1) UP-FRONT TAX SAVINGS UPON THE PURCHASE OF A PROPERTY IN ITALY
These tax savings apply to anyone (national or foreigner) who buys a “Prima Casa” in Italy. The tax savings amount is significant and pegged at 7% (i.e., 2% instead of the 9% ordinary tax rate) of the cadastral value of the property, not the transaction price. Although there can be substantial variations on the difference between the cadastral and commercial value of Italian properties, cadastral values usually fall in the 40%-60% range of the commercial values (source: OMI – Osservatorio Mercato Immobiliare, Italian Ministry of Economy and Finance).
Please note that the normal conditions for a property to classify as a “Prima Casa” and thus for the buyer to be advantaged of these up-front tax savings are that: 1) he/she does not already own any other residential property in the same Italian municipality; 2) he/she did not already benefit from “Prima Casa” relief when purchasing another residential property in Italy; and that 3) the property becomes his/her “Main Residence”, which implies that the buyer has to transfer his/her residence to the municipality where the property is situated within 18 months from the date of purchase. For Italian nationals officially residing abroad and registered with AIRE (“Anagrafe dei Cittadini Italiani Residenti all’Estero”), however, although the first two conditions still apply, the third condition does not apply, which means that they are NOT required to move their residency to the property’s municipality to qualify for a “Prima Casa” tax relief.
Finally, the “Prima Casa” tax savings apply to any Italian residential property except for those coded as A/1, A/8, and A/9 on the cadastral registry. Please note that these properties only constitute about 0.2% of the entire Italian residential assets (source: OMI’s Cadastral statistics, 2017).
1b) Upfront tax savings – Example
For a property with a market value of e.g., Euro 1,000,000 and a corresponding cadastral value of Euro 500,000, the law would allow for an up-front tax saving of Euro 35,000 (i.e., 7% of the cadastral value).
2) ADDITIONAL ANNUAL TAX BENEFITS FOR ITALIANS RESIDING ABROAD
Section 9 –bis of Law Decree 47/2014, effective from 2015, has introduced further tax benefits to Italian nationals residing abroad who purchase a “Prima Casa” in Italy. These benefits include a full exemption from the IMU (“Imposta Municipale Propria”) and a 67% tax reduction on the TARI/TASI (“Other municipal properties taxes”). The law states that these further benefits apply to “one property unit only, owned by Italian nationals registered with AIRE, who are retired in their states of residence, providing that such property is not rented or given in use to third parties”.
This means that, beyond the conditions that define a “Prima Casa” stated above, two additional requirements must be met to benefit from further tax relief: 1) the owner must receive a pension from his/her country of residence (this condition leaves out Italians who, having moved abroad after retiring, receive an Italian pension); and 2) the property must not be rented out or given in use to third parties.
Please note that a potential Italian resident living abroad can therefore benefit with two options: a) buying the property as a “Prima Casa”, benefitting from the municipal tax savings (i.e., IMU, TARI/TASI) but without being able to rent; or b) buying the property as a “Prima Casa”, paying the full IMU/TARI/TASI taxes, but with the option of renting it out. Please note, however, rental taxes amount to 21%.
2b) Upfront and annual tax savings – Example (cont’d)
For a property with a market value of e.g., Euro 1,000,000 and a corresponding cadastral value of Euro 500,000, the law would allow for an up-front tax saving of Euro 35,000 (i.e., 7% of the cadastral value) and annual municipal property tax savings of about Euro 5,000 in IMU tax (i.e., full exemption) and Euro 3,500 in TARI-TASI tax (i.e., 67% exemption).
Based on these estimates, the present value of the up-front savings of Euro 35,000 and annual tax savings of Euro 8,500 would amount to about Euro 74,000 (i.e., 7.4% of the original investment) over the first 5 years of ownership of the property, Euro 107,500 (i.e., 10.75%) over the first 10 years, Euro 136,500 (i.e., 13.65%) over the first 15 years, and Euro 161,500 (i.e., 16.15%) over the first 20 years of ownership. Values discounted based on the 3% Italian government long-term bond yields.
We are experts in Italian real estate law and our practice is happy to provide and determine each individual’s qualification for the legislated tax benefits and best assure each client captures the maximum tax benefits under the law.