Italian Wealth Tax on UK-situated properties
On 28 January 2021 the Italian tax Authorities have publicly indicated that, with effect from 1 January 2021, there will be a change in the manner in which the wealth tax known as "Imposta sul valore degli immobili situati all’estero" ("Ivie") will be computed in relation to properties situated in the United Kingdom.
While not totally unexpected, this change is a direct result of the United Kingdom leaving the European Union and is in stark contrast with the existing provisions. We set out below the details of this recent clarification as well as background information on the relevant legislation.
We will continue to monitor any relevant development/announcement, but in the meantime please speak to your usual Statura contact should you wish to discuss the content of this document in more detail or indeed the way in which the above might affect your personal circumstances.
Regime applicable to UK-situated properties up to 31 December 2020
Ivie is effectively a wealth tax levied on, primarily, Italian-resident individuals who own an interest in real estate properties situated outside of Italy. It Is calculated as 0.76% of the acquisition cost or, if not available, the open market value of the property at the end of the year for which the tax is due.
However, with regard to properties situated within the European Union (as well as within Norway, Iceland and Liechtenstein), it is possible to use the cadastral value of the property as the taxable base - to which the above 0.76% is applied - rather than the acquisition cost or the open market value.
In light of the fact that the United Kingdom does not have a cadastre and therefore UK-situated properties do not have a cadastral value as such, in 2012 the Italian tax Authorities confirmed that the taxable base ought to be the relevant Council Tax Band. This approach somehow caused an anomalous, yet beneficial, result as the Council Tax Bands are based on the price the property would have sold for on the open market on 1 April 1991 in England (and 1 April 2003 in Wales).
Regime applicable to UK-situated properties from 1 Janaury 2021
It has now been clarified that, further to the United Kingdom leaving the European Union, the taxable base on which the Ivie will be levied with effect from 1 January 2021 will be the acquisition cost or, if not available, the open market value of the property at the end of the year for which the tax is due.
If one considers that the highest Council Tax Bands In England currently sets the property value at "more than £320,000" (which in practice resulted in Italian resident taxpayers self-assessing Ivie as 0.76% of £320,000) the new computational method will lead to a significant increase on the Ivie payable.
It remains to be seen whether this change will ultimately affect the investment decisions of Italian resident property Investors but It will certainly add in no small measure to the cost of holding a property in the United Kingdom, both as an investment and for private use.