Buying Property in Italy

The purchase process

It is advisable to use an independent, English-speaking legal adviser to act in all property transactions.

The first legal document in the purchase process is the "proposal of purchase" (compromesso, or proposta d'acquisto). Signing this document means that the buyer binds himself for a stipulated period (normally from five to 30 days) to buy the property at a named price. However, during this time, the vendor and his agent are free to consider other offers.

When the offer is accepted, the buyer needs to pay a deposit (usually 10 per cent), and sign the "preliminary contract of sale" (compromesso di vendita) which is drawn up by a notary (notaio), who acts for both sides of the transaction. This sets out the formalities of the sale, including any conditions. If the purchaser breaches the contract, he may forfeit his deposit. If the vendor does so, he must pay the buyer twice the amount of the deposit.

The completion usually happens around six to eight weeks later. At this stage the title to the property passes from the vendor to the buyer by a "deed of sale" (il rogito).

There are two types of deed. One is a public document and the other a private contract.

The former type provides a greater protection and is slightly more expensive. If a property bought by private deed is subsequently found to have a charge against it (such as a mortgage), the notary cannot be held responsible, whereas if a public instrument has been used, legal action can be taken against him.

Following completion, the notary issues a certified copy of the "deed of sale" and registers the original document with the Land Registry.

Costs

Many properties in Italy are freehold. The total fees for buying a property are approximately 10 to 20 per cent of the purchase price. Among the costs are:

• Registration fee
• Land Registry fees/stamp duty
• Notary fees (usually about 4 per cent of the declared price)
• Legal fees (for independent legal advice)
• Estate agent's fee (usually shared between vendor and purchaser)
• Mortgage fee (if applicable)
• IVA (Italy's equivalent of VAT), if buying from a company
• State tax, if buying from a private individual

Financing your purchase

When working out how to finance your purchase, consider all the options. Paying cash, if you can afford to, is often recommended, but you may not want to tie up a relatively large sum in this way.

There are other options availabl: remortgaging your UK home or arranging a mortgage on your Italian property through a UK or Italian lender. Remortgaging offers the easiest solution. Releasing equity in a UK home means that the second home can be purchased for cash, without the need for another mortgage. However, this may only be feasible for those who own their first home outright.

Some UK mortgage providers will lend funds of up to 80 per cent of the purchase price for a second home purchase over, typically, a 15-year term.

Getting a mortgage in Italy

Mortgages in Italy are based on the property and self-certification mortgages are not generally available. Borrowing limits are normally based on 30 per cent of monthly income. Projected rental income will not be taken into account.

Proof of income and outgoings will have to be shown. If total outgoings exceed 40 per cent of monthly income, Italian lenders will not be interested in doing business.

Taxation

Everybody who has financial transactions in Italy must have a tax ID number (codice fiscale) and complete a tax return.

Personal taxation: non-residents

A double taxation treaty exists between Britain and Italy, so the good news is that tax is payable in one or other country, not both.

Non-residents may be liable for taxes on income, capital gains and inheritance. Obviously, these vary from individual to individual, and it's important to take professional advice. There is no wealth tax in Italy.

The authorities are only concerned with Italian-sourced income. This includes interest on funds deposited with an Italian bank and income from letting a property in Italy. You can offset expenses including repairs to the property, management costs etc against income. The residue is taxed at between 19 and 46 per cent, depending on the amount. Most property owners will pay around 30 per cent.

Personal taxation: residents

Anyone staying in Italy for more than 183 days during a tax year (which coincides with the calendar year) is considered a resident and liable to pay tax. The 183 days need not be consecutive.

Residents may be liable for taxes on income, capital gains and inheritance. Like many bureaucratic areas of Italian life, the taxation system is extremely complex, and it is essential to take expert advice from a "commercialista". Anyone thinking of buying a property in Italy should examine their tax status carefully. By doing this, they may well be able to save money in the future.

Local taxes

Every town council (commune) raises a tax called "imposto municipale" or "imposta comunale sugli immobili" (ICI) on property. This is based on the property's "rendita catastrale" (rateable value) which is usually between 0.4 and 0.7 per cent.

There is another tax that is raised locally is called "tassa comunales". This is the equivalent of the UK council tax and funds refuse disposal, street lighting,cleaning of streets and beaches etc.