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What taxes do you need to pay if you own a second home in Italy?

Owning a second home in Italy is a dream come true for many - but make sure you stay out of trouble with the Italian taxman.

Second homeowners in Italy still have taxes to pay, even if it's not their primary residence.
Second homeowners in Italy still have taxes to pay, even if it's not their primary residence. Photo by Jilbert Ebrahimi on Unsplash

If you’re planning to buy or have just bought a holiday home in Italy, getting through the purchase process is just the first step. There are some additional costs involved in maintaining a second property to be aware of.

Some of The Local’s readers have been in touch to ask how much they should plan to set aside for taxes on a second home.

The first thing to note is that taxes on second homes are inherently higher than primary residences – or at least, a main home qualifies for certain tax reliefs that second homes can’t benefit from.

EXPLAINED: Can second-home owners get an Italian residence permit?

This is due to the fact that a primary residence reflects the Italian constitutional right to a home. As such, utility bills may also be higher on holiday properties, compared to reduced tariffs for first homes.

Here’s an overview of what you need to consider, but remember to check with a professional as the fees owed may change according to personal circumstances, location and property type.

Taxes can be complex in Italy. Make sure you know what you're due to pay on your second home.
Make sure you know what you’re due to pay on your second home.  Photo: Julia Solonina/Unsplash

Working out the tax of owning a second property

Get ready for some acronyms, as you’ll need to get used to them if you have a second home in Italy.

As an owner of a second property, you’ll be liable to pay IUC ‘imposta unica comunale‘ (single municipal tax), which covers some levies called IMU and TARI.

READ ALSO: From DAD to DOP: The most common Italian acronyms explained

Before we jump into each of these and what they entail, the good news is the hardest part is over if you’ve managed to get through the buying part of the process.

“The cost of maintaining a property in Italy is much easier to calculate than the fees you need to work out for buying a property,” said tax expert Nicolò Bolla of Bolla Accounting.

Compared to the stamp duties, VAT payments and notary fees involved with buying a house, paying taxes is less involved – but still crucial to understand to avoid problems or possible fines from the Italian Revenue Agency (Agenzie delle Entrate).

IMU

‘Imposta Municipale Unica’ (Unified Municipal Tax) is basic rate of tax that has to be paid to the Italian state, based on the value of the property.

You don’t pay this if your main residence is in Italy and you live in the country more than six months a year. Otherwise, if it’s your second home, you must pay this tax.

For non-EU nationals without residency in Italy, including Americans and now Brits, they are allowed to spend 90 days out of every 180 in the EU.

This group of people with a second home in Italy would need to pay IMU.

Brexit: How Brits can properly plan their 90 out of 180 days in Italy and the Schengen zone

You’ll also need to pay IMU if you own a home in Italy classed as luxury property, even if it is your main residence. Italian luxury property in the Italian tax system is defined by its residential category.

Tax relief offered to first homes doesn’t apply to second homes. Photo: Nils Schirmer/Unsplash

In this case, the cadastral categories A1, A8 or A9, for tax purposes are all luxury dwellings (stately homes, villas and castles).

How much you pay depends on your property and the area you live in – payments are based on a percentage of the property value, collected by the municipality where your home is located, with part of the tax also going to the national government.

As a rough guide, you’ll need to take 5 percent of the property value and then multiply that number by a coefficient – a figure that changes according to property type.

READ ALSO: How can a non-EU citizen get a mortgage to buy property in Italy?

This will give you a taxable base and from there, you’ll be charged anything from 0.4 to 1.06 percent of that figure, depending on the municipality where your second home is located.

You won’t get a bill for this, just a deadline of when to pay and what coefficient your type of property is to be able to do the sums. IMU needs to be paid for each month and is due twice a year, in June and December.

You can pay this via a form called F24 through the bank or Post Office.

To know exactly what your final IMU tax will be, it’s best to consult an accountant who can arrange the transaction for you too.

TASI

Despite reports of this tax being abolished, it does in fact still exist but it has now been merged with the above IMU tax. The Tassa sui Servizi Indivisibili (Tax on Indivisible Services) covers services provided by the town hall or ‘municipio‘, such as road maintenance, public lighting and maintaining green spaces.

From January 1st 2020, however, the Italian government introduced a reform in order to simplify tax payments.

READ ALSO: Why now is the ‘best’ time to buy property in Italy

While settling this tax bill may have become more straightforward, it’s important to note its cost for second homes, as TASI is much higher than for primary residences.

As far as your checklist is concerned, you don’t need to pay another separate tax as it is now incorporated into IMU.

An accountant can assist on how this may affect your IMU costs.

Rubbish collection fees are paid by every property owner. Photo: Andreas SOLARO/AFP

TARI

Tassa sui rifiuti (waste tax) is the tax you need to pay for rubbish collection and doesn’t depend on the type of property or how long you are there for.

It’s a fee that you’ll pay after receiving a bill from your municipality and should be due only once a year. It includes a fixed fee based on the square metres of the house and the number of people living there.

When it comes to second homes, the calculation of how many people living there can sometimes create difficulties, but individual municipalities may offer reductions based on individual circumstances.

Irpef (Income tax)

This is personal income tax (L’imposta sul reddito delle persone fisiche), which might be confusing if you own a second home that you spend a few months a year in. How can it apply to you?

Well, it can, but the good news is that if you pay IMU tax, you shouldn’t have to worry about IRPEF calculations.

READ ALSO: The real cost of buying a house in Italy as a foreigner

A second home can be subject to income tax if it is rented out and generates rental income.

However, if you are using it as your second home only and don’t rent it out when you’re not in Italy, income tax is not due.

What if I want to rent out my second home?

If you’ve considered letting your property in Italy, you’ll need to complete extra paperwork as you would be earning money from your second home.

Firstly, IRPEF would be due on the income generated from rent paid by your tenants according to the established scale rates.

In Italy, income tax ranges from 23 percent on the first €15,000 gained, gradually increasing to 43 percent tax as earnings rise.

Got a property to rent out when you're not there? Check what income tax you'll need to pay on your earnings.
Got a property to rent out? Check what income tax you’ll need to pay on your earnings. Photo: Luca BravoUnsplash

There are also municipal and regional taxes to add on to this income tax too.

If you’re a US citizen, there’s an added consideration which can be “tricky”, Bolla warned.

“Americans would need to pay taxes to both America and Italy if you earn money in Italy, as their taxation principle is different,” he said.

There’s also the question of who you want to rent it out to and for how long, since renting your home as a residential property is different from using it as a holiday let, for example, with different obligations for both.

A professional could guide you on which route is right for your circumstances.

The type of property you own as a second home

There are tax exemptions and concessions for second home owners, “depending on the type of property and its conditions”, according to Bolla.

Some of these exemptions were introduced by the 2021 Budget Law (La Legge di Bilancio) and others were cancelled by the Support Decree (Decreto Sotegni).

Some new measures for 2021 where property tax is concerned include concessions for foreign national pensioners, for example.

But the variables are vast and there’s no one-size-fits-all solution to how much tax you have to pay on your second home.

“Always ask what the type of property your house is classified as and what is the most convenient use of your property, taking your situation into account,” Bolla advised.

Nicolò Bolla runs Accounting Bolla, a global tax and accountancy firm based in Italy. You can contact him further here.

Please note The Local cannot advise on specific cases. For more information on property in Italy, check our guides here.

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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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