Some Surprises to Avoid When Buying Property in Italy.
Over the last couple of years, we have arranged many home loans in Italy. Something that has surprised us, is how many surprises our clients get as they move through the Italian purchase process. So I thought I’d write down a few of these. If you are buying in Italy, make sure you ask about these, so you aren’t surprised yourself.
Firstly, let’s look at the tax regime that you can face when buying in Italy.
To buy property in Italy, you must be register with the tax authorities and have a tax id number (Codice Fiscale); this is similar to having a NI number in the UK.
You have to pay tax in Italy on the mortgage itself, based on the loan amount. This is 2% for a non-resident and 0.25% resident. So consider whether you will be becoming resident immediately or in the near future, in Italy there is an 18-month period into the future for this to happen and it can save you some tax.
Purchase Tax itself differs depending if you are buying from an individual (usually when buying a second-hand property) or if buying from a company (usually when buying a new-build).
When buying from an individual. A Purchase Registration Tax is applicable. Rates differ again depending on if you are resident or non-resident, 9% non-resident, 2% resident, (reduced at the start of 2014 from 10% and 3%). This tax is based on the cadastral value of the property, not the purchase price). This cadastral value is usually quite a bit lower than the actual value / purchase price) and is the 'declared value' of the property with the government.
When buying from Company (new properties). Buyers pay VAT (IVA) rather than purchase registration tax. This tax is levied at 10% (for non-luxury properties) and at 20% (on luxury homes with a rating of A1 in the property register); This IVA is usually included in the purchase price charged by the builder or developer, so there is no additional cost. There's reduced rate of IVA at 4% for residents.
So make sure you know what taxes you may be liable before you buy and consider your residency status.
Secondly, when we look at the legal registration of properties we come across a lot of surprises. Many large properties in Italy are divided and handed down to the next generation as inheritance. Very often this is not done with all the necessary legal formalities. You should be aware, that when you come to buying a property, there might, in reality, be many different sellers involved for the same 'property' and this could lead to legal complications. We have recently completed on a single property using three separate contracts.
This property also had the added surprise, that it had a loft conversion, which had been illegally completed without planning permission. We assisted in organizing the permissions, only to be told that the height of the conversion was too low and it could not be designated as living space. To obtain “legal” status for this conversion, we had to have the loft classified as a “warehouse”. Fortunately our lender in Italy was very understanding and the loan completed successfully.
Finally, for the purchase process, there are two main stages (similar to exchange and completion in England). These two stages are the 'Compromesso' (preliminary contract) and 'Rogito' (deed of sale). The signing of the compromesso agrees on the purchase price, the initial deposit to be paid by the buyer (usually around 10%) and the deadline for the final sale. Both parties will be penalised if they back out after this stage. You should be present for the signing of the rogito, which usually takes place in the Notary office with the seller and bank (if you are taking a mortgage). If you are not able to be present, you will need to appoint a power of attorney to sign in your place. You need to be prepared to travel at least once during the process, if you are taking out mortgage, to meet with your lender and open a bank account.
If you are property hunting and looking for a loan, we are happy to talk you through all the process and help you avoid too many surprises.
Stephen Brown M.D.