How to make tax savings with the "Prima Casa" scheme in Italy
How to make tax savings with the "Prima Casa" scheme in Italy

Up-front tax savings upon the purchase of a property in Italy

Requirements

These tax savings apply to anyone (Italian national or foreigner) who buys a “Prima Casa” in Italy. The tax savings amount is significant and pegged at 7% (i.e., 2% instead of the 9% ordinary tax rate) of the cadastral value of the property, not the transaction price. Although there can be substantial variations in the difference between the cadastral and commercial value of Italian properties, cadastral values usually fall in the 40%-60% range of the commercial values, according to OMI, the Osservatorio Mercato Immobiliare, Italian Ministry of Economy and Finance.

It should be noted that the normal conditions for a property to classify as a “Prima Casa” and thus for the buyer to take advantage of these up-front tax savings are that:

  1. he/she does not already own any other residential property in the same Italian municipality;
  2. he/she did not already benefit from “Prima Casa” tax relief when purchasing another residential property in Italy;
  3. the property becomes his/her main residence, which implies that the buyer has to transfer his/her residence to the municipality where the property is situated within 18 months from the date of purchase.

For Italian nationals officially residing abroad and registered with AIRE (Anagrafe dei Cittadini Italiani Residenti all’Estero or Registry of Italians Resident Abroad), however, although the first two conditions still apply, the third condition does not apply, which means that they are NOT required to move their residency to the property’s municipality to qualify for a “Prima Casa” tax relief.

Finally, the Prima Casa tax savings apply to any Italian residential property except for those coded as A/1, A/8, and A/9 on the cadastral registry. Please note that these properties only constitute about 0.2% of the entire Italian residential assets, say OMI’s Cadastral statistics, 2017.

Upfront tax savings - Example

For a property with a market value of e.g., 1,000,000 euro and a corresponding cadastral value of 500,000 euro, the law would allow for an up-front tax saving of 35,000 euro (i.e., 7% of the cadastral value).

Additional annual tax benefits for Italians residing abroad

Requirements

Section 9 –bis of Law Decree 47/2014, effective from 2015, has introduced further tax benefits for Italian nationals residing abroad who purchase a “Prima Casa” in Italy.  These benefits include a full exemption from the IMU tax (Imposta Municipale Propria) and a 67% tax reduction on the TARI/TASI (Other municipal property taxes). The law states that these further benefits apply to “one property unit only, owned by Italian nationals registered with AIRE, who are retired in their states of residence, providing that such property is not rented or given in use to third parties”. 

This means that, beyond the conditions that define a “Prima Casa” stated above, two additional requirements must be met to benefit from further tax relief:

  1. the owner must receive a pension from his/her country of residence (this condition leaves out Italians who, having moved abroad after retiring, receive an Italian pension);
  2. the property must not be rented out or given in use to third parties.

Please note that a potential Italian resident living abroad can therefore benefit with two options:

a) buying the property as a “Prima Casa”, benefitting from the municipal tax savings (i.e., IMU, TARI/TASI) but without being able to rent;
b) buying the property as a “Prima Casa”, paying the full IMU/TARI/TASI taxes, but with the option of renting it out. Please note, however, rental taxes amount to 21%.

Upfront and annual tax savings – Example

For a property with a market value of e.g., 1,000,000 euro and a corresponding cadastral value of 500,000 euro, the law would allow for an up-front tax saving of 35,000 euro (i.e., 7% of the cadastral value) and annual municipal property tax savings of about 5,000 euro in IMU tax (i.e., full exemption) and 3,500 euro in TARI-TASI taxes (i.e., 67% exemption).

Based on these estimates, the present value of the up-front savings of 35,000 euro and annual tax savings of 8,500 euro would amount to about 74,000 euro (i.e., 7.4% of the original investment) over the first 5 years of ownership of the property, 107,500 euro (i.e., 10.75%) over the first 10 years, 136,500 euro (i.e., 13.65%) over the first 15 years, and 161,500 euro (i.e., 16.15%) over the first 20 years of ownership, with the values discounted based on the 3% Italian government long-term bond yields.