A Second Home in Italy
If you have bought a house in Italy, but do not intend to live in it as your habitual abode and register as resident with the Anagrafe (register of resident population maintained by the relevant local authority or “comune”), it will be considered a second home and not an “abitazione principale” or “prima casa” (main home).
Under Italian law, taxes on second homes are higher than on first or main homes – or rather a main home qualifies from a series of tax reliefs not available on a second one. This is due to the higher degree of public interest in a principal residence reflecting constitutional rights to a home.
Taxes are higher from the moment of purchase, as you will not be able to take advantage of the “agevolazioni prima casa” (first home benefits) and the various purchase taxes will have to be paid in full (see this post).
Expenses for utilities (energy, water etc) may also be higher for a second home as result of reduced tariffs for the first home.
Taxes on a Second Home
The taxes, related to real estate property, that you have to face are:
- IMU “Imposta Municipale Unica” (Unified Municipal Tax);
- IRPEF “Imposta sul Reddito delle Persone Fisiche” (Personal Income Tax) on the deemed catastral (land registry income), on rents received.
- IRPEF or substitute tax on any capital gain on a disposal of residential property within 5 years of purchase. The exemption from tax for post five years sales may not apply to sales of property which derive from the acquisition of land for development;
- TARI “Tassa sui Rifiuti” (Waste Tax).
Previously there was also the TASI “Tributo sui servizi indivisibili” – local services tax, which has been abolished with effect from 1 January 2020.
IMU
IMU is Italy’s municipal property tax on real estate, introduced in 2012 to replace the previous ICI tax. It applies to owners (or holders of registrable legal rights like usufruct or a right of habitation) of buildings, buildable land, and agricultural land. The tax funds local services.
Primary residences are generally exempt unless classified as luxury properties (cadastral categories A/1, A/8, or A/9).
This tax must be paid spontaneously by the home owners. If you purchase a property jointly, e.g.. with a spouse, partner or family member, each owner is liable for their share of the IMU. The Italian authorities do not issue statements or bills requesting payment of the tax, except where a homeowner has failed to make payment pursuant to enforcement to demand payment of overdue tax, interest and late payment penalties. It is the home owners responsibility to pay the tax due by the due deadlines, set out in the relevant legislation..
For more information on IMU see this post.
Income Taxes
As far as IRPEF and additional regional and municipal income are concerned, taxable income from a second home is subject to income tax at the ordinary scale rates. It is important to realize that even if you do not rent or license the property and therefore do not receive any income, Italian law provides that you are potentially liable to income tax, whether you are tax resident in Italy or not for any year, on the “deemed” or official income from the property. This deemed income is calculated according to some coefficients based on the official land registry yield for the property.
In other words, by purchasing Italian real estate you have purchased a (taxable) income generating asset, if you don’t actually receive any income onto your bank account.
However this may not actually be bad news in tax terms. Income from property (as classified at the Land Registry – check your visura) that is subject to IMU is generally not liable to income tax. There is an IMU-IRPEF substitution effect, which operates so that income tax is not due on the cadastral income deriving from portions of real estate property which have been subject to IMU.
To the extent that portions of the property are exempt from IMU, e.g. exemption for agricultural land in designated mountain areas) then the income from the IMU exempt property is liable to tax and as a default rule needs to be reported.
However there is an exemption from filing an annual income tax return and paying tax if the total catastral income for an individual taxpayer is less than Euro 500 in the year.
Typically this will be the case for e.g. small portions of agricultural land adjoining a residential dwelling.
In the event that the property is rented out, the position changes and tax on rental income will almost certainly be due on rents received received in the tax year. In the presence of rental income though, the exemption from income tax on the land registry yield on IMU exempt property may no longer be available may no longer apply.
Where rental income is received, at this stage an annual tax return will be required. This will report
- official land registry yields on land (Section RA) and buildings (Section RB) showing portions of land where IMU has been paid, or not;
- gross rent to be shown also in section RB (or in Section RA if you have rented out the bare land), but only where you are engaging in a private letting business (less than three units) and not running a letting business;
- if you are running the rental activity otherwise than in a private capacity you need to complete
- section LM if you are on the regime forfettario – this will show the gross rent and lump sum deduction in place of costs
- section RE or RG if are running the business as a sole proprietor. Here you will show gross rents and tax deductible expenditure.
- section RD if you are running an agriturismo activity.
See this article for more information of the various regimes for taxation of rental income
Note that there arises is a requirement to file an annual tax return to report both the rental income and the land registry yield, even if tax has been withheld at source on rental income and there is no actual further liability to tax on that rental income. The return needs to report the income, days in the year that the property was rented and the tax withheld by the agency or the rental platform as shown in their certification (the CU).
The requirement to report rental obligation may comport a liability to pay tax on IMU exempt land and buildings which would otherwise have been exempt from income tax falling under the Euro 500 annual threshold.
TARI – Local Refuse Tax
For more information on TARI see this post.
Summary
In general, the ownership of residential real estate which is not the individuals primary residence (prima casa) will comport a liability to IMU and TARI on the property. In general, except for extensive properties or properties incorporating portions which are registered as agricultural or commercial land there will be no liability to income tax, or obligation to file an annual income tax return unless the property or any part of it is let out.
Where a single property (or share in a single property) is let by the same owner, tax will be due under the cedolare secca regime whereby tax is applied at the rate of 21% to the gross rental income.
The cedolare secca regime does not admit a deduction for any costs (agent’s platform’s fees, cleaning , co-hosting, towels and linen) whatsoever. It is a flat tax on gross rents. See this article for available alterative tax regimes.
Our Services
For non complex cases, the best approach is to seek local assistance with the IMU calculation and payments IMU if you need it. This can be provided by co-hosts, agents, CAFs (citizens tax assistance centers) or local cps’s (commercialista). It is often simpler to simpler to start with your fiscal code number and the land registry details, slot the information into the tax software, identify the tax due and print out the payment forms, than deliberate the potential complexities which may not actually impact a particular position at all.
In complex cases, or for people without access to local services, we have developed a Real Estate Tax Management Service for Homes in Italy, including:
- Obtaining a copy of the updated visura catastale;
- IMU: confirmation of whether or not a return is due.
- IMU: Calculation of amounts due and assistance with payment of the two annual instalments;
- Assistance with the TARI filing to report change of ownership/occupancy and payments;
- IRPEF: submission of the Italian tax return and support with payment of income tax, if required (or confirmation that such is not required).
The package may vary according to specific circumstances.
The service is also available for those who reside in the property or for the “abitazione principale”
Please contact us here if you would like more details.