Buyers guide – Italian properties

flag-b1Off Plan properties

Buying an off plan property in Italy is nice and simple. There isn’t a stack of paperwork to sign like France, and the tax laws are clear and attractive for investment.

To calculate the purchasing costs, you need to divide the process in the „Front end“ and the „Back end“

At the front end how much you pay when you sign your preliminary contract will depend on the payment terms of the developer. For example you may have 50% upfront and then 50% on completion, or 30% upfront and 70% on completion.

In most cases you will have to pay a solicitors fee upon signing the preliminary contract which can be anywhere between 1% and 3%, depending on the solicitor. If you are paying a solicitor who is not an expert in Italian Property it is likely to cost you a lot more because he or she will need to spend more time researching to make sure your title is clean. It is also wise to use a solicitor who speaks your native language.

Under Italian law if a developer is building off plan they need to provide the customer with an Insurance Bond or Bank Guarantee for their initial deposit. If the builder should go bankrupt this insurance bond covers the full amount of the deposit.
When you pay your deposit upon signing the preliminary contract your money should be held in the solicitors Escrow account, until you receive a copy of your bond.
All banks and insurance companies in Italy are guaranteed by the Central Bank and so if the particular company who has provided your bond goes bankrupt it is insured by the Central Bank of Italy. What this means essentially is your risk is much lower as you cannot loose your money should the builder be bankrupt.

Before you reach the „Back end“ ie. before your property is completed and you can move in, you also have the option of selling the property, as long as the developer does not prohibit this in the preliminary contract.
From an investment point of view this can be very profitable.
Firstly if you sell before completion you are not required to pay VAT, which in Italy amounts to 10%, the notary fee which is in the region of 2%, and two other small Italian taxes which come just under €400.

In Italy there is no capital gains tax if you sell before completion, but should you be a resident of the UK or Ireland those governments require you to declare any income you make abroad.
If you intend to sell your property before completion, it is also wise to have an avenue to sell it through. For example will the developer resell it for you? And how does the developer intend to do that? If there is a high supply in the market it may be more difficult to sell your property. For example in Northern Italy the market is more mature so it would be more difficult to ‘flip’ a property then the emerging southern market.

On completion of your property you are required to pay the ‘closing costs’ mentioned above. You are required to pay 10% VAT of the purchase price of the property, alongside a notary fee and two other small Italian taxes which will amount to roughly 2%.
The notary is a legal body in Italy nominated to complete all the legal details in a completion of sale. The fee however is not a standard 2%, it will often come down to the purchase price of the property. For example if you are purchasing a Villa for €500,000 the fee will be lower then 2%, as €10,000 is too much to pay a notary for a single property transaction.

Should you decide to sell your property within 5 years of it being completed you a required to pay 12.5% capital gains tax to the Italian government. If you sell it after that 5 years, currently there is no Capital Gains Tax.
There is a dual taxation agreement between the UK and Italy, and The Republic of Ireland and Italy which means in your country of residence you are required to pay the balance between the varying tax rates. For example if the rate was 20% in Ireland you would have to pay the extra 7.5% in Ireland when you declare your income.

There is also no inheritance tax on property in Italy. The particular law relating to this is called ‘Uso Fruto’.  For example if you put your sons name on your title deeds along with your own, he does not have claim to the rents generated or he cannot sell the property from under you; however if you die the property is passed straight on to your son tax free, as his name is already on the deeds.

Overall the risks in purchasing off plan in Italy are very low because your money is insured; so in comparison to many of the other markets in Europe it is a much safer bet. Usually the financial return on Off Plan property compensates for the risk involved in purchasing something you cannot see and touch yet. In Italy the risks are far lower then a country that may not have an insurance bond or bank guarantee as law; with the main benefit to the buyer being that the potential returns are not affected by this reduction in risk, which makes it a better investment overall.roma2

Posted in Buyer's guide.

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