Investing in real estate : in Italy is convenient
The purpose of this article is to make people aware of two special features of the Italian legislation regarding the tax treatment of investment property.
These are two very important characteristics of the Italian legislation for foreign investors who make more interesting and advantageous from the point of view of taxation, an investment in Italy, rather than in another country of the European Union such as, for example, France.
These two features relate to the inheritance tax and capital gains tax.
It will be taken taken as the basis of comparison, between the others countries, France, because it is another European country very much appreciated, such as Italy, for its natural beauty, the climate ( think of the French Riviera ) but with a much more punitive tax legislation for investors, with regard to the real estate.
In concrete terms, in Italy by years 2007 until to heritage value of € 1,000,000.00, children at the death of a parent does not pay any inheritance tax. This exemption covers each child. What does this mean?
It means that, if a parent leaves their assets, the value of which for the Italian state is, for example, € 3,000,000.00 to three children, each of them therefore inherits a part worth € 1,000,000.00 and therefore none of the children pay the inheritance tax.
Given that the value of assets for the Italian state is equal to the “cadastral value”, which applies to sales, and that this value is significantly lower than the market value, it follows that the inheritance tax, between parents and children, is applied only to very substantial assets.
For cases that the value of assets is in excess of € 1,000,000.00, the son will pay on the excess than € 1,000,000.00 only a 4% rate. This exemption also applies not only to children, but applies to all heirs in “straight line” and, therefore, even among great-grandfather, grandfather, father, son, grandson and great-grandson.
By precisely the comparison with France, in this country the exemption between parents and children is much lower and it is at around € 160.000,00, and here I cite the data collected from “Le Figaro” on 16/5/2011, the inheritances between € 902.838, 00 and € 1.805.677, 00 are taxed between 35% and 40% and those above between 40% and 45%.
On the other hand, as mentioned above, in Italy the heirs in a straight line ( children, grandchildren, great-grandchildren ) do not pay anything up to a value of the inherited property of € 1.000.000,00 and above this value will only pay a 4% rate.
This difference, therefore, between the two countries, Italy and France, is very important, because a parent buying in Italy a property of the value, for example of € 800.000,00 , knows that at his death his son will not have to pay any fee succession to the Italian country, which does not happen in France, as we have seen above.
Another important feature of Italian fiscal law, with respect to real estate, is constituted by the absence of a tax on the capital gain.
Always make the comparison with France, who buy a house in France, if he later sells it, he is obliged to pay the tax on the ” plus value “, ie on increase in the value of’ property that occurred between time of purchase and the time of sale.
The tax in question, especially if the sale takes place after many years and the price of property is greatly increased, it can also be very high.
Let’s take a concrete example : a person buys today in France in 2012 a real estate at the price of € 300.000,00 ; suppose then that the one who did the buy, sell that property in 2019 at a price of € 600.000,00, ; then he will pay the capital gain tax on the sum of € 300.000,00, ie the gain realized between the purchase price and the proceeds of the sale.
If this person does not want to pay the tax on increase in value, he should be waiting 30 years before selling his property, because this is the time limit established by law in France in which you must pay the tax on the ” plus value ” , ie the tax the capital gain.
Nothing like this happens in Italy, because the capital gain tax doesn’ t exist in our country.
This huge difference in tax treatment between Italy and France makes it look much more advantageous performance an investment property in Italy, because the person making the investment knows that one day his children will not have to pay inheritance tax if within the limits aforesaid, and knows, also, that in the case he wanted later sell the property purchased he should not pay any tax on increase in value.
Regarding instead the fees to be paid at the time of purchase of a real estate, the tax treatment in this case is substantially the same in Italy and France. One who buys property in Italy in fact pay a registration tax of 7% on the value of property, but for tax purposes this value is not calculated on the sale price of property but it is calculated on the cadastral value that is significantly lower than the sale price.
On the other hand in France thr registration tax is between 7% and l’ 8%, a value similar to the Italian one.
For the sake of completeness, I will conclude this presentation by informing about the legal fees that a person who wants to buy a real estate in Italy has to pay.
The legal fee of the notary in Italy, ie the public official who compile the act of sale, has recently been amended by Decree of the Ministry of Justice of 20.07.2012.
This fee is calculated as follows : for properties worth between € 25,000.00 and € 1,000,000.00 : 1.1% on the value of property. This percentage is referred to the average value for this band corresponding to € 500.000,00 and then with a decrease up to 0.410% for the minimum value of the band (€ 25,000.00) and an increase up to 4.820% for the maximum value of the band (€ 1.000.000,00).
For properties with a value between € 1,000,001.00 and € 3,500,000.00 : 0.21% on the value of ‘property. This percentage is referred to the average value for this band corresponding to € 2,300,000.00 and then with a decrease up to 0.160% for the minimum value of the band (€ 1,000,001.00 ) and an increase up to 0,410% for the maximum value of the range ( € 3,500,000.00 ).
For properties with a value between € 3,500,000.00 and € 5,000,000.00 : 0.14% on the value of ‘property. This percentage is referred to the average value for this band corresponding to € 4,250,000.00 and then with a decrease up to 0.120% for the minimum value of the band ( € 3,500,000.00 ) and an increase up to 0161% for the maximum value of the range (€ 5,000,000.00).
Finally, the above-mentioned aspects, no inheritance taxes ( or their containment within the limits above), the absence of taxation on increase in value in the event of sale of property, legal fees enough contained, make it convenient for foreign investors the buying property in Italy, rather than in other European countries, as evidenced by the exemple proposed ( France ).
( Avv. Pier Luigi Cantini )