The increase in Italy’s tourist industry is also directly related to the rise in budget airlines now serving Italy, causing vacation homes and buy-to-let investments to become more advantageous than before. In addition to foreign tourists Italians take great pleasure in traveling around their own country, subsequently creating a strong internal market. More and more tourists are becoming interested not only in the large cities, but also in visiting rural areas. This is good news for those who invest in converting older Italian homes into fabulous modern houses. There are even government grants available for those who undertake renovation projects in rural areas. More over, there are large areas of undiscovered Italy, where knowledgeable investors expect those who buy now will be buying ahead of a rush of investors heading to Italy in the near future.

The government has established new finance laws regarding to the buying and selling of residential property between private individuals. Now the buyer declares the actual purchase price in the deed of sale yet only pays tax on the difference of this re-valued payable value. This assists in making the market more transparent, as well as helps buyers avoid being unintentionally involved in money laundering transactions. In addition, as an EU member, buyers can be reassured by the stability of their property purchase.

Practical Advice:
One Italian law that property buyers should be aware of is the law of subrogation. This law states that property debts, including mortgages, local taxes, utility bills and community charges, will remain with a property and are inherited by the buyer. Your legal advisor can check to see if there are any outstanding debts on a property a few days before completion. With that said, never sign anything or pay any money, until you’ve sought legal advice in a language in which you’re fluent, from a lawyer who’s experienced in Italian property law. According to Buying a Home in Italy, you will find that obtaining a lawyer is a relatively small cost in comparison with the cost of a home. Legal advice is of excellent value, even if only for the peace of mind it gives you. It is not wise to use the vendor’s lawyer, even if it can save you money, as he is primarily concerned with protecting the interests of the vendor and not you. Trying to cut corners to save a bit of money on legal costs is foolish when a large amount of money like this is at stake. Your lawyer will carry out the necessary searches regarding matters such as ownership, debts and rights of way. It’s also important to check that a property has the relevant building licenses, conforms to local planning conditions and that any changes (alterations, additions or renovations) have been approved by the local town hall and have planning permission.

Additionally, if a property is owned by several members of a family, which is common in Italy, all owners must give their consent before it can be sold. Your lawyer should also check that the notary does his job correctly, providing an extra safeguard. Also be aware that in Italy it is common for buyers and sellers to under-declare the amount paid for a property, even though this practice is illegal. If you under-declare the price, the authorities can re-value the property and demand that you pay the shortfall in tax plus interest and fines.

Tax Highlights

Favorable Tax Legislation

Italy is reforming its tax legislation. There is no wealth or capital gains tax. If you take out residency it is possible to cut your property costs considerably.

Property Tax

The basic property tax in Italy is known as the ICI (pronounced “ichy”). Everyone who owns land in Italy, whether they are resident or non-resident, pays this tax which is usually between 0.4% and 0.7%. The amount depends on the local authority and the size, location and category of property you purchase. If the property is passed as uninhabitable or being restored the tax is reduced by 50%.

The ICI is paid in two installments: 90% by the 30th of June each year and 10% between the 1st and 20th December. If the tax is not paid on time, a surcharge of up to 200% can be levied.

Income Tax

Whether or not you are resident in Italy, as a property owner you must still make a tax declaration. The Italian authorities are only interested in any income you may have accrued in the country, for example you may have money on deposit in a bank that is receiving interest. They have no interest in any holdings you may have outside of Italy.

Tax on Rent Received

If you rent out the property you must declare the income you receive. Against this you can deduct expenses you have had in maintaining the property. The tax is usually between 19% and 46%.

Notional Income Tax

You will also be taxed on the rental value of your house, even if you don’t rent it out. This tax is based on the rateable value of the property and is usually very small.

Garbage Collection Tax

In some towns, an additional tax is raised to deal with services the town hall supplies. These could include trash collection, street and beach cleaning. In some municipalities you will be charged for use of a car in the area, but not in all. These taxes vary between €200 and €250 per year.

Capital Gains Tax

The good news is that in January 1993 capital gains tax was abolished in Italy. This was incorporated into the ICI.

Wealth Tax

While in many other European countries you may be liable for wealth tax, in Italy there is no such tax.

Inheritance Tax

Even as a non-resident your estate will pay inheritance tax. The amount will vary according to closeness of the relationship of the heirs to the deceased. We advise you to seek professional information on how to best deal with this tax.

Credits & Mortgages:
Mortgages for property in Italy are usually available for up to 80% of the purchase price. The loan is based on the bank’s valuation of the property, which will cost about 300 euros. Should the valuation be higher than the asking price, a slight increase in 80% lending can be attained.

Most mortgages in Italy are repayment mortgages where the borrower pays a combination of capital and interest back each month. Fees will include a 1% administration fee, a 1% arrangement fee, and a 2% registration tax. Be aware that some lenders charge an additional amount of about 100 euros; however, fees are clearly noted.

Proof of income is always required by lenders, as loans are usually based on 30% of your monthly income. Lenders will usually not consider rental income.

The process of securing a mortgage in Italy can take quite a bit of time and requires lots of form filling. With that said, it is smart to start the process as soon as you have signed the preliminary contract to purchase. It is necessary to make a deposit at this stage, yet be aware that the deposit is protected by law in the event that you are not able to acquire financing the deposit will be returned to you in full. Some lenders allow for prior arrangement of a mortgage, with the terms of the loan offer being guaranteed for up to 3 or 4 months.