Taxation Issues for Dual Citizens/Cost of Living

11/16/2009 - 13:32

My husband and I are Americans who recently got our Italian citizenship through juris sanguinis. We plan on retiring to Italy in 5 years or so and are working on our retirement plan to ensure that we will not run out of funds in our lifetime. I believe there's a law so there is no double taxation between the two countries. We have to find out:1. If we get taxed on our social security benefits by the US government in America once we start receiving them, or in Italy?2. We are self-employed and have been saving money for years tax-free that will be taxed once we start withdrawing from our plan. We are supposed to pay taxes to the US government when we withdraw it so I can't imagine that we get taxed on this in Italy. We're trying to figure out who we will pay what taxes to and what our tax rate will be in retirement. 3. We do have another savings account which we paid taxes on before investing, which will account for about 1/2 of our savings. It will generate interest and capital gains and dividends. We are also trying to figure out a future budget and wondered if costs of daily living were available. Health insurance should be free since we are Italian citizens, but what about additional medical costs that crop up? Do people have average costs of heating, electric, house taxes, car insurance, car gas costs, ici, monthly food bills, etc. available that you could send to me? I know heating greatly depends on house size but I'm just trying to get a rough idea, let's say based on a property that is 140 -170 square meters. Any input would be most appreciated.

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Living

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For health costs you still have to contribute a proportion unless you are over Italian retirement age I believe. It is about 30% but the the costs are substantially lower than the US so 30% will be very reasonable. I would guess you could scrape by on 1,000 euro a month for a couple but if you want to do anything more extravagant then you should budget more.As for the tax issues, you really need to speak to an accountant who knows about US and Italian tax regimes to make sure you get good advice. In my experience, mistakes made in Italy with taxes are costly and nigh on impossible to resolve in your favour! The tax man is always right, even when he's wrong.

Thanks Penny, it helps with having a monthly average to start with. I agree that I need to check in with an accountant and will see if the Italian Consulate in Boston has any recommendations of people who deal with dual nationals.

Hi Lisa, you are doing the right thing by trying to find out as much as possible beforehand. Penny´s advice is correct, you will be required to pay something for your Italian health cover unless you are over the age of 65 (retirement age), but it should not be much and definitely much less than what you pay in the USA.If you are buying a house and it is your first house in Italy you should not worry about ICIThe cost of utilities is very high and heating in winter can be fairly expensive. For this reason, proper insulation and choosing the right heating system are major considerations.There is a taxation agreement between Italy and the USA and here you have the full textwww.irs.gov/pub/irs-trty/italy.pdfMy advice will also be to engage the services of an accountant who knows about the two regimes.Good luck with your plans!

Gala,What kind of heating do you think is preferable? Do you think utilities are double or even triple those in the USA? When we look again at houses, we hope to find something habitable, but may not be able to. I also appreciate the link to the IRS website. Thanks very much.

Living costs, are all dependant on the lifestyle you choose. You will not get a straightforward answer as there are many factors, especially with heating/electricity costs. What is the type of heating in the house: GPL, Town gas, pellets, wood, Solar etc. etc? How warm do you want the house? What is the consumption of the electrical appliances? For example, our total cost for all electricity including 24hr heating/hot water for last year was Euro2500.00, so about 200.00 per month (120 sq mtrs). GPL, for the cooker hob E120.00. Water bills about 50.00 for the year. ICI, nil as prima casa....... no swimming pool to put it into a luxury home category, which would change the status. Car insurance (2 cars, fully comprehensive) circa 1200.00 total (not with an Italian insurer). House and contents insurance <500 p.a.Car servicing is much cheaper over here than the UK, but could not give a comparison with the US. Fuel prices will be higher than the US, but those are easy to compare.Medical costs, as Penny says, you have to pay a contribution for certain things, but those we have found are not excessive.Monthly food bills: meat is quite expensive now, for fillet steak, T Bones etc circa 18.00 per kg for good quality. Lamb is also pricey, pork and chicken not so bad.Vegetables in season are probably average wherever you are in Europe. Eating out in restaurants will also take a large bite out of finances especially if you do that on a regular basis. Taxation .............. no idea!!!!!!!!!!!!Hope this helps

Good questions, Badger. We have no idea as to what type of heating source we'll end up with. Our preference is for a small independent house with garden (about 150 square meter house) or a townhouse with a garden. We will try to find something that is habitable as restoration costs always seem to be much more than originally budgeted for. I really appreciate the detailed financial information which greatly helps me get an idea of that we are in for. As we only had two wood stoves when we lived in Pisa, I really have no idea of heating costs. We are planning on living in the southern Marche as of now in the hills between the mountains and the coast and I know it can get quite cold at night.

Wow, you guys know you stuff and thanks for sharing with all of us!Leslie

i know we have talked all this before.. but its nice to be in at the start because the first choice is important... my thought has always been that when you buy a property here make sure that its sited facing south...and not above the olive tree line...keep away from properties that have high hills to the east or west,river valleys or even worse on a north facing slope... the 150 sq m option is also sound... sort of optimal for living accommodation and enough space to have friends to stay...without costing a fortune...agree also on restoration projects.... without independent expert advice when buying its almost impossible to arrive at a true estimate of what the budget will be...i think best value is to be had on properties that do not look so hot in terms of appearance... windows ugly gold aluminium... plastered and square... and with a new roof... there are tons of these... even better if the ground floor is still animal accommodation or cantinas... this provides good value purchase wise and reasonable development costs..because the work is predictable..make sure it has huge supporting walls good roads access and close to village or town... costs a fortune in shopping trips if you decide on remote...try and find a property with some outhouse / barn type areas even if ruins...and make sure they are registered ...it allows you to have storage and or hobby areas... retirement is fun... but its nice to have somewhere to carry on separate existances sometimes... sorry got to go out... but its start... and choosing well will save more than you imagine in the long term costs of living

Hi Lisa. We use mains gas, because it is very convenient; however, our is a holiday home and many of our neighbours need to use pellets or wood to complement their heating needs as they say that using gas is expensive.... Nevertheless, I have to say that in our case it is not that expensive because the house is very well insulated and compact, and it has very thick stone walls and modern double-glazed windows. It warms up very quickly even after being uninhabited for many months and it keeps the temperature without difficulties. This may show you that there are houses which have problems that are difficult to solve and you must be very careful when you decide to buy something. Insulation is vital if you want to keep costs at a reasonable level.

Hi Lisa, glad to see you are getting some good results. For me if I wanted to move again I would be looking at village houses, or houses on the edge of villages which have great views, having seen a few they do seem to be a market that has a lot to offer, reasonable price, not isolated, and many also provide some land or a least a garden, and give you the oppotunity to get to know your neighbours and be part of the community, though as Tony is fluent you have big asset already! I know you are very familiar with South Marche, so hope the search continues to go wellAngie

sorry had an appointment and dint really realise how time was slipping past... structurally sound and good location and tired... this enables you say to install the best heating systems say in non converted downstairs areas needing to be converted or updated ... replace windows .. add bathrooms... reveal features below plasterwork... stick in a new kitchen... the place then feels like yours... also you have not paid for a fairly modern property with its premium for the previous owner doing everything before you... its hard to rip up tiles that you have paid a lot for because the color is not quite right or the previous owners idea of sufficient heating leaves you feeling frozen... if you have the downstairs to do it allows so many more option re underfloor heating...or geothermal systems...without having to either do lots of building works re the main structure but to convert the property into an efficient well heated place to live... and with a kitchen you can live with...an appearance that you like ... to my mind these are the cheapest types of properties both to buy and to change... which is way off your original question but it seems to me there are many people surviving here in one living area and thats ok ...we all make choices but i like bathrooms that dont have condensation and walking around in winter not in a T-shirt but at least without a fleece on...inside my home... the other thing is using a computer without a well heated home is freezing on the fingers...making a choice to move to Italy was easy... making a choice to live comfortably in our house... the whole house ...otherwise we would have bought a garden shed also makes sense to me.. and there are not many modern properties here or converted that will arrive at what tomorrow will offer in terms of energy efficiency so take control of that part from the start...

Thanks to all of you and your generous knowledge, I've got an outstanding checklist going. Great common sense and a world of experience!

"Monthly food bills: meat is quite expensive now, for fillet steak, T Bones etc circa 18.00 per kg for good quality."I'm just being picky, I know, but where I am we pay around €37 for fillet and t-bone....T

You must be being ripped off SirTK, just today bought a lovely fillet of beef at the E18 per kilo that I said before. Suggest you change your butcher.

I don't kno wwhen you are planning to buy Lisa, but we have our townhouse in Amandola with a garden up for sale at the moment. You can see the details here: http://houses.sibillinicycling.com/

Thanks to everyone who has responded. I really appreciate it and am making a list of suggestions and costs that you have shared. The information is very helpful. John, I'll have to send you an e-mail to catch up!Penny, your place looks lovely but we have decided to wait until closer to when we move to purchase a place to not have the costs of maintaining two houses. Our dollar is also very weak at the moment.I was just given a list of questions from my retirement planner and was wondering if anyone had dealt with the following. Also, do you have a recommendation of a professional who could give me definitive advice?Any advice would be most appreciated.How does Italy and the USA tax someone that is living full-time in Italy as a permanent resident (with dual citizenship) that receives:1. Dividends2. Cap gains3. Interest4. Income (if you work)5. How are IRA’s and profit sharing accounts handled and taxed that were established and funded in the states?6. Social security7. Inheritance8. Life insurance proceeds

Thanks Lisa. Makes perfect sense.I know Michael Murphy specialises in UK/Italian tax issues. I don't know if he deals with US/Italian tax issues but he might be a good starting point: http://www.mjmurphyaccounts.com/4613.html

Thanks Penny. I'll drop him a line. I really appreciate the advice.

AdriaticaCould you please explain about the places where not to buy for us 'uninitiated' please. I presume its because of weather?thanks Joy

everyone is free to make choices... so therefore these are to me logical steps but are not writ in stone..... they are the same here as anywhere... a bargain within an area is not a bargain because no Italian gives their property away at a discount...its rather the other way around.. and its difficult to explain to many of them that the price they set is sometimes not quite realistic in terms of market valuations.... wherever your home country is you will know of exactly the same situations... one are even a road cheaper than others and behind it will be some underlying devaluing factor... here in Italy its pretty well the same.. although to my mind here it is a much more common practice for Italians to ignore estate agents valuations and to stick with their own... which sometimes makes the advice often given to wander in the local bar and chat to the locals to find the best offer around to my mind somewhat dubious ... because often this will be an opportunity to get rid of something that agents will not have taken on... but i doubt any bargains will be found this way... saving fees aside...which can work out as a discount in some areas of plus 3 % for each party... so in Italy there are three major factors over the whole area without going into the north south divide.. flooding and earth movements... more people killed and property destroyed throughout Italy than any other natural cause and it happens everywhere and often.. certain areas are just going to be disastrous in those terms ... there are maps zoning the whole of Italy regarding these and they are held by the comune... no region is exempt from these areas.. and this zoning makes a property either valuable or a well to throw money down in terms of working on it... costs of restorations can be doubled if the building engineer checks the zoning and tests the ground surrounding and below a property and finds bedrock is too far down to carry the weight of a new or restructured building... small summer streams that trickle in the summer in the winter here can be turned into flooding nightmares... Italy in general has the same amount of rain as the UK for instance... but it comes down in a lot less time...earthquake zones.. category one zones are best avoided... avoiding seismic zoning when 90 % of Italy almost is classified at risk is not easy ... but making sure its not on the actual plates where the epicentres occur is ... far less risk of a problem via this than flooding etc...weather... again this is a north south thing... but also a very local specific micro climate system exists here too... making a difference of plus or minus several degrees within a few miles...add to this if you buy in a remote area all costs will be higher from building works to your shopping.... and any works you carry out are unllikely to recoup costs in terms of property value in those sorts of situations...fixed building costs say for a new build or full restructure run at 1500 euro per m sq... if you buy a property where the market price is set at around the 800 euro per m sq for a habitable house... you buy the ruin at say 100-200 euro per m sq you are unlikely ever to sell at a break even point... anyway a brief reply ... and most of it is down to common sense..... specifics are down to local knowledge...hard if you are buying from abroad... for instance there are local issues here in Abruzzo... Bussi and its contamination, L'Aquila and its earthquakes, someone on this forum highlighted a proposal for an incinerator near Bisenti, there are plans for some sort of oil processing refinery near Ortona, oil drilling in many areas is being proposed and opposed... water supply problems in much of the Chieti province ... contaminated water supply along the Pescara valley.. these things are in the newspaper every day here...so its easy to follow... anyway will let Lisas post get back on topic... would think Lisa that you might be best searching amongst Italian based organisations in America... for a tax specialist... there are many groups... and many of them have interests still in Italy... most of the forum advice will pertain to people from within the EU and this is supposed to be at least to have simplified everything...

Thanks so much for all of the helpful advice. I think I'll contact the Boston Consulate for a recommendation.

Thank you Adriatica - interesting read. Could you just explain why not to buy 'above the olive tree line' Is this due to weather as presumably North facing?I live in an area that gets flooded but we are higher up the cliffs so our property not affected - something to always consider and especially in the future.

olive trees need a good sunny exposition and non deeply cold winter ground...to produce well... farmers will not plant cropping trees where they will not grow and produce... to me these are also human requirements..not everyone... but i like what olive trees like.. no flooding,no extreme cold..sunny expo.. plenty of air..

Hey Badger, I'd better come to yours for dinner . But surely you're not suggesting they take advantage of we poor and needy around lake Como?

Hi Lisa,I am reading your post 9 years later but with the exact same project.We are curious to know how everything turned up. If you read this post, I would appreciate to know about your experience.Thank you,Cecilia