explaining cadastral value, buying taxations and yearly taxations.
INTRODUCTION
In this article we explain how property taxations works in Italy, as is important knowledge to have when evaluating any purchase.
We do by starting to identify and explain the definitions used in the Italian property market. Such as Cadastral Value, First and Second houses, New and Second Hand properties, luxury properties.
CADASTRAL VALUE
This is a value, in Euro, given to any building-property in Italy, and also to land.
Local registry offices and tax offices use this value for tax purposes.
They calculated the value. They were the professionals who developed the property. They did so based on particular rules. Then, the tax office approved it.
The cadastral value is than used to calculate taxes related to the property.
Usually the cadastral value is lower than the market value of the property.
“FIRST” AND “SECOND” HOUSES
In Italy properties are taxed depending on their use, and are called “first” or “second” houses.
First house is the property when a person is officially resident. Meaning he lives there for the majority of the year. A person can only own 1 first house.
Second house is any other property the person owns, in same city or any other city in Italy.
There is no limit to how many properties a person can own, so not limit on how many second houses a person can have.
“NEW” AND “SECOND HAND” PROPERTIES
Anyone can understand that a new property is one that developers have just built from scratch.
In Italy, we call new property “identity.” This also applies to properties in existing buildings that have been completely rebuilt. Whilst if a person has a property in an old building, and he restructure it completely, its property will still be a second hand property.
Second hand property is any property that has been built time ago, and sold on the market. Does not matter if is in need to complete restructuring, or if is in excellent conditions.
Important to know, is that a new property becomes a second hand property after 5 years that its building work ended. This is important for taxes. Some property developers rent for a few years, then sell. They do this to let buyers pay less taxes on the purchase.
LUXURY PROPERTIES
In Italy are generally classified as luxury properties villas, castles or historical buildings of high artistic relevance, and also flats, generally big size over 200 m2, with big rooms, high quality decorations and located in particular prestigious areas.
TAXATION ON “NEW” PROPERTY PURCHASES
This is the easiest calculation to make.
Buyer has to pay VAT tax based on the purchase price of the property. The VAT rate to pay applied is as follow:
- First houses, need to pay 4% VAT
- Second houses, need to pay 10% VAT
- Luxury properties, need to pay 22% VAT
TAXATION ON “SECOND HAND” PROPERTY PURCHASES
In this case property purchases are taxed not on the actual purchase price, but with special calculations made based on the cadastral value of the property, to explain:
- For First houses, need to take the cadastral value of the property, multiply it times 115.5 than on this value apply 2% tax. As reported in article Part 3, our data of over 90 second hand properties reviewed in the past 2 years, the tax paid on average was just 0.77% based on the sale price!
- For Second houses, and also for luxury properties, need to take the cadastral value of the property, multiply it times 126 than on this value apply 9% tax. Also in this case, as reported in artciel Part 3, the tax paid on average was just 3.83% based on the sale price!
ANNUAL TAXATION
In Italy first houses are not taxed.
Instead second housess are taxed by local city-town governments.
This annual taxation is also calculated based on the cadastral value of the property. To calculate it, add 5% to the cadastral value. Then, multiply that by a coefficient set by local authority. For example, in Pisa, it is 160. The tax is then applied to this value. It is lower than 1%. Local governments set the exact rate, but it is still lower than 1%.
When thinking of buying a property in Italy, ask your chosen real estate agent for the cadastral value of the property and the taxes you will need to pay. The taxes depend on the type of purchase you will make. Real estate agents have to show you correct information. The Notary will also indicate it in the sale agreement. Seller and buyers will sign it in the Notary’s presence to make the transaction official. You must pay all purchase taxes to the Notary on the same day.