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POLITICS

EXPLAINED: How Italy’s proposed new budget could affect you

From income tax to energy bills, here's what people living in Italy need to know about the planned 2022 budget.

A person holding euro banknotes.
Who can expect savings in the upcoming budget? Photo by Christian Dubovan on Unsplash

The Italian government is making final amendments this week to its budget plan for 2022, laying out next year’s tax and pensions reforms as well as some extensions to tax breaks for home renovations.

“This is an expansive law, which accompanies the recovery and is fully consistent with the other documents that guide the economic action of this government,” stated Prime Minister Mario Draghi at a press conference on October 28th.

“It acts both on demand but also very much on supply: we cut taxes, we stimulate investments,” he added.

Budget 2022: Which of Italy’s building bonuses have been extended?

With the new budget plan in place, the prime minister said Italy’s economy next year “will grow well over 6 percent”.

Here’s a look at the measures most likely to affect you.

Income tax

Italy plans to set aside a total of 12 million euros to fund cuts to income tax in its 2022 budget, not the 8 billion that was previously cited.

“8 billion euros will go to a targeted intervention to reduce taxes on companies, on individuals, on the tax wedge and there are various hypotheses for the use of these 8 billion that we will define with parliament,” stated Draghi.

The so-called tax wedge is the difference between the salary an employer pays and what a worker takes home, which is particularly high in Italy. So the move to reduce it is intended to benefit employees.

The Organisation for Economic Cooperation and Development (OECD) said earlier this year that the tax wedge in Italy was the fifth-highest in a group of 37 advanced nations, estimated at 46% in 2020.

The fiscal burden on employees is a chronic shortcoming of the Italian labour market, economists say, weakening the competitiveness of the country’s production system.

READ ALSO: How new freelancers in Italy can slash their tax bills to as little as 5%

Photo: Scott Graham/Unsplash

“We are earmarking 40 billion euros over a three-year period for reducing taxes, of which 24 billion for the tax wedge and the remainder for tax incentives, for families and businesses for real estate and digitalisation,” confirmed Draghi.

This is only “the start of the process of reform of the Italian tax system”, added the Minister of the Economy, Daniele Franco.

Household energy bills

A further 2 billion euros will be provided to “contain the effects of price increases in the electricity and natural gas sectors in the first quarter of 2022”, stated Draghi.

This is double the figure speculated in recent weeks.

A the beginning of October, the government stepped in with emergency funding of three billion euros to limit a price surge as power prices shot up across Europe.

Pensions

“The objective is a full return to the contribution-based system,” stated Draghi on the topic of pensions.

A transition to Quota 102 is scheduled, which entails 38 years of contributions and reaching 64 years of age before drawing a pension.

It will replace an expensive early retirement scheme due to expire this year – the so-called “quota 100”, which allows people to retire if they have made 38 years of contributions and are at least 62 years old.

The government is also considering “widening the range of people” who can access pensions. “The government is open to discussion with the social partners because the objective is a full return to the contributory system,” Draghi reiterated.

This expanded range of people include women and those in certain types of tough manual jobs who benefit from early pensions, the so-called ‘APE sociale (Anticipo Pensionistico)‘.

It was originally an experimental measure introduced in May 2017 and was extended until December 31st 2021.

Firming up plans for pensions and recovering those who left the economy to work illegally are among Italy’s targets: representatives of the OECD told the Senate budget committee this month that Italy spends too much public money on pensions.

Italy's superbonus has been extended - but not for everyone.
Italy’s superbonus has been extended – but not for everyone. Photo by Milivoj Kuhar on Unsplash

Building superbonus

Italy’s government launched the ‘superbonus 110‘ in May 2020, one of a raft of measures aimed at boosting the Covid-hit economy. Offering homeowners large tax deductions on expenses related to energy upgrades and reducing seismic risk, the scheme has unsurprisingly been popular – so popular in fact that high demand has led to delays on many projects.

Many construction incentives have been confirmed for next year, as “they have played a very positive role in stimulating the recovery of construction,” claimed Draghi.

READ ALSO: Italy’s ‘superbonus’ renovations delayed amid builder shortages and bureaucracy

The ‘superbonus’ has been extended for condominiums until 2023, but for many homeowners hoping to claim it for their single family homes, there isn’t as much time to move through the construction project as hoped.

The bonus has been granted an extension for the whole of 2022 for single family units, but with a serious caveat: you’re only eligible if it’s your first home and you have an ISEE (the social-economic indicator of household wealth) of 25,000 euros maximum.

If you don’t fall into this category, the deadline of June 30th 2022 remains.

For condominiums benefitting from 110% until 2023, the bonus will then drop in stages – to 70% for 2024 and 65% for 2025.

Other building bonuses

More of Italy’s numerous tax ‘bonuses’ have also been extended, such as the 60% ‘ecobonus’ and the facade bonus, which has been rolled on, but with a lot less of a tax break. It will drop from 90% to 60%.

Also confirmed in the Budget is the 50% deduction on purchases of furniture and large household appliances such as ovens (not lower than class A), washing machines, washer-dryers and dishwashers not lower than class E and refrigerators and freezers not lower than class F. This is valid for 2022, 2023 and 2024 inclusive.

See more details of the bonuses which have been extended here.

Rent discounts for young people

Young people, classed as between 20 and 31 for this measure, could benefit from a 20% discount on rent up to 2,400 euros. It is intended for those who leave home and have their own income up to 15,493.71 euros.

The discount applies whether you rent an entire flat or a room.

Funds to help those leaving home. Photo by Jilbert Ebrahimi on Unsplash

Equal pay and aid for working mums

52 million euros are budgeted for creating equal salaries to close the gender pay gap. This fund is scheduled to increase from its current 2 million euros per year.

A strategic plan will be implemented to combat gender stereotypes and close the gaps in employment, pay and pensions.

Further to this, the authorities will grant a 50% exemption from social security contributions for working mothers employed in the private sector, starting from the return to work after maternity leave. This is currently planned on an experimental basis for 2022.

READ ALSO: Italy’s ‘baby bonuses’: What payments are available and how do you claim?

Paternity leave

Ten days of paternity leave will be granted from 2022, which is to be taken within five months after the birth of the child.

The allowance was previously raised from seven to ten days for 2021 only, but now the measure is to be made permanent.

Plastic and sugar taxes

Italy’s planned plastic tax has been postponed until 2023. Created in 2020 and intended to promote a reduction in the production and consumption of single-use plastics, the measure has faced a series of delays with the government citing economic factors connected to the pandemic.

The tax would mean those who produce or buy plastic from other European countries or import single-use plastic items, known as ‘Macsi‘, faced a tax of 45 cents per kilogram of plastic product.

It was planned to come into force on July 1st this year, following a previous postponement from January of this year and July 2020 before that.

READ ALSO: How Italy’s foreign residents are fighting the growing problem with beach pollution

Industrial transition to green energy

150 million euros per year will be granted for the Climate Fund from 2022 to support industrial transition. This is to be further bolstered by an Italian Climate Fund, allocating a further €840 million a year from 2022 to 2026.

It is intended for investments in energy efficiency, the reuse of raw and recycled materials and for CO2 storage.

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PROPERTY

Nine things we’ve learned about claiming Italy’s building ‘superbonus’

Two years after it was introduced, Italy's popular renovation discount scheme continues to cause headaches for homeowners trying to access it. Here's what we've learned so far about claiming the so-called 'superbonus 110'.

Nine things we've learned about claiming Italy's building 'superbonus'

In May 2020, as the pandemic gripped Italy in its first wave, the government introduced a new building bonus programme to kickstart the country’s sluggish, Covid-hit economy.

This emergency response, known as the ‘superbonus 110′, came as part of the government’s Decreto Rilancio (Relaunch Decree), which offered a tax deduction of up to 110% on the expenses related to making energy upgrades and reducing seismic risk.

Other types of building bonuses existed before – and continue to be available.

However, none had offered quite so high a value to those looking to make home improvements on their property.

In fact, not only did the new measure incentivise people to upgrade their existing properties, it encouraged people to buy old, abandoned properties, making previously unfeasible renovation projects, in financial terms, a genuine possibility.

READ ALSO: How Italy’s building ‘superbonus’ has changed in 2022

We counted among those taking the plunge to buy a crumbling and uninhabitable building, with the intention to carry out extensive works thanks to funds from the superbonus.

Our property search completely changed due to the scheme and we planned on taking advantage of the generous sums of state aid.

After looking around and viewing properties for months, attracted by adverts that claimed a property was eligible for restoration with the superbonus, we found an old farmhouse – which had become a derelict wreck – in the lowlands countryside outside Bologna, near where we are already located.

(Photo by Philippe HUGUEN / AFP)

In our case, we had to demolish the old property and rebuild a home from scratch – it couldn’t be restored due to earthquake damage in the area, rendering it far too unstable and destroyed to ever be habitable again.

READ ALSO: Why we decided to build our new house in Italy out of wood

That wasn’t a disappointment as we had the opportunity to design our own home instead, choosing every angle, material, layout and floorplan we wanted. It would have been beyond our means to take on a project like this without the superbonus, but with it, we thought it was possible.

Incredibly, the small print of the incentive permits this too, as the government intended to reinvigorate the nation’s many old, damaged and inefficient buildings and recover lost land – including using existing plots to build new homes if the property was too damaged, as is the case for us.

So, we ploughed all our savings and the money from the sale from my husband’s apartment into a collapsing set of bricks, filled with junk and debris from years gone by.

Although daunting, the figures stacked up and meant that we could create our own country home with a manageable mortgage for around 15 years.

Since I’m now 37, that seemed to work well and it all looked reasonable.

READ ALSO:

But it was just the beginning, before the superbonus spiralled into delays, bureaucratic quagmires and fraudulent claims, which all contributed to making accessing the funds a stalemate for many homeowners.

18 months into our project, we have got as far as a concrete shape in the ground, the old farmhouse demolished, but no sign of our future home still – and a budget that has blown out of proportion, changing our financial future considerably.

18 months ‘ progress looks like this on our Italian property renovation project. Photo: Karli Drinkwater

The clock is ticking with deadlines too, albeit briefly extended, to access the bonus in time.

Since its inception, here’s what we have learned about (trying to) claim Italy’s superbonus 110.

1. Demand slowed down starting renovation projects

Within its first year, interest in the scheme was so high that building companies were overwhelmed and projects piled up in a queue.

Many firms stopped taking on new clients, as they battled to push through projects that were already delayed by months and some homeowners abandoned their plans altogether as a result.

As the backlog built up, firms increased their construction quotes and material prices rose – driven by a worldwide boom in cost increases and also most certainly not helped by Italy’s superbonus-fuelled building boom.

Photo by Bill Mead on Unsplash

The situation has continued to worsen due to the war in Ukraine, which has impeded the import and subsequently driven the cost of raw materials.

It was this demand that also saw us sit and wait, watching on while absolutely nothing happened and we continued to be stuck, all the while watching the project cost continually rack up.

READ ALSO: How to stay out of trouble when renovating your Italian property

It had taken four months just for the sale of the wreck to go through, so we were on the back foot already as far as the bonus is concerned.

We were ready to get going in May 2021 after putting in our offer on the property in the January, but in the past year, very little has happened.

We’ve since had to move out of our apartment, as the new owners understandably wanted to move in and we’re now effectively camping out in a part of my husband’s parents’ new house.

As they, too, are trying to access the superbonus, our life has been packed into boxes while we our living area and office is all squeezed into a garage.

I write this surrounded by scaffolding and orange construction barrier tape, now heavily pregnant, and trying not to lose hope that we’ll have our own place to go to.

Our building project has got no further than knocking down the old wreck and laying down the concrete foundations. One year on, there’s not even the bones of a structure.

READ ALSO:

So is it still demand for the bonus and materials that’s causing the delay?

Yes, but also a huge part is down to how you can claim the bonus.

2. Credit transfer problems stopped the banks lending

Another recent cause for a further slowdown is the change in how people could access the bonus and the increasing difficulty of obtaining credit.

There are a few routes to obtaining Italy’s superbonus. The option of offsetting tax from income is likely only financially viable for high earners, as any unused tax discount gets lost.

Image: moerschy / Pixabay

Let’s say your renovation costs come to €100,000, which are tax deductible at 110 percent for five years.

So, if you have a tax break of €22,000 every year for five years, therefore, but your tax bill from your income tax, known as ‘IRPEF’, falls short of that, you lose the deduction and will end up footing the rest of the renovation bill.

READ ALSO: Do you have to be Italian to claim Italy’s building bonuses?

Note – the latest changes specify tax deductions for the superbonus will be spread over four years, not five as previously.

Little surprise, then, that the other two options to access the funds – transferring the credit (cessione del credito) or discount on the invoice (sconto in fattura) – have been more popular.

It effectively means you either trade the tax credit for cash to an Italian financial institution, such as a bank, for the credit transfer, or directly to your contractor or supplier for the discount on the invoice.

Using the credit transfer system means you’ll get cash back that you paid, directly in your bank account.

It’s a slightly riskier route than a discount on the invoice, as the latter means the the supplier recovers the bonus on your behalf, taking a slice of it as a fee.

So, you get less of the bonus but you don’t have to deal with the paperwork and the contractor takes the burden of getting the credit.

“The easiest option is the discount on the invoice,” tax expert Nicolò Bolla of Accounting Bolla told us.

“It takes care of the credit transfer. If you deal with the bank yourself, it takes some expertise and requires a little knowledge of technology and the system, such as downloading and uploading invoices.

“Contractors have multiple sales, so they are more trained to do that,” he added.

However, billions of euros of fraudulent claims led the government to introduce stricter laws, blocking being able to access credit for months, putting the bonus – and renovation projects – on hold.

Our builders were using credit from financial services provider Poste Italiane, who reduced the threshold of credit. This pushed all the building jobs back by months with no word on when works would start.

In that time, they had to search for another bank willing to fund the bonus, while home construction sites lay dormant.

3. Banks blocked and refused credit halfway through projects

Some homeowners faced extra setbacks when they encountered not only delays, but an outright cancellation of prior agreed credit.

Peter (not his real name) told us that he had got the green light to access one of the other building bonuses that can be used in conjunction with the superbonus – the Renovation Bonus (Bonus Ristrutturazioni).

READ ALSO: Budget 2022: Which of Italy’s building bonuses have been extended?

It allows homeowners to apply for a 50 percent tax reduction on carrying out renovation work in both individual properties and condominiums.

The maximum limit on expenses of €96,000 and the 50 percent offset to taxes is divided into annual instalments for 10 years. Or you can apply for the invoice discount or credit transfer.

Photo by Cristina Gottardi on Unsplash

He applied and was approved for credit transfer for works on his home in Modigliana, Emilia Romagna. After buying a property with his partner in December 2020, they began renovations in January 2021, based on credit approved by Italian bank UniCredit.

He told us they carried out €60,000 of works for a new floor and underfloor, electrics and plumbing throughout, a new boiler, replastering walls and installing a new bathroom.

That means that €30,000 credit was due from the bank, but Peter told us they are now refusing to pay out.

“The excuse from the bank is that we didn’t sign with them, however they didn’t ask us to sign anything when they opened the portal for us at the beginning,” he told us.

So, while the bank registered the renovation jobs for them on the government’s portal in order to be able to claim the bonus, they now refuse to return the credit as originally agreed.

“The thing that upsets me so much with UniCredit is we made about 10 payments to builders and suppliers costing €7.50 a time (in administration fees) to make it, and taking the time to go into the bank especially, to get it registered correctly. And to be let down by them now, really is pretty bad,” he added.

Taking this route is “harder” according to Bolla, as “banks prefer to deal with larger businesses than to give credit to individuals,” he said.

For Peter, he now has the option of deducting the tax from his annual income tax bill or finding another bank to take on and transfer the credit.

4. Finding other solutions to open up the credit transfer system

As accessing finance slowed down and projects ground to a halt, the government intervened with yet another regulatory change to the superbonus.

Along with extending the deadline of 30 percent completion of works for single family homes by three months – to the end of September 30th 2022 – the authorities also looked at how to make accessing the funds more straightforward.

The reason for so many changes stems from how the superbonus originally started.

“Two years ago, it was the Wild West. Anyone could get credit to use the bonus – a person, company or business. Due to that, the authorities lost track of sales and plenty of fraudulent claims slipped through the net,” according to Bolla.

“Everything stopped. Then they regulated too much, creating more bureaucracy and delays. So now, they’ve deregulated a little to reopen the transfer of credit,” he added.

Understanding why there were delays to accessing the bonus are complex and manifold. Along with the reasons above, banks also faced rising inflation, which in part caused them to stop lending.

“Somebody needs to offset the tax at some point. Many banks wanted to buy the credit and resell it to larger banks, but any credit that couldn’t be offset in their taxes got wasted.

“It made the banks less willing to buy credit, which in turn slowed down companies’ and individuals’ ability to access it,” he added.

Now, to keep better track of works being done, Italy’s Inland Revenue Agency (L’Agenzia delle Entrate) has introduced better tracking systems in its latest ruling. These will follow the trail of where the money is going, with the aim of cutting down on time lost to bureaucracy.

5. You might – legally – be left with a half-finished house

Depending on what you’ve agreed with your construction company, you may be taking a gamble with the superbonus no matter what, even if works have begun and the system has eased the bottleneck on claiming the funds.

Our builders would only go ahead with the project if we signed a document, in short saying that we understand the project won’t be finished if the funds aren’t available in time or if works roll on past the deadline.

Photo by Filiz Elaerts on Unsplash

The firm wasn’t going to be liable for paying for the construction of our home (and others’ projects too) if they continued to get caught in delays.

In this case, we had no choice. Sign it and hope for the best or lose the €200,000 that has already gone into the works and wreck purchase so far.

6. There are added fees to account for when claiming the superbonus

If you’ve ever sold or bought property in Italy, you’ll know there is an abundance of hidden costs associated with it.

From agency and notary fees, taxes to legal costs, buying a property in Italy can incur another ten percent of the purchase price. For a list of the hidden costs to watch out for, see our guide here.

When it comes to restoring properties using the superbonus, you’ll need to fork out for various certificates, including an energy certificate known as ‘Certificato Energetico APE’ to prove that the property would benefit from energy upgrades using government funds.

This will also need to be done afterwards to prove that the property meets the requirements of the superbonus and has jumped up at least two energy classes.

You may also incur charges from your local town hall or comune for making changes to the property. In our case, as it’s a considerable project, the administrative fee just for submitting our house plans to review cost €12,000.

In total, the cost of fees on our project – before any restoration works using the bonus have taken place – have come to €30,000.

7. The amount you claim and pay continues to rise

Since the superbonus began, the scope of house restoration projects has changed significantly.

The noted demand pushed up construction quotes and material prices continue to rise, vastly increasing the scale of a project’s budget.

It will come as a blow to home renovators who thought they were potentially getting considerable sums of money from the government and therefore making huge savings.

In fact, there will still be large pots of funds to come from the government, but the problem is the price you pay will track the increases and rise too.

Our particular home renovation project has almost doubled since we began.

We initially accounted for a final cost of €450,000 for all works, using the superbonus for almost half of that.

Instead, the quote we received in November was over €700,000 (on top of what we’ve paid for the wreck) and we were told this is unlikely to be the final cost, rising in line with continuing material price rises when works do finally get underway.

The impact of this is life-changing. In our case, it means we’ve had to apply for soaring monthly repayments for 25 years instead of 15. And that’s only if the bank agrees to grant us such a huge financial commitment – which it has, as yet, not done.

8. You might have to pay taxes if you sell your house after claiming the superbonus

At least for a while, you may have to stick with the property you’ve renovated using the superbonus.

Once you’ve claimed this building bonus, essentially you can’t sell it on for another five years if you want to avoid paying capital gains tax.

Tax expert Nicolò Bolla said that this depends on when you bought the property, however.

If you already owned the house for more than five years and took advantage of the superbonus, you can sell it on with no capital gains tax.

On the other hand, if you just bought the property to benefit from the bonus, and therefore have only owned it for under five years, you’ll be liable for the tax – that is, if you make a gain on its sale.

If you bought an old wreck and renovated it, for instance, it’s likely that you will.

For more advice on selling your property after using the superbonus, remember to check with professionals beforehand.

9. It continues to be popular and set back by delays

Despite the recently extended deadline, homeowners continue to wait in queues for their projects to begin or be completed.

Tax expert Bolla told us he gets “daily requests” for the superbonus, but issues a word of caution about the incentive.

“It is a long journey and you need to have some money to renovate your property with the bonus. It’s an expanded timeframe and there are still supply chain issues,” he said.

Despite this, though, Bolla believes it’s an “amazing” scheme. “We have a lot of energy dependence, so this is a good way to upgrade. Normally, the way we deal with our reliance on energy is to punish those who pollute more with higher energy bills, but those are always lower income people.

“Higher energy costs just punish the poor – this, instead, is a good way to solve the problem.”

See more in our articles about property in Italy on The Local.

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