I hope you had a good Easter and didn’t eat too much. I took a break with the family to go and visit some friends in a Hotel on Lago di Garda during the Easter period. We had a great time even though it rained every day that we were there. That being said I got to see a few nice towns and learn a few new things.

We stayed just outside Bardolino, but also visited briefly Lasize. Lasize, I discovered, was the first comune in Italy. Apparently the King of Lasize in 983 a.c decided to concede the management of the town to the local civil authority, an interesting fact, I thought. We also visited Sirmione, which I know of because of the vials of sulphuric water which we used to put in a nebulizer for my son when he was a baby to clear his airways during the period of the winter cold.

Lastly, we visited a place called the Vittoriale degli Italiani, just outside the town of Salò. (https://www.vittoriale.it/). Salò was the last fascist town in the whole of Italy and the Vittoriale appears to be a tribute to that fact. It was, also, the home of the poet and soldier Gabriele D’Annunzio and a tribute to his heroism during World War I.

I can say that I am not a big fan of fascism, but it was very interesting to visit and certainly an unexpected and eye opening trip down Italy’s recent past. All of this whilst I started the book ‘The General and his Labyrinth’ by Gabriel Garcia Marquez, about Simòn Bolivar and reflections on the end of his life after the liberation of South America from the Spanish.(I think I may need another holiday after all these cultural learnings!)

Anyway, talking of fascism, it leads me nicely onto the subject of today’s E.zine: Tax and tax deductions!

I am not sure if tax authorities can be considered as fascist but certainly they fit the description in many ways:
‘An ideology and movement, centralized autocracy, militarism, forcible suppression of opposition, belief in a natural social hierarchy’

Joking aside, they do tend to operate with an iron fist and as I have mentioned on many occasions it is imperative that incomes and assets etc are declared properly and within the right time. That being said, in Italy we do get the possibility to utilise the system of detracting and deductions from income which can sometimes help to reduce our overall tax burden each year.

In this E-zine I will summarise the main ones (please be mindful of the fact that there are specific details related to each category and so I would recommend you check the link to the CAF at the bottom of the email if you are interested in any specific area).

Also please note that if you are on a forfettario tax regime in Italy, ie. 100K flat tax, 7% pensionato or partita IVA forfettario etc, then it will NOT be possible to deduct any of these expenses from your income!

But without further ado, here is the list of deductions which you might be interested in:

Medical expenses of any type: (generic, specialists, surgical, pharmacy, etc) can deduct at 19% of the total annual cost which exceeds the excess/deductible of €129,11. You need to add all your expenses together and deduct the €129,11, 19% of the final amount can be used against tax; if the cumulative amounts do not exceed the €129,11 then no deduction is allowed.

In the expenses calculation you may also include those which have been reimbursed by insurances (personal or corporate).

If your annual expenses exceed €15493,71 it is possible to spread the deduction over 4 years in equal parts.
(The deduction system, without limit of the amount over €129,11 would apply for anyone with special assistance needs e.g. car accident victim).
(Expenses of family members who are ‘a carico’ also qualify).

To use the deductions system, you must be in possession of the relevant documentation that certifies the expenditure i.e. invoice, receipt, quietanza etc. Your receipt should always show the nature of the medicine / treatment and include your codice fiscale.

***When you buy something at the farmacia with your tessera sanitaria, and it is a qualified medicine, then it is automatically registered with the Agenzia delle Entrate. This does not mean that you no longer need the ‘scontrini’. Your commercialista is required to ask for the evidence of purchase to match up with the payments received by the AdE***

Insurance premiums:
19% on the total costs of insurance policies ( Italian and overseas), as detailed below:

• Maximum total annual premium of €530 for life and accident, and non self-sufficiency type policies
• For insurance contracts covering death and permanent disability and long term care, the maximum premium total is €1291,14
• For insurance contracts covering individuals with serious disabilities, on risk of death, the maximum premium total is €750

Schooling (non university):
Nursery, primary or secondary school (private or public school) a maximum of €800 expenditure on which the 19% will be calculated i.e. max amount detraction €152 pa.

Private university education costs:

There are other conditions, such as how close the family home is to the university which the student is attending, so it’s worth checking out the rules. The above table gives a rough idea of the kind of amounts that can be deducted depending on where the university is located in Italy.

Funeral expenses:
19% of maximum annual expenditure €1550 i.e. (maximum detraction of €294.50).
The invoice needs to be in the name of the person making the payment and paid via traceable means (not cash). Equally the name on the invoice must have a direct family relationship to the deceased.

Sporting activities for children aged between 5 and 18 years old:
19% on a maximum spend of €210pa i.e.€40 detraction .

Veterinary bills:
19% on annual expenditure between €129,11 and €387,84 i.e €49 – 19% of €258pa.
The deduction is for the person listed on the fattura and does not have to be the owner of the animal, therefore, for a couple it makes sense that you both pay at least once if you have significant veterinary bills for the year.

Cost of rent (based on income):
a maximum of €300 if your income is below €15493,71 and €150 if your income is between €15493,71 and €30987,41.
There are differences for those who are renting from an organisation rather than private individual, under 35’s, people who transfer their residence to another comune more than 100kms from their current home and also students who study at a university away from comune of residence. Check details with your commercialista if you think they might apply to you.

Costs of public transport:
as of the 1st Jan 2018 it is possible to detract 19% of the costs of an ‘abbonamento’ for local, regional and interregional public transport, up to a maximum spend of €250. This limit also applies to the family, if there are more than 1 ‘abbonamenti’ but cumulatively no more than €250 in total.

Sismabonus: 50% on maximum spend of €96000 deductible over 5 years if you live in seismic area

Superbonus: see link below for details:

• Bonus mobili e elettrodomestici: 50% on a maximum spend of €5000, deductible from income over 10 years (only available until 31st Dec 2024)
• Bonus Verde: 50% on maximum spend deductible over 10 years (only available until 31st Dec 2024)
• Bonus barriere architettoniche: 75% the maximum depends on the type of work being performed (only available until 31st Dec 2025)

If you think you might be eligible for any of the bonuses named above, please check the details and do sufficient research or take professional advice before starting work to ensure that you are eligible for the deductions.

It would appear as though my timing was off slightly regarding my last E-zine, specifically in relation to the payment of the €2000 voluntary contribution to the Italian healthcare system. Two people contacted me to say that the UK Embassy website updated their website about 12 hours before my E-zine was released which I had not yet seen. The text was as follows:

As is often the case with communications of this sort it often throws up more questions than answers and so I will wait for further clarification on the issue, but at the very least, I think it can be assumed that any Brit registered in Italy before 1st January 2021 will not be paying any more than they were before for access to the health service in Italy.

The lunch is open to anyone, and is more about connecting people than just ‘touting for business’. People from all walks of life come along, from UN retirees, yoga teachers, online networkers, lawyers, real estate agents, English teachers, and people who just want to connect and make friends. So, if you are in Rome and would like to come along then please do so. Just please give us a few advance days notice so we can book you a place.

If you have any questions about any of these issues and how they apply to you and your financial situation, or if you think that you might be paying more tax than need to then do get in touch and I will be happy to see if I can help you with your plans.

I can be contacted on email: gareth.horsfall@spectrum-ifa.com or on cell: +39 333 6492356

You can now follow me on: 

Hello again and welcome to my latest article (which was supposed to be released in February but has now ridden over into March 2024).

My delay was caused by some new found success recently as a star of YouTube (the use of the term ‘star of You Tube’ might be stretching it a bit, but I will leave it for now).

You may have seen the interview I did (you can see it again HERE) for Real Expats in Italy channel .

It has taken my name a little bit farther and wider that it had been previously and created a surge in new enquiries and queries, which I am very grateful for. It’s always nice to be introduced to new people and learn more about how people are living in Italy. The more I understand the more I can hopefully pass back to you through this E-zine. Anyway, hence why the E-zine is a bit later than usual.

The interesting thing is that the financial impact is very different for varying groups of people. For example, I was speaking with a lady from New York recently and when I explained that she would have to pay the annual charge of €2000 to access healthcare (excluding doctors visits and prescriptions), her response was “well, I am paying $2000 already……each month!, so that would be a huge win for me”!  Clearly when put into context of what people have to pay in the US for healthcare it seems a bargain.

The category which seem to have been caught out are the UK citizens resident in Italy pre-Brexit and who were accessing the healthcare system based on income criteria.  (See the income calculation on the Ministero della Salute website link below).  This still applies for EU citizens moving to Italy and wanting to buy into the healthcare system.

https://www.salute.gov.it/imgs/C_17_pagineAree_2522_listaFile_itemName_0_file.pdf

I was contacted by 2 people in late January to tell me that their local health offices were now asking for the full € 2000 pa. payment to renew their Tessera Sanitaria.   They were not recognising the fact that they were UK citizens covered by the UK / EU withdrawal agreement.  To be fair to the Italian authorities nothing was mentioned in the text stating that there would be an exclusion clause for UK citizens resident pre-Brexit, so it’s no surprise they were asked for the full amount.   I asked some people I know who are still involved in the campaign to protect UK citizens rights post-Brexit and they could only tell me that the issue had been lodged with the UK Embassy, but that they had not heard anything back. I am not sure if that situation has changed but it may just be one of those cases where we just have to learn to live with it.

Alderney; Andorra;  Anguilla;  Antigua e Barbuda; Dutch Antilles; Aruba; Bahama; Bahrein; Barbados; Belize; Bermuda; Brunei; Costa Rica; Dominican Republic; United Arab Emirates, Ecuador; Philippines; Gibraltar; Gibuti; Grenada; Guernsey; Hong Kong; Isle of Man; Cayman Islands; Cook Islands; Marshall Islands ;   Isole Vergini Britanniche; Jersey; Libano; Liberia; Liechtenstein; Macao; Malaysia; Maldive; Maurizio;   Monserrat; Nauru; Niue; Oman; Panama; Polinesia Francese; Monaco; Sark; Seychelles; Singapore; Saint Kitts e Nevis; Saint Lucia; Saint Vincent e Grenadine; Taiwan; Tonga; Turks e Caicos; Tuvalu; Uruguay; Vanuatu; Samoa.

I mention this because a few people have contacted me recently who have had, or are having, an ‘expat’ professional career often working in places like Hong Kong or the United Arab Emirates and have accumulated assets in those jurisdictions; mainly investment portfolios and savings. In addition, it is not unusual for someone working overseas to invest/save in an offshore territory like Jersey or the Isle of Man as a way of retaining assets in a more familiar jurisdiction whilst living abroad. However, a subsequent move to Italy would mean that you would end up paying double the amount of wealth tax, and not only.  In addition, Italy penalises some assets which are not held within the European regulatory framework so you could end up getting a double whammy tax bill when it could quite easily be avoided by re-structuring assets in a more tax efficient manner for Italian life.

The document pretty much confirms what I have known and been advising clients and commercialisti for some time. The first thing being that the Italian ‘previdenza complementare’ tax regime cannot be applied to these accounts, but equally neither should the wealth tax be applied to this kind of retirement accounts.

If you have any kind of UK personal pension account then I would suggest you take a look at the section RW on your Italian tax return and see if the wealth tax has been applied. The tax will be shown in the box No 15, and it should not be there!   If you find this is the case you need to speak with your commercialista. Instead the box No 20 should appear with an ‘X’, in it which applies the ‘monitoraggio’ status, but not taxed.  Also, do not assume that because wealth tax is not applied that it does not have to be reported…it does.  It’s just that it is monitored as an asset rather than taxed on the fund each year.   You will  normally be subjected to tax when you make a withdrawal from the account. If you are unsure what to look at, then you can always contact me and I can take a look for you.

Tax declaration time is rapidly approaching, commercialisti are starting to be run off their feet and mistakes can be made so if you are invested in a UK personal pension plan (individual or corporate), a SIPP, or a QROP’s, then check your tax return for accuracy and ensure that you are not paying tax that you shouldn’t be paying!

I give everyone a chance to speak and introduce themselves.. If you run a business you can explain to the group what you do, and if you are along to listen to others and gather information you can just explain why you are in Italy and tell us a story about your life. I have found it to be a great way to connect with others, for many reasons, and not just business people exclusively. The €25 a head menu is shown below for your information. So, I hope you can join us. All you need do is to contact silvia.loi@spectrum-ifa.com and let her know that you would like to be added to the list. (You need to book no later than Tuesday 9th April)

In my next article I will be looking at the subject of the expenses that you can detract from your taxes in Italy, such as medical expenses. So stay tuned for the next edition!

If you have any questions about any of these issues and how they apply to you and your financial situation, or if you think that you might be paying more than need to, then do get in touch and I will be happy to see if I can help you with your plans.

I can be contacted on email: gareth.horsfall@spectrum-ifa.com or on cell: +39 333 6492356

I am back from The Spectrum IFA Group conference 2024 which this year was held in Budapest. I have been to Budapest before but had forgotten just how interesting the city is.

Getting there was relatively easy enough from Rome: Ryanair to Budapest. Getting back was logistically a bit more difficult, needing to re-route through Prague on a Friday afternoon, creating a 4 and  1/2 hr round trip. This I found quite strange. On a Friday there weren’t many flights going from Budapest to Rome. There was one that returned at some ungodly hour, but I preferred to get home earlier so took the alternative route.

Ryanair is always a variable experience for me. The big panic is always how much your bag weighs and if your hand luggage will fit in the container, because you are never sure who is going to ask and if they are going to be pedantic about the rules, or not. In my case I had packed to perfection on the way out so there was no question, but my main bag weight limit was right on the nose of 20kg. My carry on bag, quasi empty.

At the Budapest end all went smoothly as my bag weighed 21.3kgs on their scales and I guess they used some discretion that my main bag was empty and so the extra could go through. Going through Prague airport was a different story. There, interestingly, my bag weigh 23.4 kgs (which was probably more likely!) so I didn’t argue that point. However, I got the Ryanair agent who went by the book. At this point I tried to argue that my carry-on was almost empty and I could just move some things across, but the overall weight would be the same, so what’s the difference? As you might imagine that didn’t work. He did offer to allow me to move to the side and unpack my main luggage and put some things in my hand luggage. I just couldn’t stand it, so I just agreed to pay the extra fee. We were talking 2kgs at the most and I didn’t have the energy to start unpacking and packing again in front of a queue of people. What a pain! Anyway, I guess I should be happy that I managed to at least survive the Budapest side without issue.

So why am I mentioning all of this? Well, one of the main themes of the conference was Artificial Intelligence (AI) and the impact it will have on our lives in the here and now and the not so distant future. The question is will Ryanair become more consistent when they inevitably use AI in their booking procedures, or maybe they will just continue, for some time to come, with their current form of ‘intelligence’ instead of the artificial type?  Knowing Ryanair, it won’t take long to find out.

Talking points for 2024 and beyond
Anyway, enough about my travel woes and onto some of the talking points raised and ideas for the future which I learned from The Spectrum IFA Group conference 2024.

A quick look back at the markets – 2023
You may have noticed by now that there was a slight rally in the stock market towards the end of 2023. What you may not have noticed was that it was heavily concentrated in one specific sector: TECH! However throughout the year there were some other more interesting developments which caused market volatility during the year.

AI
The hype around AI started driving up markets early in the year. I am sure you know the hype by now: AI will take over the world, humans will become batteries for electricity generation, we are all going to lose our jobs and be replaced by machines, it will be impossible to speak with a human again etc etc. Well, let me put your mind at rest, none of the above are true….at least for now.

(MIT in the USA think that AI is unlikely to replace as many jobs as we think and even those that it does, it will probably not do the job as well as humans. https://fortune.com/2024/01/22/ai-jobs-humans-cost-mit-study/)

If you don’t believe me then take a look at the following slide, courtesy of Evelyn partners, which shows the G7 median unemployment rate going back to 1755! Whichever jobs are displaced by AI will likely be created in some other field, of which may not even exist yet!

Not only, but AI is in in its infancy (think internet 2000 – if you haven’t used ChatGPT yet I would encourage you to ask it some questions and see what kind of responses you receive, you will likely be under whelmed ), but it will likely develop quicker than any technology we have ever seen in human history!

However, here is the list of the top professions which might be affected by AI (Teachers beware!!)

And the least affected:

Here is an interesting fact for you –

In the Federal Reserve in the USA there are approximately 500 employees of which 400 are at PhD level and above, who are all engaged in making economic forecasts. The problem is that they are absolutely terrible at forecasting. In almost every period their forward economic projections turn out to be wrong. As an example in 2021 they anticipated that interest rates in 2023 would be at 1%, when in fact they were 5.25%!

They use historical economic data to predict the future rather than forward looking models which are now readily available from many different companies. Is this an AI opportunity?

But enough of AI, some other strange hype happened during 2023….

So, you might be forgiven for wondering why the markets didn’t really climb during the year when all these actors were at play. Well, the truth is that markets did climb, but they also fell back around November. The hype died. Every 3 or 4 months in 2023 there was a new theme which came to life and then quickly died away. It was almost like everyone was searching for some sign of good news in a year, which otherwise was once again occupied by concerns about global war. Thankfully the year finished on a positive note mainly because of the rise in stock prices of the Magnificent 7 – as they are now known – (Meta, Amazon, Alphabet (Google), Apple, Microsoft, Nvidia and Tesla).

To 2024 and beyond
So looking forward, what is awaiting us?

The USA is faced with multiple issues that need fixing, none more so than the illegal immigration problem, bringing manufacturing back to the US, fixing the rural rust belt crisis and the fentanyl crisis, and there is a possibility that under Trump they may also leave NATO. The USA is retreating from the rest of the world and becoming more protectionist. Globalisation is unwinding. In some ways it is starting to look very much like the period of the 60’s and 70’s: wars, geopolitical risk, and perhaps the end of the centre left and not just in the US, but also around the world. So all eyes are on the USA this year. US general election years can be good for investment markets (there are no guarantees), but often the government in power will do its utmost to stimulate the economy, consequently stimulating the markets which may help with the voters. It’s all to play for in a world which is changing very quickly.

Elections around the world
Let us not forget that there are also going to be a further 64 elections around the world in 2024, plus the European Union. This will cover 49% of the world’s population. We might see some interesting results as the year progresses.

However, a number of our speakers made the case that perhaps the tide has turned. Not since the 1980’s and 1990’s have they seen such value in the bond sector. Prices are looking attractive, particularly US treasuries and sovereign bonds over a 1, 2 and 5 year periods. Not only do sovereign bonds now have some potential to provide reasonable yields (interest), but also capital growth and capital protection of your portfolio as well.

Portfolio diversification in the1990’s, when I first started investing, very much looked like a 60/40 portfolio. 60% equities and 40% Bonds or vice versa depending on the way of the economy. These days we have many more asset classes to help diversify our portfolio, but it might be that your portfolio starts to resemble those portfolios of the past moving forward.

Healthcare
As I stated above healthcare was very much a hyped theme in 2023, but it will continue to play a much more important role for growth in coming years. I am not just talking about over publicised weight loss drugs but the developments in medical technology. The world is aging. Almost all developed countries in the world now have a falling or negative replacement rate (the birth to death ratio to sustain population). The Far East: China, S. Korea, Japan, for example have dangerously low replacement rates. This means that their populations are aging at a fast rate and with the benefit of better medical care they are living longer. Italy included!

Medical technology will help to relieve the stress on already over-burdened health care systems. A great example of this is my mother in law, who had polio when younger, now has difficulty walking and more importantly a fear of falling. She recently told me that she had bought an iPhone and iWatch because the iWatch will call for an ambulance if your heart rate drops and it suspects that you are unconscious and need medical help.

We might even see more of these things become mandatory if we want to receive access to our health care systems. Imagine your doctor being able to get real time access to your heart rate data if you are suffering from cardiovascular problems.

This will be a huge growth area, but identifying the tech winners might be harder than you might think.

Defence stocks will almost certainly benefit from a multi-year period of growth as armoury, weaponry and military logistical hardware be required for re-stocking purposes by nations across the world. Who will buy from who will very much depend on military and economic interests.

I read the other day that to power the AI universe that the utopian thinkers would have us believe is our future, we would need so much energy that we would effectively need to cover the earth with solar panel and wind turbines, if we were to try and support it with green sustainable energy sources. To what degree that is true, I don’t know, but we are going to need an incredible amount of energy to power the tech needs of the future and it does beckon the question, where is all that energy going to come from? We need a revolution in the storage of energy and no-one is talking about that…yet.

Rewarding Loyalty
As a shopper we all like to think that we are loyal customers. A lot of our favourite places to shop and eat are digging deep to discover just how loyal we really are.

McDonalds is a great example, you can now sign up to their loyalty scheme and receive offers for free burgers and other deals. They are seeing the customer return rate increase as a result of their loyalty schemes. (Interestingly, they are, at the same time pulling away from healthy food options because they were a resounding failure because who wants to go to McDonalds for a salad and a vegan burger… right?!)

Costco is another success in the USA. They are a membership driven business. Their prices and quality of goods are second to none (I have visited one in the UK and can confirm it’s true!) but it’s not that which pulls clients in. They actually have the cheapest gas prices in the USA and this drives people to become members which then allows them to market to each and every customer according to their specific needs.

Customer focused businesses will survive in the modern world.

And finally….boring old infrastructure
(For any non-UK person reading this, HS2 is the high speed railway which the UK has been planning and building for years and is turning into a national farce. But why am I mentioning this? )

Did you know that the USA is in the process of building 50-100 equivalent high speed rail networks?

Infrastructure companies, those building tunnels, roads, railways, electricity grids, toll roads, inter-connected cities, schooling, healthcare facilities etc, leading up to 2023, were considered to be solid businesses in which to invest that would provide long lasting portfolio stability and a decent return. However like most other sectors they were also burdened with debt. In 2022/2023 the interest rate spike suddenly meant they had to contend with significantly increased debt repayments and therefore started restructuring their businesses. The markets didn’t like that and most stocks in this area were down 30-40% in 2023, that created a buying opportunity, because in the end some boring old businesses are worth investing in.

The USA is undergoing significant infrastructure build. A southern border wall is almost assured to be erected following the US election, whoever comes ino power, and besides that we need to update, modify and prepare our economies for the future. Infrastructure spend is going to continue unabated.

So on that note I will leave it there. I just wanted to add a note about some of my activities planned for 2024.

In 2024 I will be expanding my short video content on topics that come up during the year,  and I can do a quick video about them.  I will, of course expand on these subjects in my E-zine. If you are interested then you can see the videos, to date, on my page on The Spectrum IFA Group website. Just click our logo to the right to take you to the page.

In this E-zine I am going to provide a brief summary of the taxes which mostly affect you and your lives in Italy. It is not an exhaustive list, but you can use this for reference or discussion tool with your commercialista if you need to.

There may be specific elements regarding your personal situation, but I shall discuss the most important ones hat might affect you. Throughout this article, I shall also describe the latest changes from the Legge di Bilancio which have now been introduced in 2024.

Summary of the main taxes that affect your life as a ‘straniero/a living in Italy
The first thing you need to remember, as a fiscally resident individual of Italy, is that you are subject to taxation on your worldwide earned and non-earned income: capital gains and assets (including property). It is your job to make sure that you report these to your commercialista each year to complete your tax return. But before you do it for the first time, a financial planning exercise can come always come in useful.
Fiscal residency generally means that you qualify under ‘1’ of the following criteria:

1. You are registered as a resident on the anagrafe
2. You spend more than 183 days a fiscal year ( calendar year) in Italy
3. You have your main business, social or family interests in the country

TAX ON INCOME
NEW INCOME TAX RATES FOR 2024 (IRPEF)
In a move to simplify the tax regime in Italy the tax bands have now moved from 4 to 3 in 2024.

EMPLOYMENT

If you are employed or self employed then there are multiple options available, from partita iva, partita iva, regime forfettario, rientro di cervello, amongst others. I won’t go into details here as these really need to be looked at on a case by case basis, but needless to say that there are financial planning opportunities. If you are working, or intending to work, in Italy or if you have any questions in this area you can contact me on gareth.horsfall@spectrum-ifa.com

2024 Change: INBOUND WORKERS TAX REGIME
Regarding the inbound workers tax incentive. The previous tax regime was a 70 – 90% income tax (and social security contributions) deduction for a period of 5 years. This has been reduced to 50%, capped at an annual gross income of €600,000. The time spent as non-resident of Italy prior to applying has been increased to 3 years, (or 6 – 7 years if there is continuity in the employment relationship). However, Italian residency must now be retained for 4 years in Italy, whereas it was previously 2. They have also introduced a requirement for a high level of specialisation (degrees, masters etc) in the qualifications necessary for the job in question.

If you have paid tax already on that income, then a tax credit will be given for the tax paid in the country of origin (assuming that the country has a double taxation agreement with Italy). Any difference between the tax rates in the country of origin and Italy will have to be paid.

I often hear stories of people who are told by their commercialista that their state pension / social security pension is not taxable in Italy, and, more recently I have seen numerous videos on Youtube of individuals who also make this claim. This is absolutely NOT the case!! The UK state pension and US social security are 100% taxable in Italy. It is not excluded from the double taxation treaties and therefore must be declared in Italy. Failure to declare could mean fines and penalties.

2024 Change: NO TAX AREA
For some time now there has been what is know as a NO TAX AREA for someone receiving a pension in Italy (“pensioner” is defined as someone who is receiving official state benefits i.e., social security or state pension). No distinction is made between pensions being paid from abroad or within Italy.

From 2024 the NO TAX AREA has been increased to €8500 per annum.
It is important to understand that this is NOT an allowance i.e., an exclusion of income tax on the first €8500 for ALL pensioners. It is a tax credit system. If your total income (reddito complessivo) is €8500 or less then all the tax payable on your pension will be provided as a tax credit. HOWEVER, the more your total income, from all sources, increases over €8500, the more of the tax credit you lose. If your total income is €55000 or above you would not receive any tax credit.

GOVERNMENT DERIVED PENSIONS
It is a good idea to define what is meant by government paid pensions. The definition according to the Italy / UK / USA double taxation convention 1988 is, paid from:

” a political or an administrative subdivision or a local authority”

This generally means civil servants of any kind and foreign office employees but would generally include teachers who have worked in a public school, health care workers, military personnel, police fire service etc. In these cases, the pension awarded is taxable only in the state in which it originates, and tax is generally deducted at source in that country of origin.

But there are some tax idiosyncrasies to look out for here. On the positive side, this income is not taken into account when calculating the tax on your other income sources in Italy, e.g. rental income, and it is not declared on your tax declaration in Italy.

On the negative side, for those of you who are thinking of becoming citizens of Italy, these pensions are only taxed in the state of origin UNLESS you become a citizen of Italy, or are one already, in which case it becomes taxable. So for anyone thinking about cittadinanza, plan before you leap!

My final note on pensions is to say that ensuring that they are filed correctly on your tax return in Italy is essential. There are only various shades of grey when it comes to how to declare overseas pensions correctly. Speaking to the right experts might mean the difference between paying more tax than you need to.

INVESTMENT INCOME AND CAPITAL GAINS
As of 1st January 2017, interest from savings, income from investments in the form of dividends and other non-earned income payments stands unchanged at a flat tax rate of 26%. Realised capital gains are also taxed at the same rate of 26%.

(Interest from Italian government bonds and government bonds from ‘white list’ countries are still taxed at 12.5% rather than 26%, as detailed above. This is another quirk of Italian tax law as this means that you pay less tax as a holder of government bonds in Pakistan or Kazakhstan, than a holder of corporate bonds from Italian giants ENI or FIAT).

BANK ACCOUNTS AND DEPOSITS

If you have any questions about any of these taxes and how they apply to you and your financial situation, or if you think that you might be paying more than need to, then do get in touch and I will be happy to see if I can help you with your plans.   

I can be contacted on email: gareth.horsfall@spectrum-ifa.com or on cell: +39 333 6492356 

I have held off this subject for a while because in the finance industry we have been waiting for some figures to confirm what has to date been expected, but as yet could not be verified: slowing inflation figures.

This has now been demonstrated in 2 countries: The USA and the UK (and it is likely that the EU will follow suit)

On November 1st the Fed announced that inflation had slowed in the States slowing from 3.8% in August to 3.7% in November. This is a good signal that interest rate rises in the USA have had the desired effect on inflation and so they decided to keep policy rates on hold at 5.25-5.5%

The UK also announced more dramatic falls in inflation, from 6.7% in September to 4.6% in October. That’s quite the fall, and resulted in the same action from the Bank of England: interest rates will be kept on hold.

Not a lot of time left for savers and higher interest rates
As a result, anyone who is looking to pick up the best interest rates on their cash will more than likely need to act fast now. It is highly likely that we have reached the peak interest rate in the cycle and so the direction will more than likely be down from here. Remember that Central Banks have a 2% inflation target and whilst there is little chance of that happening (in my humble opinion!) for some time to come yet, they will quickly want to reduce interest rates to stimulate the home buying sector, making it cheaper for new borrowers and also to alleviate the pressure on existing borrowers with higher repayments, hence stimulating overall spending and avoiding deep recession.

That doesn’t bode well for savers who have been eyeing the delicious Burrata-esque interest rates on cash in the last year. The banks will very likely be ahead of the trend and start lowering their fixed term offers before the central bank rate falls. In fact we are already seeing that a number of fixed rate offers are being withdrawn.

Therefore, is it time to Invest rather than sitting on cash?
I think this has been the second most asked question of me in 2023.

I imagine that you think that my answer has always been to invest, given that this is the main service that I offer clients. However, you would be wrong! I have, on a number of occasions advised clients to seek out better deposit rates on cash. It all depends on circumstances. In general, anyone needing cash in the short term (1-2 years) would be advised to keep the required amount in cash to cover any bigger one-off expenses and the same would apply whether interest rates are at zero or 5%. However, my advice is, and has always been, that if you have a longer term horizon i.e you intend on living on a return from capital over the next 10 or 20 years, or even longer, then investing is the better option. Why? Because quite simply cash is a terrible way to hold capital long term and trying to time entry into the markets is an impossible task.

But I repeat this mantra often, so let me show you some great slides that I have received from Rathbones Investment managers recently which go a bit deeper into the understanding of why cash is a bad medium to long term option.

IN THE LONG TERM INVESTING IN EQUITIES HAS COMFORTABLY BEATEN CASH

RETURNS FROM CASH HAVE FAILED TO KEEP UP WITH INFLATION FOR LONGER PERIODS

EQUITIES ARE FORECASTED TO RETURN MORE THAN CASH OVER THE NEXT DECADE

In addition, someone I know who is a UK Independent financial advisor (thanks for sending this Chris!) sent me some other useful information which I want to share with you on the same topic.

So, does investing even make sense anymore?
First, it’s worth reminding ourselves that the laws of capitalism haven’t changed:

• Governments must pay higher returns than cash to borrow. Governments NEED to raise money through debt. It’s what keeps pensions paid and the lights on. If cash rates are at 5%, government bonds have to offer people MORE than that to tempt them out of the bank – even more so if they want them to lock it up for 10 years
• Companies must pay more than governments to borrow. Companies NEED to incentivise you to lend to them, rather than to the government … which means paying you more than the government does! If cash is at 5%, and government bonds are at 6% (say)… corporate debt must be higher (otherwise why take the risk?!)
• Equities have to offer the chance of being paid more than corporate bonds. Companies ALSO need to generate money for their shareholders (who are taking even more risk than their bondholders). Because if their shareholders could do better leaving their money in the bank … soon there’d be no shareholders. And the decision maker at a company knows that. Any new project requiring a cash investment will be judged against the bank rate. If a new project doesn’t have the potential to beat what the bank’s offering, why do it?

The bottom line is that cash sets the bar. Everything else then needs to jump over it.

Of course, it’s tempting to believe that today’s investment circumstances are unique. “This time it’s different!”. Inflation is high. Government debt levels have soared. Geopolitical hotspots are flaring up in Ukraine, the Middle East and Taiwan. Add to that the transformational developments in AI and the increasingly savage impact of climate change. But is it really different this time?

Look at the below chart. Between 1993 and 2007, interest rates averaged 5.35%. Government debt levels were rising sharply*. Geopolitical hotspots were flaring up in Yugoslavia, the Middle East and Russia. The internet was revolutionising society. In the face of all that, surely just staying in cash, at 5.25%, was best?

ABSOLUTELY NOT!

That higher cash bar created better jumpers. The FTSE 100 (with dividends reinvested) returned 8.1% annualised over that period.

The world continued to jump over the bar… and it will do in the next economic cycle too.

Markets are a forward looking mechanism
I will have a brief final word on this matter. I want to tell you a personal story.

In 2008 / 2009 my wife and I had some capital to invest, around €40,000. We had not had a lump sum of this nature to invest in our whole lives. We had mainly saved from income. At the time I had just finished Warren Buffets book ‘The snowball: Warren Buffet and the business of life’. I wanted to learn more from the great investors and understand what decisions they took to help them in their investing decisions so that I could be a better adviser for you, my clients. We just happened to have this capital now, which I knew needed investing for me and my family.

You may remember than 2008 /2009 was the height of the Financial Crisis and the financial markets and general global financial system were teetering on the brink of total collapse. It didn’t appear to be a good time to be investing. However, I knew what I needed to do.

I can only tell you that selecting the funds I wanted to purchase and then actually doing it was one of the hardest things I have ever done with money. It totally went against every grain of common sense in my body, given the state of the financial system at the time. (I was party to just how bad it was through our internal communications from fund managers and financial experts alike) Why invest when the world is in such bad shape? But, I didn’t let my heart rule out and instead went with my head.

What happened over the coming months was that the portfolio I had selected went down 20% in the next month and it left me wondering whether I had done the right thing or not. (and before you ask, I never told my wife about this until about 6 months later!) . But I stuck with the plan and 3 months after that the portfolio had bounced back and was in positive territory again.

Lessons learned

I learned 2 very important lessons from that experience:

1. You can’t time markets. So don’t even try. If you happen to have capital that you need to invest around the time when markets have fallen then it is going to be more or less the best time to get in. The valuations may go lower in the short term but in the medium to long term you are going to get the best valuations.

2.  Markets will bounce back before the economy does.  At the time I had invested,  and the valuations had increased, we were in the worst of that economic period.  The bounce came from some political decisions to stimulate the economy, but those decisions would take years before the results fed through to the general economy.

If you would like to discuss anything about this article with me, then please do get in touch on gareth.horsfall@spectrum-ifa.com or message/call me on +39 3336492356

It was great to recently do an interview with Michelle Smith from Real Expats Living in Italy Youtube channel.   We talked about my work, life and living in ‘Il bel Paese’.  Great fun.  I wish her all the best with the channel and hope it helps people already living in or thinking about moving to Italy. 

Thinking about making the move to Italy? Wondering if it’s all sunshine, wine, and pizza? From the moment you step foot in Italy, you’ll be captivated by its rich history, breathtaking landscapes, and vibrant culture. But beneath the surface, there are challenges and realities that may surprise you. Michelle, is an expat living in Italy, and provides an unfiltered look at what it’s really like to live, work, and thrive in this beautiful country.

This isn’t your typical travel channel or glossy brochure. It’s a no-holds-barred exploration of the highs and lows of expat life in Italy. Discover the unvarnished truth, helping you make an informed decision about your own Italian adventure.

I am back in the office after Le Tour de Finance dates last week in Abruzzo and Marche…..and I learned something interesting from the people that came along!

It was great to be getting out of the office again and going and touring the country with our financial experts. I have to admit that the organisation of the events is a bit stressful: finding and negotiating with the venue, finding the right people to come and speak and then dealing with the logistics over the 2 days. But, in the end, it is not just good for work, but I really enjoy being able to be to be out and about, visit new parts of Italy and meet new people and speak with old, alike.

These Le Tour de Finance events were all about the ladies!

I had deliberately invited only female speakers to get another perspective on the world of finance this time and although I can’t exactly put my finger on what was different, the atmosphere was different in some way. Exactly what I can’t say, but something for sure. So, I will put that down as a success!

I did mention above that I learned something from the people that came along. There was a difference in the focus of people’s attention this time. Normally it has been primarily focussed on Italian taxation and the financial planning in Italy, but this time the majority of the questions and queries during the talk and after over lunch, were centered around the investment markets and the future outlook for investors. I guess that shouldn’t have taken me by surprise given the state of world geopolitics, but it was interesting to note and helps me to focus in these E-zines and my other articles.

However, this E.zine is not designed to provide you with a long interpretation of what was said on the day. Instead I managed to find the time to interview the speakers and here are the videos, in full.

If you also have questions about financial markets, investing and how world geopolitical events affect your money then you might find the interview with Joy Callender and Lorraine Reddaway from RBC Brewin Dolphin very interesting. We have inserted some slides into the videos which provide visual aids to what we are saying.

First interview with RBC Brewin Dolphin asset managers.

Second interview with Stefania Falcone at Currencies Direct where we have a chat about exchanging currencies and the difference between them and Wise.

And the last video with Judith Ruddock of Studio del Gaizo Picchioni where we talk about the Agenzia delle Entrate, common tax mistakes for residents of Italy and what to watch out for.

I am rushing this E-zine out to you after travelling for the last 2 weeks, because there are some important developments in La Legge di Bilancio 2024 which may affect you.

Not since 2014 and the new tax laws introduced by Mario Monti have I seen such big changes in the tax system in Italy. Georgia Meloni’s government have clearly taken a leaf from that book and have introduced a raft of new tax law changes which have recently been announced in La Legge di Bilancio 2024. (These have not been passed yet, but it is highly likely that they will be voted on before year end!).

THE MOST IMPORTANT OF WHICH, FOR MY CLIENTS, IS AN INCREASE ON THE WEALTH TAX ON OVERSEAS PROPERTY!!!

Below I explain a few of the changes and which groups of people they might affect.

“Those who plan do better than those who do not plan, even should they rarely stick to their plan!”

1. Wealth tax on overseas property will increase from 0.76% to 1.06%.pa
On an average overseas property taxable value of GBP300,000 or USD300,000, the tax will rise by 900 a year!

2. Affitti Brevi – cedolare secca – tax to increase from 21% to 26%
If you rent out a property in Italy for short terms rentals (less than 30 days), and you are not registered as a company, then you have the option of applying the ‘cedolare secca’, which is a sort of preferential forfeit rate of tax (expenses non deductible) of 21%. This will rise to 26% from January 2024.

3. Proposed Tax Band changes for 2024

4. Non-EU citizens resident in Italy! will have to pay an annual contribution of €2000 to access the Italian health service.
(The contribution will not have to be paid for foreign students with a permesso di soggiorno or similar)

This is a huge development, because any non-EU citizen resident in Italy (US persons and now Brit’s) who is currently paying for access to the Italian health service is assessed based on a certain level of ‘reddito complessivo’ (total income).

You can access that info from the Minstero della Salute website on the link below:

https://www.salute.gov.it/imgs/C_17_pagineAree_2522_listaFile_itemName_0_file.pdf

If you are a non-EU citizen living in Italy, and maybe paying the minimum of €387,34 a year, then this could be a significant rise of nearly €1600 a year!

(Interestingly if you have a high income level and are assessed on the maximum under the current criteria, then €2000 a year would be a quite sizeable discount – assuming the reddito complessivo calculation is no longer valid).

Here are the categories of people who would need to pay.

1. Students or equivalent who are in Italy for a period of less than 3 months.
2. Holders of the permesso di soggiorno for ‘residenza elettiva‘ !!! who don’t have any form of work.
3. Persons of religious institutions.
4. Diplomatic and consular personnel of foreign representations in Italy. (excluding staff with an Italian work contract)
5. Employees of International organisations operating in Italy. (presumably United Nations et al)
6. Foreigners who work for International organisations operating in Italy. (not on Italian contracts)
7. Foreigners who participate in voluntary programmes
8. Parents, over 65 years old, who have or will move to Italy to be with family members, after 5th November 2008.
9. All other excluded categories.

***  Notable is the category of anyone applying for ‘residenza elettiva’.  This will affect alot of UK and US citizens who may currently be applying to become resident in Italy under the residenza elettiva category.*** 

*****Interesting exclusion from the list. *****

One notable category of people missing from the list is Brit’s who were registered in Italy before Brexit and therefore have acquired EU rights as per the EU/UK withdrawal agreement, also retired Brit’s with the right to reciprocal healthcare in Italy under the S1 arrangement. It remains to be seen whether they would be expected to pay or not. (I would think not!) My suspicion is that no one has even thought about this category of individuals and so, like many pieces of Italian legislation, it is first introduced then clarified over time. My thinking is that this one will have to be taken up by the British Embassy and the remaining UK citizen rights lobby groups, for clarification.

The new text relating to the definition of residency and domicile is as follows:

“Il comma 2 dell’articolo 2 del Testo Unico delle Imposte sui redditi, approvato con decreto del Presidente della Repubblica del 22 dicembre 1986, n. 917 è sostituito dal seguente: “2. Ai fini delle imposte sui redditi si considerano residenti le persone che per la maggior parte del periodo d’imposta, considerando anche le frazioni di giorno, hanno il domicilio o la residenza nel territorio dello Stato ovvero che sono ivi presenti. Ai fini dell’applicazione della presente disposizione, per domicilio si intende il luogo in cui si sviluppano, in via principale, le relazioni personali e familiari della persona. Salvo prova contraria, si presumono altresì residenti le persone iscritte per la maggior parte del periodo di imposta nelle anagrafi della popolazione residente.”

Let’s anlayse the important differences below:

1. Change in the definition of domicile:

In Italian law it currently reads as:

“the place of your principal place of work or interests”

The new definition will be connected to your personal status and read as follows:

“the place where the person’s personal and family relationships mainly develop”

This could be significant for anyone who previously may have claimed working abroad as a criteria for not being resident, whilst their main family relationships were still in Italy.

2. Fractions of days.
If you are someone who has to count your days in and out of the country to maintain non-residency or residency alike, then you will likely need to count fractional days in Italy as well. i.e any time spent in the country in any one day will be counted as a full day for residency purposes.

3. Assumed residenza for anyone registered at the anagrafe for the majority of the fiscal period (calendar year)
Again, this is an important development for anyone who is registered as resident at the anagrafe, has a carta d’identità and certificati di residenza, but is claiming fiscal residency in another tax jurisdiction.

It is clear from these changes that the Italian government is tightening up the rules around residenza and closing those loopholes which many people have used to get around ‘residenza fiscale’ whilst retaining the benefits of being registered as a resident in the anagrafe,

I have been banging on that drum for a long time now. If you are registered as a resident in Italy for the majority of the calendar year then by definition you are also considered fiscally resident as well. Whilst the definitions allowed for people to get around the law, it seems that this will become much harder.

How all this will be put into action is anyone’s guess, but it might be prudent to think that once the laws are refined, then the authorities can use existing information to further investigate matters that have already come to their attention but they have been unable to act on due to the loopholes in the system.

Therefore, the advice is simple:

If you think that anything above might affect you then do some financial planning before it is too late!

It’s been a horrible 2 years (almost) in investment markets. Let’s just be honest. If markets don’t pick up in Quarter 4 of 2023 then we will have been in for 2 pretty rubbish years. It’s tough to say it from someone (me) who is invested in ‘investing’ and using the markets to protect money from inflation.

I know it’s the only way to protect our hard earned capital from the ravages of prices increases, but after 2 years of markets not going anywhere it is a tough job to convince anyone that this is still the best way to protect capital.

Until 2022 you could have almost been forgiven for wondering what inflation was. We hadn’t really seen the effects of inflation for the last 20 years, and now it’s back with a bang. Right at the moment of global political instability and war. The perfect storm!

Since Feb 2022 the markets reacted to the events between Russia and Ukraine and since then, with the onset of price increases for, just about, everything we buy, global stock markets are still trading under their highs of 2021.

Why not cash instead?
If you are someone sitting on cash, you might be cautious about investing and who can blame you? Everything around the world looks unstable and putting money in cash might earn you 5% in US CD’s, 4% in € and potentially 6% in GBP. Even though these interest rates are trailing the real rise in the cost of goods and services, you can’t be blamed for looking for some certainty in an uncertain world.

A woman’s view on the world
It is for this reason that I invited Joy Callendar of Brewin Dolphin  (https://www.brewin.ie/our-people/joy-callender)  to come and speak at our events in Abruzzo and Marche on the 17th and 18th October, respectively.

I wanted to invite a female Investment Manager this time as women have a different perspective on investing than men.  Women are shown in numerous studies to be less aggressive and less impetuous than men in their investment decision making.   This is good for me, because I will get time to hear what Joy has to say to you, but also I will get time to speak with her during the time travelling to each place and in the evenings.   I myself want to hear how someone, like Joy, is going to help us navigate these rocky waters.

It is without a doubt that Joy will advocate investment as a mean to inflation protect your money and tell us that cash is, long term, a bad way to protect our real long term spending power of our money (because it is). But what about the short to medium term: is it a good idea to invest in cash now and wait until markets start to recover?  Or can we invest in areas which are less volatile?  Can Brewin Dolphin keep money in high interest bearing funds/investments with minimal risk and time the right moment to get into the markets for us?  Can they just move in and out of areas at the right time to maximise returns?

There are so many questions that I want the answers to.

Brewin Dolphin and many other asset management firms want to get out and talk directly to people, rather than being solely based online, as they see the value in talking to people directly.  They have a budget for working with companies like us who can provide an audience for them.  They have services for residents in Italy and also are SEC licensed for services to US persons living in Italy.  (Of course they love a few days out of the office in rural Italy as well) .

I am planning more events around Italy in the spring of 2024 (some with a different theme) and would welcome any recommendations if you think you might know a group of people who might want to listen to investment/tax planning experts for your life in Italy.   Don’t hesitate to let me know.

In the meantime, if you want some answers to any investment, currency exchange or tax planning questions then please register to come along to the events below.  Oct 17th in Abruzzo and Oct 18th Marche.

These events will NOT be a lecture or usual seminar,but, instead, a PANEL style approach.

The panel of experts will be open to questions and answers from any member/s of the audience and be available to listen to your concerns, worries and comments and hopefully provide some concrete and helpful information. 

I am keen to put these experts on the spot and get the answers we want and to really make them work for their money, and I need your help to do that!!