Q Question: I bought an apartment in Venice six years ago and am now considering gifting it to my son. How easy is this? What costs are involved? Would that be better to sell the property to him? And, finally, could an Italian lawyer handle it without me travelling to Italy?
A Answer: Transferring your Italian property to your son can be easily completed by means of donation deed or gift deed (in Italian “atto di donazione”) by means of a Power of Attorney, with no need for you and/or your son to travel to Italy. Furthermore, completion by Power of Attorney would actually facilitate the transaction if your and/or your son do not fluently speak Italian, which would require the further cost of having an interpreter for completion in front of a notary public. Since you purchased the property rather recently the transaction formalities should be relatively straightforward to address and should take approximately six weeks to complete.
Prior to moving forward with the donation to your son, it is important to consider the consequences of this choice as opposed to selling the property to him. An Italian donation deed is a contract through which a subject transfers rights to another subject without consideration, i.e., for free. Even if an Italian property donation transfer is subject to lower taxation (i.e., 3% of the taxable value as opposed to 10% for a regular sale), there are consequences that might lead you to prefer transferring the property to your son by means of a standard property purchase deed.
Below are some of the main differences between property transfer by donation versus property transfer by purchase.
a) Under Italian law, donation is treated as an early inheritance distribution. In other words, it is considered a portion of inheritance that is assigned to the beneficiary prior to the donor’s death. In view of the Italian inheritance distribution restrictions established by the Italian law in favour of certain family members, if said family members believe that the donation value affected the share designated for them by law, they are entitled to file a reduction claim action in court, after the donor’s death, to invalidate the donation and collect the share they are entitled to under the inheritance laws. Such reduction action is pursued against the donation beneficiary and, if the latter has already transferred the property to someone else, against the property owner at the time of the court action. Such action is called in Italian “azione di riduzione”. A reduction action, if successful, might imply the obligation to return the property or pay the respective value to the entitled subject;
b) Given the elements explained in (a) above, even if there is no concrete risk of such action, for instance because there are no family members entitled to pursue said action, banks are usually reluctant to grant mortgage loans when the collateral is a property received by the borrower through a donation deed, unless the donation deed has been registered on the Italian Property Public Register from more than 20 years after the donor’s death.
c) For the same reason, the circumstances in (a) and (b) above might also discourage potential buyers to purchase a property which is owned by donation deed or that has a donation deed in the past 20-year title history, because it is not possible to get a mortgage for said property as well as the risk that the buyer would assume after the purchase. Such factors might negatively affect the property market value resulting in a reduction of the property value until the reduction action statutory terms, i.e., 20 years, expire.
If you opt for the sale instead of the donation, there are several factors that might positively influence the transaction cost and the procedure. For instance, the taxable amount could be substantially reduced if your son purchases from you only the remainder interest (in Italian “nuda proprietà”) and you keep the life interest(in Italian “usufrutto”). If your son has Italian citizenship the tax rate could drop lower than 1% in case of donation and to 3% in case of property sale.
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