The baseline rule is that if you are a resident in Italy and you sell a property after the first full five fiscal years from purchase (not your Prima Casa – different rules apply here, read on for details), you are NOT required to pay tax on any capital gain (CGT) resulting from the sale. This applies to properties you hold in Italy or abroad and applies whether it is your 2nd or 15th property!
This stems from the idea of a speculative intent to buy/sell property and where there is no intent then capital gains tax is not applied. (a nice tax planning opportunity!)
Speculation in Italy is defined as follows:
- the property is sold for consideration (e.g. sale, exchange, contribution to a company)
- the property is sold within five years of purchase or construction
- the property must not have been used as the seller’s (or family’s) main residence if it is a residential unit.
These rules also apply to property located abroad!
If the sale is subject to taxation (because you are selling within the first 5 years since purchase), then you can either opt for:
A substitute tax of 26% (standard capital gains tax rate) at the time of the deed (the notary is responsible for the payment), or
The standard income tax rates (IRPEF), with the possibility of using deductible and creditable expenses such as bonus edilizie, pharmacy expenses, doctors’ bills, etc. Bear in mind that the lowest rate of income tax in Italy is also 23%, so depending on your other income for the year you could fall in the lowest rate of income tax (€0–28,000 p.a.) and be able to reduce the taxable amount even further with deductions.
Below is a list of the main rules to consider:
Taxable conditions
As with all things taxation, it is important to understand the conditions:
- Capital gains tax applies as a result of property purchased, or built, less than five years earlier.
- An exemption is given for urban residential units that, for most of the time between purchase (or construction) and sale, were used as the main residence of the seller or their family. (The idea of Prima Casa)
- As well as, in all cases, capital gains realised from the sale of land that can be used for building (terreno edificabile) according to planning rules in force at the time of the sale.
In the case of donated/inherited property, the five-year period is calculated from the donor’s acquisition date.
(This is particularly important for anyone who might inherit a property from a deceased parent, for example. If you wish to dispose of the property it would be more advantageous to do so in the probate process, otherwise you may have to wait another 5 years before you could dispose of the property to avoid capital gains tax…. if any). However, if you take the property into your name and then can sell it quickly, you may avoid capital gains tax if the property value has not increased between the acquisition and sale.
Exemptions
Exempt from taxation are:
- Sales of properties used as the seller’s or their family’s main residence for most of the period between purchase/construction and resale (the 5-year rule does not apply here – Prima Casa rule!).
- Sales of inherited properties (per Article 67, paragraph 1, letter b) TUIR).