How will post-Brexit banking changes affect British people in Italy?

As some UK banks warn they are closing down accounts for British customers living in the EU, we look at which types of accounts are affected, and what this means for pensions and rental property income.

How will post-Brexit banking changes affect British people in Italy?
Decisions made by UK banks could have serious consequences for British people living abroad. Photo: AFPPhoto: AFP

As the end of the Brexit transition period looms, the UK has so far failed to negotiate access to the European passporting scheme for banks. Here's what that means if you are British and live in Italy.

Over the weekend it was reported that, with just three months to go until the Brexit transition period ends, the UK has so far not managed to negotiate a continuation of EU banking rules – known as passporting.

Whil many people living abroad just keep a UK account out of habit, maybe to use as spending money when they come back to visit the UK, for others it could have more serious consequences – for example those using their UK account for regular income – in particular for pensions to be paid into or income from UK rental property.

Here we take a closer look at who may be affected.

Tell us: Are you affected by the closure of a UK bank account?

Is it all banks?

No, it's important to be clear that there is no blanket closure of accounts for all Brits living abroad, it depends on who you bank with and the type of account you have.

And it's not all account types, either.  Again, this depends on the type of account you have, with straightforward current/checking accounts less likely to be closed.

Why is this happening?

.Essentially, applying for new licences will create a lot more admin for banks.

Banks already have to do this for many non-EU countries so clearly it is possible to do. But it seems that some banks are deciding that it's not worth the hassle of doing this for all 27 countries in the EU separately, especially ones where they only have a few customers.

As a country that has a realtively small number of British people living here (estimates vary from 150,000 to 300,000) it's not certain whether banks will decide that it is worth their while to obtain a licence for Italy – as well as other EU countries – after Brexit.

Is it only if I use my Italian address?

Many British people living abroad use a 'care of' address in the UK for their banking, for example the address of a family member who will forward on all correspondence they receive.

At this stage it seems that only people who have officially changed their address to an Italian one are receiving letters from their bank.

Photo: AFP

Which banks are affected?

The Local has asked all the major names in UK banking what their policy is for customers in Italy, here are the responses we have received so far. We will update this page as soon as we receive more responses.

Santander – the Spanish banking giant said it was keeping the situation under constant review but told The Local: “We have no current plans to close any of our retail [personal banking] or corporate accounts.”

Lloyds – the bank is understood to be closing business accounts – not personal accounts – of customers living in the Netherlands, Germany, Ireland, Italy and Portugal. However the bank said it had no current plans to discontinue any services for customers in Italy.

A spokesman said: “We have written to a small number of customers living in affected EU countries to let them know that due to the UK’s exit from the EU, regrettably we will no longer be able to provide them with some UK-based banking services. We want to keep customers informed and offer advice on next steps.”

Barclaycard – Barclaycard is separate to Barclays bank and it is understood that Barclays current accounts are not affected, although the company has not commented on the record so far.

Nationwide – a spokesman said no decisions had yet been taken on accounts held by UK nationals living in the EU. They told The Local: “We are closely monitoring all developments regarding Brexit and are prepared to deal with any outcome.

“Part of this preparedness includes reviewing the ongoing availability of products and services for those members who are resident in the European Union and the European Economic Area.

“Because the outcome of Brexit is not yet clear and the position continues to evolve, there is currently no certainty as to any actions we will be required to take. Regrettably we cannot provide any further detail on the impact on specific products and transactions at this point. However, we will communicate with members as soon as possible about any necessary changes that impact them.”

How could this affect pensions?

“State pensions can be paid overseas, so you can get your pension paid directly into your European account in euros, but not all private pensions have the capability to do this,”  international money management specialist Jason Porter tells The Local.

“It's mainly the smaller pension funds, I'd say 90 percent of private pensions can pay to overseas, but not all can so if you don't have a UK account this could be a problem.”

Photo: AFP

What about income from rental properties?

Many people living abroad rent out their old home in the UK, and while for some this is an investment, for others it can form the bulk of their income, Porter explains.

“If your rent money cannot be paid into a UK account then you have two options – have the money paid into your European account and pay international transfer costs each month – these are a lot less than they used to be as everything becomes computerised, but would still add up over time. Or you could hire a UK management agent who would collect and transfer the money for you – but they will charge you a fee to do this, often 10 percent or more of your monthly rental income.

What are your options if you're affected?

Most British people living in the EU will already have a bank account in the country where they live. If you do, Porter explains, “you need to transfer all the payments, direct debits etc that you can to this account.”

“It's important to point out that this is happening quickly – account closures are likely to take place in November and some people get just a couple of weeks notice.”

“You need to go back through your bank statements for the last few months and make a note of all payments so you can transfer them to your EU account and avoid missing payments and getting hit with charges when your UK account closes.”

READ ALSO: Why UK bank account closures could hit the most vulnerable Britons living in France

For those who cannot use their European account for everything, there are international accounts and 'expat' accounts, but these often require a minimum deposit level, he says.

“Similarly there are 'international' credit cards to replace something like a Barclaycard, but again these are often limited to high net worth accounts.”

“One option that could be worth exploring is Isle of Man accounts – these are sterling accounts but often operate in Europe so already have the European licences that they need.”


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KEY POINTS: The tax changes in Italy to know about in 2023

From a proposed 'flat tax' to VAT, Italy is planning a raft of changes that you should be aware of as part of longer-term reforms. Here's a quick overview.

KEY POINTS: The tax changes in Italy to know about in 2023

The Italian government is preparing a set of major reforms to the tax system by 2027, and the first changes set to come in to force over the next two years were announced on Thursday, March 16th.

The existing tax system in Italy, which has been in place since 1971, is often criticised for being overly complex and for placing too high a tax burden on employees and businesses – one of the factors regularly blamed for Italy’s longstanding problem with sluggish economic growth.

READ ALSO: Flat tax for all? Italy announces plan to overhaul tax system

Economy Minister Giancarlo Giorgetti has said the planned reforms will reduce this tax burden “gradually” and make investment and commercial activity in Italy “more appealing”.

Few details of the reforms were immediately given on Thursday, but here’s a look at what we know so far about the initial changes coming in 2023 and how they could affect you.

‘Flat tax’ and income tax changes

The government has confirmed it is planning changes to the way the amount of personal income tax you have to pay is calculated, and that it will push ahead with longer-term plans to bring in a so-called flat tax, which was one of the flagship promises made by the coalition of right-wing parties which took power following September’s general elections.

The coming reforms will initially reduce the number of income tax (Irpef) brackets from four to three, with the ultimate goal of a single tax rate for everyone by 2027 – when the current government’s term in office is set to end.

Irpef (Imposta sui Redditi delle Persone Fisiche) is the main income tax in Italy and applies to all employees, many self-employed workers (regular partita Iva holders, but not those on the flat tax rate) and pensioners.

This tax is the cornerstone of Italy’s fiscal system. It injected just shy of 206 billion euros into state coffers in 2022, accounting for around 38 percent of the country’s total tax revenue last year (544.5 billion euros).

The first reforms came in 2021, when the number of income tax brackets was cut from five to four to create the current system:

Current tax brackets:

   Income (annual)  Irpef rate
First bracket Up to 15,000 euros 23 percent (aliquota)
Second bracket Between 15,000 and 28,000 euros 25 percent
Third bracket Between 28,000 and 50,000 euros 35 percent
Fourth bracket Over 50,000 euros 43 percent

The coming change will reduce the number of tax brackets down to three by merging the second and third tiers into a single one.

The reforms are expected to set the three bands at 23 percent, 33 percent and 43 percent initially, and government officials have said that a more costly option under consideration would lower the second band to 27 percent.

No further details were immediately given on Thursday, and the draft outline approved by Italy’s cabinet still needs the green light from parliament and then implementation by the finance ministry.

This change means people who are currently in the second bracket will see their Irpef payments increase by two or three percent, whereas those who are now in the third bracket will benefit from a seven- or eight-percent cut.

VAT cuts

The government has also said it is looking at cuts to VAT (known as IVA in Italian) on various products – and reports suggest it could scrap it altogether on at least some essential goods.

Italy applies a standard 22-percent VAT rate to most consumer goods, and lower rates to essential items (for instance, 4 percent on bread). This can be surprising to people from countries where VAT is usually zero-rated on basic foodstuffs.

With the new tax bill, the government plans to lower rates on all consumer goods which households purchase regularly: so-called shopping cart goods.

READ ALSO: Cost of living: What are Italy’s best price comparison websites?

The government is also reportedly considering scrapping VAT on at least some essential purchases, though this was not announced on Thursday and no further details have emerged yet.

Italian consumer group Codacons estimates that scrapping the tax on essential items would save the average household up to 300 euros a year.


Lower corporation tax

Meloni’s government said it plans to cut corporation tax from the current rate of 24 percent to 15 for companies that create jobs and make investments in “innovation” – a move that was initially welcomed by business groups, who said they’re waiting for more details to come.

Tax ‘bonus’ cuts

The changes have not been costed yet, but the plan to bring in a flat tax is expected to cost the treasury around 10 billion euros.

The government says plans to recoup this sum partly by curbing many of the financial incentives currently available to Italian taxpayers.

Italy has a mind-boggling array of tax rebates and other incentives in place – over 600 in total – which collectively cost the state 165 billion euros a year. 

The 2023 tax reform is expected to cut the amounts available through these incentives, and will also mean fewer people are eligible to claim.

The government has already begun to curb some of Italy’s most popular – and costly – tax rebate schemes as of the beginning of this year; namely the building bonuses providing generous state-funded discounts on renovation work. This includes the so-called superbonus 110, which was initially cut back in January before being made almost completely unavailable in February.

EXPLAINED: Are any of Italy’s building ‘bonuses’ still available?

Ministers have not yet released any details as to which other incentives may be affected by planned cuts.

Property taxes simplified

The taxes paid when buying property in Italy are notoriously hefty, with experts often advising buyers to budget around an additional ten percent of the purchase price in order to pay the various taxes and charges involved.

While there’s no sign that these costs will be lowered anytime soon, some of them are set to be streamlined: the upcoming bill will merge stamp duties (imposte di bollo) and cadastral taxes (imposte catastali) into a single fixed-rate fee which ministers hope will somewhat simplify the process of buying a home.

The Local will report further details of the upcoming tax changes once they become available.