Italian residents with UK property are being hit with a large tax bill after the government changed the way it values property in Britain.
The Imposta sugli immobili situati all’estero (IVIE) tax on foreign assets owned by Italian residents was introduced in 2012 and applies to property in both EU and non-EU countries.
It imposes a 0.76% annual levy on the asset’s value. Valuations of properties within EU member states are assessed as the ‘cadastral’ value, a figure periodically determined by the local authorities. In other countries, the chargeable value is assessed either by reference to the purchase or rental price, or by reference to the market value.
The UK has no cadastral system, and until this year the Italian authorities have used the UK’s council tax band system to assign a value to UK property for IVIE purposes. However, the council tax value of a UK property is far lower than its market value, especially in London and the major cities.
Now that the UK has left the EU, the Italian authorities have decided they will value UK properties according to their market price, according to law firm Withers.
This news coincides with the change from April 2021, where non-resident buyers of English and Northern Irish residential property will have to pay an extra 2% tax on their purchase, in addition to the normal stamp duty charge.
Alessia Paoletto, partner at Withers, said that a property currently for sale in the London Borough of Kensington and Chelsea at an asking price of £3.25m ($4.53m, €3.8m), falls within council tax band G, which has a median value is £240,000.
“Until 31 December 2020, the IVIE due on this property would therefore have been £1,824 per year,” she added.
But “the Italian tax cost of the London investment rises to around £24,700, an overnight increase of 1,254%”.
Paoletto said: “This is certainly a bad surprise for all investors and, by extension, for the attractiveness of the UK property market, which has never suffered in Italy.
“Hence, it will come as no surprise if the issue will be raised again and discussed in more detail, and hopefully reconsidered, given the impact on taxpayers’ pockets.”