers. However for the remaining UK property owners tax resident in Italy after brexit, unfortunately there is little you can do to avoid this tax increase when the UK exits the European Union.
Conclusion and options
Your options aside from paying the tax accordingly, will include selling the property, transferring the property into someone else’s name or into another entity, or returning to the UK and/or ceasing Italian tax residency.
For more information and assistance in preparing and planning for changes such as this one explained here, feel free to contact the author.