Income Tax based on 'Presumed' Income

[umbriabuyer]

I hope someone knows the answer to this question...We have a property in Umbria (non resident) for which we have been making ICI payments. Our Italian accountant now tells us the law has recently changed and we have to pay additional income tax on 'presumed annual income' based on the size of our property, even though we have never rented it out and never earned a penny from it. Does anyone know if this is correct? This is the final Italian straw for me - does anyone know if the 5-year rule on capital gains tax in still in force? I'd like to sell up and stop the endless money drain

[NickZ]

It's been widely discussed here.

I figure it'll be something like 15% of your ICI payment. Or whatever the rate for the bottom tax rate is.

[Marc]

And yes, the 5-year rule is still in force.

[Charles Phillips]

It is a subject which has been widely and comprehensively discussed, as Nick says, but the recent change (in short form) is as follows.

The tax, based on a notional rental value, is generally very small - often below €100. It is called IRPEF. To pay it it is necesary to complete an Italian income tax form. It is not the same tax as ICI.

Because the IRPEF is often such a small sum, non-residents used to have a tax-free allowance which more than covered it. This has changed, and non residents no longer have this tax free allowance. Therefore it must now be paid, and unfortunately (becaue of the need to fill in the tax form), if you use a commercialista he will of necessity charge you another small sum for compiling the return.

It seems a bit drastic to think about selling up to avoid a threepenny-halfpenny tax!

[umbriabuyer]

Thank you for your replies to my post - very much appreciated. My irritation around this additional tax stems from the fact that, having already coughed up over 800 euros for myself and my wife for the ICI, to have to pay over 300 euros for the IRPEF is galling - especially as we haven't earned anything from our property. Add that to what must be the most expensive electricity in the world, the ongoing costs of having a property in Italy are fast outweighing any benefits. All very well for the Italian government to abolish ICI for residents - it looks like us non residents are paying for it!! And I thought the UK was bad enough....The rose tinted glasses are most definitely off.

[alan h]

I wondered - if one declared a small sum on your UK tax return as 'income from property held abroad' - could one argue that that one cannot be expected to pay tax twice [isn't there some EU ruling on this?], and so not pay the Italian tax?



As an aside - just returned from Italy - ALL my Italian friends [both those with2nd homes and those without] knew nothing about the tax and were not intending to do anything about it,


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[Richard and Marie]

For what it is worth we have just paid IRPEF for the first time. We have residency status and with the abolition/suspension of ICI for residents I was not expecting to pay anything this year. However, our commercialista advised that the exemption for IRPEF, previously €5000, had been reduced to €500 and IRPEF was therefore payable. My understanding (based on the conversation with the commercialista) is that IRPEF is calculated on the value of your land in the catastale (land registry) and that most people would have fallen within the €5000 exemption but many will now be above the new €500 limit. (Please dont take any of this as gospel, it is based on my understanding of a conversation with a commercialista, and, frankly I struggle with most conversations about tax whether it is Italy, the UK or anywhere else!)

It is frustrating but it is a relatively small sum (in our case €131, which no doubt includes a fee for the commercialista). However, I have no doubt that when a substitute tax for ICI comes into force (which surely it will do at some stage as otherwise the Comunes wont have any money) we will end up paying ICI mark 2 and IRPEF. However I am not sure that the Italian Authorities are particularly different from any others. Look at the increased tax take in the UK over the past years. I'm not trying to make a political point, unfortunately tax increases are a fact of life these days.

[alma]

I still cant find anyone in my area of Italy who has ever heard of the notional income tax. If it would only amount to 15% of the ICI I wouldn't mind paying it as our ICI is just under 140 euro a year. There are definite advantages to little houses.

[Marc]

I raised the issue of ICI with an Italian friend a while back, asking how such low sums could be sufficient to fund local government. His answer was that local government has always been funded from central government and the addition of ICI, a few years ago, was just a top-up for them. The cost of administering it is probably too high relative to the amount raised, hence its abolition.

[NickZ]

Originally Posted by alan h

I wondered - if one declared a small sum on your UK tax return as 'income from property held abroad' - could one argue that that one cannot be expected to pay tax twice [isn't there some EU ruling on this?], and so not pay the Italian tax?



As an aside - just returned from Italy - ALL my Italian friends [both those with2nd homes and those without] knew nothing about the tax and were not intending to do anything about it,


,

Second part first. It's not a new tax. Italians filing Italian taxes won't see any change. What has changed is the exemptions.

On the first one the country the property is in gets first dibs. What you might be able to do is add the Italian tax to the cost base of your home. So when you go to sell it the UK capital gain payable would be lower. Best to check with a UK tax specialist.