TAXES APPLICABLE AT PURCHASE
The taxes you pay when buying a property in Italy can vary depending mainly on your own personal situation, but can also vary depending on the type of property you are buying and, believe it or not, whom you are buying from. Let see what the most common scenarios are and what tax rates you should expect to pay.
Buying from firms
(mainly occurs when buying from a developer in a resort or a turn-key restoration project)If you're buying a new build from a registered building firm (eg. construction firm/developer or a builder) and you are buying as a 1st home owner (which means you must have your residency there) you pay 4% IVA (VAT) of the declared price of the property. If you are buying as a non-resident or second home owner you pay 10% IVA (VAT). If you are buying from any other type of firm you must pay 20% IVA of the declared price.
NOTE: There can be many complex situations here and much is down to the interpretation and judgment of the Notary. Example: The land the property has been developed on is owned by a private individual while the bricks and mortar belong to the developer, some notaries may consider this a private individual to private individual scenario for tax purposes, because the tax you pay on property purchases from a firm are generally much higher than from an individual.
If you are not sure ask YOUR notary and REMEMBER that it is the PURCHASER who chooses the notary (and pays their fees..!), not the vendor.
The vendor is a private individual
(regardless of buying through agents or not)If you are buying from a private individual and are buying as a 1st home (resident in the place you are buying) you pay 3% of the “taxable value” of the property or 10% as a second home.
NOTES: The declared price has no bearing on the tax the purchaser pays in this situation and there is no benefit to the purchaser in underdeclaring the price.
Buying farming land
If you are buying farming land (which is often the case if buying a farm house) you'll pay 18% tax of the declared price.
NOTES: Private individuals can not buy farmhouses from registered farmers UNLESS the farmhouse has been re-registered from the Nuovo Catasto Terreno (Land regsiter) to the Nuovo Catasto Urbano (Building register). In doing so the Tax Office will assign a "taxable value" to the house which, when buying, will be the "base value" the tax (3% or 10%) is calculated on. A farmhouse (or even a villa) can also have a certain amount of garden (corte di pertinenza), but when the area is above a certain amount (determined arbitrarily), usually about 2000-2500 sqm, the extra land is deemed as farming land and tax will be applied at a rate of 18%. So as an example, when buying a farmhouse with 2 hectares of land "as a whole" the farmhouse and garden will have their own "taxable value" while the tax on the farming land will have to be applied to the declared price of the land, which when buying as a whole will become a "market value" attributed to it for the purposes of paying tax. Often you can end up paying much more tax on the farming land than on the actual house itself. Don't fall in to temptation to attribute an extremely low value to the land as there are VAM's (Valore Agricolo Medio) Average Agricultural Values attributed by the local Chamber of Commerce and the Tax Office could decide to chase you up on ridiculous values. A reputable Notary should point this out.
Other
There are also fixed taxes that you pay that add up usually to about €1,000.00 which cover contract registration costs, stamp duties, etc.
Then you also have your Notary fees and Agent’s commissions which incur 20% IVA (VAT).
IMPORTANT NOTES:
-1st home buyers (the correct definition is: home of primary residence) must move their residency to the property that they are buying with the 3% (or 4% IVA if new build) tax break within 18months, keep the house for a min of 5 years (or re-buy a 1st home within 1 year of selling if the 5 years are not up) and not have another property within the same council district, failure to do so WILL lead the tax office to chase you up for the additional tax avoided, interest and fines.
-“Taxable value” of a house (valore catastale) is a value set by the tax office for each individual property. As a broad rule of thumb it can be any where between 30-70% of the market value, but there are cases where it is even lower or higher. Generally speaking older properties will most often than not have very low taxable values, say up to 50% of the market value. However, some properties like old farm houses have no taxable value and this will have to be assigned to it by the tax office before you purchase.
ON GOING TAXES
Mainly ICI, which is a council tax. Again this is based on the “taxable value” of the house and the rate is set by the council each year. However, the government has set a min and max rate between 4/1000 and 7/1000 of the taxable value. Needless to say, most councils tend to opt for the higher end of the scale though many will set a lower tax rate for 1st home buyer.
You also have income tax on your property, but this is very low and often the costs of getting an accountant to submit your ICI and tax return is higher that the tax itself.
NOTES: Obviously then there are your utilities that need paying, the council looks after your rubbish collection and provide mains water (if accessible). Water is metered, while rubbish is calculated on residency status, number of people registered as living in the property and size.
TAXES WHEN SELLING
PLUSVALENZA
“Plusvalenza”, a form of capital gains tax, that only applies if you sell before 5 years of purchasing the property. Currently (note the word "currently) it is at 20% of the gains you’ve made and was just recently increased from 12.5%. It is planned to increase further to 22.5% in 2009, but at each financial budget there’s a lot of propaganda about this tax. I wouldn’t be surprised if it came back down again, but that’s just my opinion and nothing to act on...
NOTE: The only case where the “Plusvalenza” is not applicable is if your house has been your primary residence for more than 50% of the time you have owned it.
1st HOME TAX BREAK
See the first section under "IMPORTANT NOTES" under "TAXES APPLICABLE AT PURCHASE". If you have purchased your house using the 1st home tax break and haven't adhered to the conditions required you WILL (undoubtly) have to return the tax break you where give. (i.e. 7%)