Italian luxury property purchase

Italian Luxury Property Purchase Tips

Question: What are the key aspects to consider in Italian luxury property purchase?

Answer: The Italian luxury property market is a fast-paced growth market. This market differs from the traditional Italian property market from both a financial and legal perspective. Understanding the intricacies involved could save you thousands of euros and months of time.

The first aspect to note is that Italian property purchase laws involve a series of structured transactions that can prove complex and costly to alter once the property has been purchased. As a consequence, it is worth involving a experienced legal consultant in the early stages of the process, prior to signing any purchasing agreement. This is particularly the case with high-value luxury properties.

Estate Planning to Purchase Luxury Italian Property

An Italian lawyer who specializes in Italian property, tax and estate planning law will review your investment objectives to ensure that the final deal is tailored to your unique needs. These include estate planning to see how the new property fits into your overall portfolio regarding inheritance, tax and investment planning as well as any particulars such as nuptial agreements. Your lawyer will take into account how you wish to use the property (whether as a business or for private use) and ensure you clearly understand the implications of important details such as whose name appears on the purchase documents.

Many foreign purchasers sign the first purchase offer (compromesso) without any legal review. This is common for Italian buyers as legal representation is not required in Italy for property purchases. However, this lays a purchaser open to significant issues further down the track, especially foreigners who have non-traditional purchase structures and tax implications.

Personalized Structure for Italian Luxury Asset Acquisition

According to Italian law, if neither party specifies otherwise, the standard legal code is applied. This is a one-size-fits-all template that defaults back to the general terms and conditions of the Italian Civil Code. When purchasing a luxury property, given the financial investment, it is essential to ensure that the foreign buyer’s specific case circumstances are legally addressed. This would not be the case with the standard terms and conditions. Your high-end Italian property needs to be covered by legal documents that apply specifically to your situation.

If you do go ahead with the standard purchase agreement and then find you need to make changes later, this may become a costly and complex exercise which could have been avoided with customized planning upfront.

So, what are the key elements that should be reviewed to ensure maximizing on your investment?

Key Elements of an Luxury Property Purchase in Italy

The first one is to check whether the property you are purchasing qualifies as a luxury property under the parameters set by Italian tax law. This has nothing to do with the cost of your property, its stunning location, or top-end interior design. The legal qualifications to categorize a property as luxury property are explained here in another post.

Tax Definition of Luxury Property

If it does qualify as a luxury home, at this point it would be wise to see if changing the tax category from luxury to traditional is possible and beneficial to your case. The ins and outs of doing so are complex, so we will go into this in another post, suffice to say that the definition of your property can be changed for a relatively small fee compared with the exorbitant cost of the annual council’s luxury property tax. The change in definition would also affect other taxes such as property purchase transfer taxes and VAT when you buy it, so your lawyer can lay out the details for you to decide how to proceed.

However, timing is everything as you may need to involve the seller to assist in changing the definition of the property. You will have additional leverage to do this prior to signing the first purchase offer. This step is often underestimated. An experienced lawyer is key to guiding you through this important stage which may also involve negotiations with the seller.

Special Purpose Vehicle (SPV)

The second key element requires deciding whether the purchaser should be an individual or a legal entity. There are benefits and downsides to both that vary depending on how you want to use your property.

Benefits – For example, a property owned by a legal entity would:

• allow more tax deduction options
• provide more privacy
• represent a liability shield with respect to the rest of your wealth
• make easier, cheaper and faster to re-transfer property ownership as the legal entity itself can simply be transferred (for example, imagine your Italian property being owned by a company established in your home country instead of in Italy. You can transfer ownership without involving an Italian notary or paying Italian transfer taxes. You just transfer the ownership of the legal entity in your home country jurisdiction.)
• make possible to “move” the property to a different jurisdiction with lower inheritance taxation.

Downsides – For example:

• initial company set up cost (unless you already have an established legal entity)
• no property purchase transfer tax reductions which might be allowed if the buyer was a private individual
• corporate compliance
• book keeping
• corporate tax obligations

Therefore, it is worth going through your options meticulously and the specifics of the property you are considering buying, to ensure you choose the right purchase structure for your needs and circumstances. It is essential to have the options and implications clearly detailed prior to purchase.

International Currency Exchange Planning
Before investing in an Italian luxury property purchase overseas, you should consider opening a currency exchange account. There are numerous brokers who offer this service. Check out the best deal. Otherwise, using a regular local bank to transfer the funds typically results in additional charges. Beware as regular banks will often say that no additional charges will be added to convert and transfer currency overseas. However, they typically still do in a slightly undercover way by upping the currency exchange rate: the spread is their profit.

You can get much better deals and save a significant amount of money by employing a broker. We work with several brokers around the world whose currency exchange and transfer spread is between 0.2% to 0.4%. We will be happy to offer you further advice on this and suggest companies that are licensed in your country to deal with Italy. It takes about 4 days to go through the security checks and set up, and it is very much worth it in the long term.

Our legal team has extensive experience in assisting clients with all aspects of  Italian luxury property purchases. We leverage our experience and in-depth knowledge of the Italian tax system to assist our clients in structuring their investment in the most advantageous way possible.

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• Property Purchase: Do I need an Italian Bank account?
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• Italian property purchase taxes
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