IVIE Tax Base Post Brexit

Brexit has had a potentially expensive impact for Italian tax residents owning real estate in the UK.  Italian tax residents are required to pay a wealth or ownership tax on foreign (ie. non Italian) real estate (unless the property is owned and occupied as a principal residence.  As a result of Brexit,  in the view of the Italian Tax Agency, the taxable base will be, from Italian tax year 2021 (the year ending on 31 December 2021) onward, the original purchase price rather than the Council Tax valuation, applicable prior to Brexit.  The tax applies generally at the rate of 0.76% of the tax value of the property.

From 1 January 2021, the United Kingdom is no longer part of the customs and tax territory of the European Union. The withdrawal of the United Kingdom from the EU implies, for the purposes of determining the taxable base for the property on which the IVIE (“Imposta sul valore degli immobili situati all’estero” under Article 1, paragraph 13 ff. of Decree Law 6 December 2011, n. 201) is due, the application of the general criterion of the cost shown in the deed of purchase, rather than the  “cadastral” or Land Registry criterion which applies, by Tax Agency concession, to properties located in countries belonging to the European Union or in countries belonging to the European Economic Area which ensure an adequate exchange of information.

On the occasion of ‘Telefisco 2021’, an event organised by the well-known Italian newspaper ‘Il Sole 24Ore’, the Italian Tax Agency confirmed their view of the consequences of Brexit and clarified that the above-mentioned change will be effective from the 2021 tax year. Therefore, from the tax year 2021 – and therefore in the declaration to be filed in 2022 – for real estate owned in the United Kingdom  by Italian residents, it will no longer be possible to use for IVIE purposes the value used to determine the Council tax, but the purchase cost  (or probate value if the property was acquired by inheritance will have to be used.  Under pre-existing IVIE rules, the purchase/probate value may only be used if the taxpayer, is able to show by reference to documentary evidence what that purchase/probate value actually was.  Therefore taxpayers intending to the base their 2022 tax returns on the purchase price need to be in a position to adequately document the purchase value.