ALFA HOMES Country houses Marche:farmhouses,country properties,villas

---

• home
• about us
• our properties
  • country
  • historical centres
  • prestige
  • businnes
  • town & city
  • for rent
  • touristic
  • new construction
• history and landscape
• contact
• buying in Italy
• links

home search

home search

codice

category country historical centres businnes prestige town & city for rent

area:
from: to: mq

PRICE:
from: to: €

Notes on Real Estate Acquisition in Italy

Notaries, Preliminary Contract, Transfer Deed

In Italy, any transfer of real estate must be performed in the presence of a Notary. A Notary is a public official, whose primary job is to certify the legitimacy of civil contracts (including all real-estate transactions).

Real-estate transactions are generally divided into two phases: the preliminary contract (compromesso) and the purchase deed (rogito). The preliminary contract serves to stipulate the terms of the eventual purchase, e.g., the purchase price, a full description of the property, the obligations of the buyer and seller - as well as the period within which the final purchase deed will be signed. The preliminary contract is a legally binding agreement, and as such, it is usually accompanied by a deposit, paid by the by the buyer to the seller (typically 15% of the purchase price). The remainder of the purchase price is exchanged when the deed is signed, which officially formalizes the transfer of the property.

Purchase Price vs. Assessed Taxable Value

In Italy, as in most countries, there can be a large difference between the price you pay for your house, and the property's officially assessed value (rendita catastale), which is used for tax purposes. In Italy, a property's assessment is frequently set at about 1/4 or 1/3 of its market value.

Until January 1, 2006, there was a longstanding tradition to under-declare a property's actual purchase price on the deed of sale. This was done for several reasons. First, while annual property taxes are always rendered on the property's officially assessed value, prior to 2006 the taxes on the actual purchase (closing taxes) were assessed on the declared purchase price. Hence, a lower declared purchase price meant less tax paid by the buyer at closing. This arrangement similarly benefited the seller, since it diminished his exposure to capital gains taxes and/or postponed inheritance taxes after the sale. Moreover, there was a general fear (usually unjustified) that the purchase price would be used to reassess the property value - i.e., that the land registry (catasto) would simply transform the purchase price into the new assessed value of the house. Hence, until 2006, most real-estate transactions in Italy resulted in deeds that showed grossly under-reported purchase prices.

The new law (passed 26 December 2005, effective 1 January 2006) changed this tradition. Now, the purchase deed must contain the true price paid for the property. However, taxes are not be based on the purchase price; rather, all taxes (even those paid at closing) are based solely on the officially assessed value (the rendita catastale). For buyers, this law is a very positive development.

VAT vs. Registration Tax

Taxes are imposed on the final purchase deed, and must be paid by the buyer. The form of the tax depends on the type of property exchanged. VAT (value-added tax) is levied on new properties, when the seller is the builder. VAT may also be applied in the case where the seller is a professional building contracting company, which specializes in buying old ruins, restoring them, and selling them as totally habitable properties
Existing houses, sold in an "as is" condition, are subject to a different form of settlement tax at the purchase. This is called registration tax (or imposto di registro).

Both forms of tax are calculated on the assessed value, as shown below.

Discounted Taxes for Main Residence

There are major tax advantages for those buying the house in which they intend to live. In Italy, such a property is called a "first house" (la prima casa). The benefits of registering your property as a first house are rather significant. These benefits apply not only to your tax liability, but also to all utility bills, work done on the house, materials bought for restoration and many other areas as well.

To qualify for "first house" status, one needs to meet two requirements: (a) you may not own any other property in Italy; and (b) you must establish legal Italian residence in the property's commune (town), within 18 months of acquiring the house.

The calculation of the tax basis for a "first house" is made differently (and more generously) than that for other properties (e.g., a 2nd or 3rd house). The tax basis is the amount on which all other taxes are levied. However, all tax rates are likewise lower for "first houses". In other words, there are substantial reductions in (a) the principal on which taxes are levied, as well as (b) the percentage of the principal that must be paid.

Tax Basis Calculation

If your property is a first house, the tax basis (or principal) used is 115.50% of the assessed value. If the property is not a first house, then tax basis is 126% of the assessed value.

For example, assume that you paid € 200,000 for your house, which is officially assessed at a value of € 51,000. (This is a fairly typical example; as noted above, assessed values are usually just a fraction of market values.)

In this case, the tax bases would be calculated as follows:

Tax Basis - 1st house:

   € 51,000 x 1.155 = € 58,905

Tax Basis - 2nd house:

   € 51,000 x 1.26 = € 64,260

This is the value on which all other taxes are calculated. Hence it is certainly preferable to register your property as a first house, if at all possible.

VAT Calculation

If your acquisition is subject to VAT (see above), the rate applied will be substantially lower in the case of a first house. Specifically, for first-house purchases, VAT is imposed on the tax basis at 4%. On the other hand, for a second home, VAT is imposed at 10%. Hence, following the example above (with an assessed value of € 51,000), we get the following calculations for VAT:

VAT - 1st house:

   € 51,000 x 1.155 x 0.04 = € 2,356.20

VAT - 2nd house:

   € 51,000 x 1.155 x 0.04 = € 2,356.20

Again, this tax would only apply in the case of new housing, or newly restored housing - in which case the registration tax would not apply (and vice versa).

Registration Tax Calculation

For purchase of a first house, registration tax is levied at 3% of the tax basis. If you do not qualify for first-house status, registration tax is levied at 10% of the tax basis. So, with our example house (assessed at € 51,000 as the rendita catastale), the registration tax due would be calculated as follows:

Registration tax - 1st house:

   € 51,000 x 1.155 x 0.03 = € 1,767.15

Registration tax - 2nd house:

   € 51,000 x 1.26 x 0.10 = € 6,426.00

Mortgages in Italy

Mortgages are available in Italy, however, banks are often more conservative than elsewhere. Like everywhere else, the type and size of the mortgage you receive will greatly depend on your family income (and the ability to demonstrate the long-term consistency of such). A bank will usually only approve mortgages in which the monthly payments do not exceed 1/3 of the monthly family income. Your other debts (auto loans, credit card balance, etc.) will likewise be taken into account during the approval process. It is a good idea to extinguish as much of this debt as possible beforehand - otherwise it will lead to a reduction in the amount of mortgage approved for your house.

Annual Taxes

Upon acquiring the house, it will be subject to annual real-estate tax (called ICI), imposed at about 5% on the assessed value of the house. Returning to our example, on a house assessed at $51,000, the yearly ICI liability would be calculated (approximately) as follows:

€ 51,000 x 0.05 = € 255.00

However, for the first house, you would get a deduction on this amount - approximately € 129.00. Hence, the annual property tax in this case would be € 126.00.