Italian financial update

Well, well, what a start to the year – it feels like a repeat of winter 2021.  As I write I am actually down with Covid again.  I first got it in March 2020, right at the start of the pandemic and I have it again now.  It is nothing more than a dry throat, cold like symptoms and feeling quite tired, but still it’s a bit annoying to have caught it again, although I think that given the transmissibility of Omicron it was a question of ‘when’ rather than ‘if’ I would get it.  Anyway, I am now on day six and feel much better.  However, I have just learned that since I only tested positive on day three of my illness, I now have to do another seven days quarantine before I will get the green pass……aaahhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh.

Anyway, I wasn’t writing to update you on my health, but actually to update you on the health of the financial markets at the moment and provide you with some tax updates.

For anyone who has been brave enough to look at their investment portfolio account balance in the last few weeks, you will have noticed that it has probably taken a turn for the worse.  I am not talking crash-like turn for the worse, (remember March/April 2020!) but merely correction territory.

In short, equity markets have started to pull back from their highs in 2020 and 2021.  I can’t say for sure when the correction will end, but from the information that I have been reading from various asset managers in the last few days there is confidence that markets will rebound in the first half of this year.

It is important to remember that corrections of this magnitude happen in more years than they don’t and rarely prevent equity markets from delivering positive returns during the year!

So what is going on? 
Covid related supply problems for goods and services are the biggest concern right now, which is feeding into consumer prices: inflation (microchips, freight and energy are the biggest contributors).  I have written about this in a previous E-zine and so won’t delve into too much detail here, but inflation is likely to play a big part in discussions around financial markets in the first half of this year, even though most economic indicators are predicting a quick return to form for the second half of the year.

One of the most important points is that with rising inflation, the central banks (mainly the Fed in the USA) do not start tightening monetary policy too quickly or harshly.  There is no indication that they will take extreme measures in this regard and so companies will still have access to capital and will be able to invest.  As long as company profits continue to grow and inflation does not start to spiral out of control then there should be a rebound, probably in the first half of the year.

Of course various themes will also continue to play out during the course of the year, namely: cloud computing, green buildings and construction and digital health and wellbeing.  This provides us with well needed diversification in our portfolios.  Big tech and smaller disrupting companies across many more sectors will play a big part in returns.

Inflation will likely cause some collateral damage along the way.  Depending on how fast and high it moves, the biggest sector to be affected could be the residential housing market.  It might cause a cooling down of the price rises we have seen in recent years, or may have a more long term and severe impact.  A lot of that depends on whether this bout of inflation is ‘temporary’, and caused merely by Covid issues, or is ‘structural’ which means that it will be more bedded in for a long time.

Most of the information I am getting from money managers is that it will be temporary and that things will return to normal much quicker than we expect (think a couple of years!), but I am not so sure.  I think it may run a little longer.  But regardless of who is right, we need to protect the money that we have.  There are plenty of excellent investment opportunities out there whether we are living in an inflationary or non-inflationary environment.  The money managers we work with are on top of these and we can rely on them to seek out those returns where possible.

If you are a client then all you need to know is that we have been planning for inflationary rises for some time and so despite the current correction in investment markets, you really have nothing to worry about. 


Tax matters – ‘residenza‘
During my Covid days sat at home in front of the computer, I receive a lot of pop-ups from various fiscal websites and from Sole24Ore (the Italian version of the Financial Times).

One that caught my eye the other day was an amendment to decreto Dl 146/2021, which clarified the fiscal treatment of the ‘family nucleus’ (nucleo familiare) who have established their residence (residenza) in two separate comuni.

The crux of this is that the courts ruled that two family members ‘cannot’ establish their residenze and claim 2 x prima case in the same nor different comuni.

This would seem to be a simple case of trying to avoid paying IMU on second (or third etc) properties.  But the new law decreed that it would no longer be possible where members of the same family are living under the same roof.  Apparently the law had not been clear enough…. until now.

I am mentioning this change in the law because it also has implications for people who may be registered in Italy as resident but may have a spouse who is claiming residency in another country.  In my experience, the main reason for this is to try to save tax and whilst there may be some logic to it, where one member of the couple is working for a foreign company and maybe travelling to and from Italy rather than being permanently based here, it does still raise the question of how the fiscal authorities view the idea of the ‘nucleo familiare’ and what impact this has on our tax liabilities and where they lie.  If spouses are registered as living in different places then there is some legal implication of separation and to benefit from any tax breaks, separation must be legally registered somewhere! If not, then the tax authorities will generally consider you as one family living under the same roof, hence both resident in Italy.

It raises some interesting questions, but might be a useful discussion point with your commercialista if you think you might fall into that net.

Fiscal treatment of Bitcoin 
More and more people I meet are starting to dabble with the idea of buying some Bitcoin to add to their portfolio.  I have been an investor for a few years, but my experience is not particularly a great one.  It tends to go through phases of stratospheric prices rises and then complete collapse.  As things currently stand I don’t see much value in the application of the buy and hold investment philosophy in relation to Bitcoin.  It would appear to be something for the active trader, and then we are getting into speculative territory!

Anyway, the point of this article is to help you understand the fiscal treatment of Bitcoin in Italy, and to remind you that you will need to declare it in your tax return.

To understand the correct application for tax purposes, we need to remember that it is actually a currency and can be traded in much the same way as any other currency.  In fact, since it is a registered currency (through the blockchain) then the Italian tax authorities treat it like any other bank account you might have.  Hence, the tax treatment falls into that very simple law of €34.20 ‘bollo’ on any account that has an average annual balance of more than €5,000 in any tax year (less than €5,000, it does not need to be declared).

However, living in Italy would not be the same without some complications.  This brings us back to the article that I wrote back in April 2021 on the same issue.  Where you hold the value of Bitcoin (or any other currency) of more than €51,645.69 for a period of more than 7 days, any transfers of that currency into another from the 8th day would be considered speculative and capital gains tax would have to be calculated.

I wrote a long article on this subject, which you can read about here:  spectrum-ifa.com/do-you-have-non-euro-based-cash-deposits/

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