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