Italian Property Transfer by Donation
Italian Donation Deed
Q Question: I bought an apartment in Venice six years ago and am now considering to gift it to my son through an Italian donation deed. How easy is this? What costs are involved? Can an Italian lawyer handle it without me or my son travelling to Italy?
A Answer: You can transfer your Italian property to your son by means of donation deed (in Italian “atto di donazione”) through 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.
However, prior to moving forward with the donation to your son, it is important to consider the consequences of this choice (donation), 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 transfer as a donation is subject to lower taxation (i.e., 3% of the taxable value as opposed to 10% applicable to a regular sale), there are consequences that might lead you to prefer transferring the property to your son by means of a standard property sale.
Below are some of the main differences between property transfer by donation versus property transfer by sale.
a) Under Italian law, a 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 favor of certain family members, if said family members believe that a donation (in favor of a third party) affected the share designated to them by law, they are entitled to file a reduction claim in court, after the donor’s death, to invalidate the donation and collect the share they are entitled as per the Italian inheritance laws. Such inheritance reduction claim 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 claim, if successful, might imply the obligation to return the property or pay the respective value to the entitled subject;
b) Given the rules 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 an donation deed, unless the donation deed has been registered in 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 based on a 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. More specifically, the vendor/seller might experience requests (from buyers) of price reductions of or extra title insurance if the sale occurs within the inheritance reduction action statutory terms, i.e., 20 years, expire.
If you opt for a property 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.
Finally, there are also other options that can prevent an inheritance reduction claim. For example, you might be able to achieve the same result (transfer to your son) through a deed of ownership relinquishment.
Or, under certain circumstances, if you have a foreign citizenship (not Italian) you might be able to elect a foreign law to regulate your succession and avoid the application of Italian forced inheritance rules to your estate when the time comes.
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