Capital gain taxation, and inheritance taxation.
Like for any investment, is interesting to know how the capital gain is taxed. And in Italy this is particularly convenient for real estate.
Than other very interesting information, is the inheritance taxation on properties. As buying properties in Italy, can be a way for your heirs to pay less taxes than in your country!
As brief explanation, capital gain is the profit made when selling a property, compared to the purchase price paid before.
This profit is usually taxed all over the world. In Italy it is also taxed, but only for the first 5 years of ownership. This means that if you buy a property and sell it withing 5 years, you pay 26% tax on the eventual sale profit.
Whilst if you keep the property longer than 5 years, than the eventual sale profit is not taxed at all! As usually real estate investments are made for medium-long term periods, this is quite special.
As comparison here a table with some examples of other countries in Europe, and worldwide:
| COUNTRY | CAPITAL GAIN TAX | NOTE |
|---|---|---|
| UK | 18% to 28% | Depending on the value of the property |
| Germany | 25% to none | Only for first 10 years of ownership, than none. |
| France | 36.2% + others | Full rate for first 5 years of ownership, than gradually reduced, up to 30 years! Than no more. |
| The Netherlands | low | Is a complicated calculation to make, still is low taxation |
| Belgium | 35% down to 18% | 35% is for first 5 years, after reduced to 18% |
| Norway | 22% | All the time |
| Denmark | 22% | All the time |
| Sweden | 30% | All the time |
| Austria | 30% down to 15% | 30% is for first 10 years, than each year 2% less, to reach a minimum of 15% tax all the time |
| USA | Up 20% | Each state has its own tax, to a maximum 20% all the time |
| China | 20% to none | Only for first 5 years, than none |
| Japan | 30.6% down to 15.3% | 30.6% is for first 5 years, than 15.3% all the time |
| Russia | 20% | All the time |
| Australia | Added to income | The profit on the sale is added to annual income, than taxed |
This is an important information to have, as can be a way to reduce consistently the tax for your heirs. So you need to understand how all works
The first step would be for you to understand what is the inheritance taxation in your country, and than check if there are particular agreements with Italy regarding property inheritance.
As example in Europe, countries in 2015 signed an agreement, called Brussels IV, stating that a person can decide before his death, which inheritance legislation apply for properties owned in different countries than his own. If pay inheritance taxation according to his country taxation, or in this case, that of Italy. As note UK, Ireland and Denmark did not sign this agreement.
To our knowledge there are also specific agreements between USA and Italy, and other countries too. Check properly with a real knowledgeable tax person in your country to be sure.
So study all whilst alive, and prepare, and eventually notarize, your decision, so your heirs can profit the right way.
And keep in mind, that unless you opted differently in advance, upon death inheritance taxation will be paid in Italy to start, than eventually compensated with your country tax system.
The first step in evaluating and understanding inheritance taxation on properties in Italy, is to know how is calculated the value of the property.
And is relatively easy, the value of the property is calculated based on the “cadastral” value of the property, not the actual market value.
As introduced in the article Part 3, in our sample of properties presented last couple of years, cadastral value for “first” house was 38% of selling price, and for “second” house was 42% of selling price.
This means that generally we can safely assume that inheritance taxes will be applied to half the market value of the property inherited, and this is already a big saving in tax!
Than how is such property value taxed? Depends on the grade of relationship with the deceased person:
Naturally deceased person should make a testament in advance if he wants to leave his inheritance to more people. Eitherwise only the spouse and kids will share all.
Also relevant to know, there is no limit to how many properties a person can buy. So a rich foreigner that has Euro 200 millions, could buy many properties in Italy until he spend all, than his heirs will pay very low inheritance taxation.
To clarify the example presented above, a kid of a deceased person with properties of cadastral value Euro 7 millions, inherit properties of cadastral value of Euro 2.33 millions, that have a real market value of about double, so Euro 4.66 millions. And they pay just Euro 53,333 inheritance tax! That in this example would be just 1.14% inheritance tax!
This why we believe investing-buying real estate in Italy can be a very good investment for people especially Europeans and Americans.
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