Italian prima casa tax reductions

Italian prima casa tax reductions

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Italian Prima Casa (First home)

Question: How do the Italian Prima Casa tax reductions work?

Answer: If you acquire an Italian residential property by purchase, gift or inheritance, the transfer is subject to transfer taxes.

If the property does not qualify as a luxury property for tax purposes, you might be allowed to apply for a lower transfer tax rate. In this article we explain when a residential property qualifies as a luxury property.

The reduced transfer tax rules are called “Prima Casa”, i.e., First Home. Although the name might lead you to believe that such provisions apply only when you buy your first home in Italy, they might actually apply also if you buy an Italian property when you already own one or more residential properties in Italy.

In this article we are going to outline some of the most common situations when it is possible to apply the Prima Casa (lower) tax rate, which we call First Home Tax Reduction (FHTR).

What are the Italian tax rates applicable to a Prima Casa property purchase?

FHTR implies significantly reduced taxes rates that depend on the specific case circumstances. For example, the reduced rate is different whether the transaction is subject to VAT (Value Added Tax, which is the Italian equivalent of sales tax) or Registration Tax.

More specifically, if you buy an Italian property from a developer or a company, chances are that you are going to have to pay VAT on top of the purchase price. Conversely, if you buy from a private individual, there is no VAT but there is Registration Tax. Registration Tax rates are lower than the one applicable to VAT property transfers. See below a summary of transfer tax rates and taxable amounts in some of the main scenarios:

VAT transactions:

  • without FHTR: 10% of sale price
  • with FHTR: 4% of sale price

Private transaction subject to Registration Tax:

  • without FHTR: the higher between €1,000 and 9% of property tax value on record. “Property tax value on record” in Italian is “valore catastale”, often translated with “cadastral value”.
  • with FHTR: the higher between €1,000 and 2% of a reduced taxable value. The taxable value of a home purchased with FHTR is approximately 10% lower than the taxable value that would be used to calculate the 9% transfer tax to buy the same property without FHTR.

The average standard property tax value on record is 50% lower than market value. For example, if you are buying an Italian property for EUR 300,000, you might usually expect its property tax value on record to be EUR 150,000 (or less) if you are buying without FHTR, or approximately EUR 137,500 if you are buying with FHTR.

What are the FIRST HOME (“Prima Casa”) requirements?

There are several ways to apply for FHTR. For example, you can benefit from the FHTR if you make one of the following statements in the final purchase contract, or when filing the inheritance claim, or when accepting a property by gift:

a) to be currently a registered resident in the Municipality (Comune) where the property is located; or
b) to be currently working in the Municipality where the property is located; or
c) that you will become a registered resident of said Municipality within 18 months after the property acquisition (read next paragraph regarding the 18-month term extension); or
d) that you lived in Italy for at least 5 years, moved overseas for work, and that the property you are buying is located in the Italian Municipality where you were born, or where you lived, or where you worked.

The last option listed above is the result of a law amendment in force since June 14, 2023. Prior to such date, only Italian citizens emigrated overseas and registered in the registry of Italian citizens living abroad (A.I.R.E.) could claim the property transfer tax reduction, without requirement of prior 5-year Italian residency.

In addition to the statements above, you will also be required to declare that you do not hold any property right within the same Municipality where the property to be acquired is located and that you do not own or hold any ownership interest on Italian properties that you acquired under the FHTR provisions, or, if you do, you are required to commit to sell it within 12 months after the new property acquisition.

If you are acquiring the property by purchase or gift, your FHTR entitlement is personal. Therefore, for example, if you buy the property jointly with your spouse or a partner, and if only you are entitled to FHTR, the FHTR tax reduction applies exclusively to your property share, in proportion to its value.

Conversely, if you are inheriting the property along with other heirs, the effects of your FHTR entitlement extend to the other heirs. Therefore, even if you are the only FHTR qualifying heir, the reduced tax rate applies to the entire property value. As a consequence, all heirs benefit from it, including the ones who do not qualify for FHTR.

What happens if I commit to become a resident but then I cannot move in time?

If you apply for FHTR under c) above, but then fail to become a registered resident within 18 months after completion, or if you access the FHTR under a condition that is not actually correct, the tax office might audit the transaction and claim the tax difference (i.e., 6% in case of VAT transaction or 7% for a Registration Tax transaction on the higher taxable basis), plus a 30% fine based on the unpaid taxes and interest.

As an alternative, in the c) scenario only, prior to the end of the 18-month term, you have the option to notify the Italian tax authorities that you are not going to be able to meet the requirement and renounce the FHTR. The local tax office shall then notify you about the amount to pay because of your renouncement, i.e., 6% or 7% tax difference plus interest only, without fines.

In order to apply for FHTR it is mandatory for the title deed to reflect the FHTR request. Therefore, if you do not apply for FHTR on completion, it is not possible to apply for it afterwards, even if all requirements are met.

After I move within 18 months, for how long do I have to keep my residence there?

There is no legal requirement to keep your residency at the concerned Comune for a certain amount of time after you move there for the purposes of first home tax reduction. A recent ruling from the Italian Revenue Office confirmed that there are no penalties if you, for example, move somewhere after just a few months.

Is Italian Citizenship relevant for the prima casa lower tax rates?

After June 14, 2023, all the prima casa tax rules apply regardless of buyer’s citizenship. Therefore, any person, from any country, is entitled to the “prima casa” lower taxation if one of the four conditions above is met.

Did they suspend the 18 month term due to Covid-19?

The 18-month term was suspended in 2020 and started running again on October 31, 2023. Precisely, the term was suspended on February 23, 2020 and the suspension has been extended a few times, eventually until October 30, 2023. If you purchased a property with FHTR between those dates, your 18-month count started on October 31, 2023 and will end at the end of April 2025. If you purchased it before February 23, 2020, but not more than 18 months before, your 18-month count stopped on February 22, 2020 and resumed on October 31, 2023.

What happens if I sell my Prima Casa property?

If you purchase the Property with FHTR and sell it within 5 years after having used it as your primary home for the majority of the time, there is no Italian capital gains tax on the sale.

If you gift or sell the property within five years after a FHTR property acquisition, you shall buy another property with FHTR within a year or shall pay the tax difference.

Can I rent a home purchased with first home tax benefits?

Some people believe that it is not possible to run a b&b business at a property that is purchased with first home tax benefit. However this is not true.

Since there is no legal requirement to move into the property purchased with FHTR, it is not forbidden to rent a property that was purchased with first home tax benefits.

Therefore, for example, if a person is registered as a resident in the Comune of Florence and buys a property in Florence, that person can do the purchase with FHTR and then can rent it, long term or short term. Or, it would be also possible for that person to buy a property with FHTR even if it was rented at the time of the purchase.

Can I claim first home tax benefit for more than one Italian property?

FHTR is applicable for one “home” only. FHTR applies also to possible home “accessories”, such as storage unit or garage (one per transaction) and land (e.g., a yard). When you declare on completion that said accessories are, or are going to be, part of the home, FHTR applies to the entire transaction, resulting in substantial cost reductions.

When a home appears on record as more than one residential unit, although actually said units are used as a larger home, or if the buyer has the intention to unify the units to use them as a larger home, it is possible to apply for FHTR with respect to all said units under your statement that the said units will be used together as a sole home. If this is the case, after completion you shall file a tax record update request to have the units registered as one sole larger unit within the 18-month term above.

A local surveyor (“geometra”, or “architetto”, or “ingegnere”) would be able to do the filing above. Cost typically ranges between EUR 1,200 and EUR 1,500.

As an alternative, if you are not going to use the units as one larger home, you can apply for FHTR on one unit only. In this case only such unit would be subject to the lower transfer tax rate whereas the other unit’s would be subject to the standard transfer tax rate.

Is there any other Italian property transfer tax incentive?

Aside from the “prima casa” property tax incentives, there are other options to save on Italian property transfer taxes. For example, there are tax incentives and exemptions when you buy a property with very high energy efficiency or a property that is located in an area declared heavily affected by earthquakes. None of them is limited to Italian citizens only.

What about if I have an Italian property tax question?

We will be very happy to learn more about your specific case and goals and to advise you accordingly. You can schedule a consultation with us through the link below.

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