Paying tax in Italy on rented property back home

Holmesro Image
10/26/2009 - 09:59

Does anyone out there rent out their non-Italian home whilst being resident in Italy? I’ve just got a letter from the Agenzia delle Entrate saying I have to declare overseas income, and I guess that includes UK rent. I rent my UK home out for under GBP 1,000, pay 15% plus VAT as a management fee and 600 a month in mortgage interest. What’s left tends to go on fixing stuff, so never thought I’d have to worry about paying tax on it. But I understand that in Italy they tax you simply on 85% of the gross rent and ignore the mortgage interest as it’s not an Italian mortgage. That would leave me with a nice tax bill and as I have been collecting rent since 2007, presumably a nice fine too. I’m an employee here, so have never sent any forms or declarations to the tax authorities. Has anyone been in this situation have any suggestions? Is the above correct? And are the declarations something that I can do myself? Many thanks for anyone who has any advice at all.


The answer to this question will depend in part on whether you are considered liable in the UK to file a tax return covering this rental income.    This isw determined against a number of criteria that are considered in order by the UK Inland Revenue. If liable in the UK then there is a double taxation agreement so you shouldn't pay tax in both countries.    From what you know already it would clearly be helpful if your liability to file a return and pay tax on any profit was in the UK as you would be able to offset your mortgage interest.An accountant who specialises in cross border tax matters is really your best port of call.  An Italian based commercialista will be familiar with the Italian rules but won;t necessarily be qualified to determine whether you are liable in the UK or not.Happy to provide details of the person we have used happily for the past few years if you want.   Drop me a PM.

In reply to by arty

Thanks for your comments Arty.My understanding was that yes, I am liable to pay tax in the UK.  I could be wrong, but I always thought that you paid tax locally on any assets in that country (maybe unless you change your domicile (?), but I haven't done that).I fill in a return &c, but my personal allowance there easily covers the gain. So I don't have any UK tax paid to offset against any Italian tax payable.My problem is that the Italian tax calculation is on a much more punitive basis. If my understanding is right, it seems totally unfair as it will ignore my actual costs on the property and makes me pay tax out of money I've never received! 

In reply to by Holmesro

There is a clear difference between the potential UK and Italian tax liabilities for this rental income. My understanding is that it will depend on whether the UK Inland Revenue regard you as liable to declare and pay any tax due on this in the UK.   If so,  then theirs will be the rules that apply to this income/potential gain.  There is not then a question of declaring the same income for the second time in Italy and "netting off" any tax already paid in the UK against what would be due in Italy [in your case I understand there would be nothing to "net off". I am basing this on personal experience which may not apply in your precise circumstances.  As in my previous post the advice of a specialist in such matters should enable you have a definative answer and an easy sleep. Good luck - keep us posted of outcomes!  

Depending on your circumstances (employed, retired etc) it is up to you and your conscience if you stick your head above the parapet and declare this type of income for tax purposes, both here and in the UK. I can say without fear of contadiction that over 80% of expats in Italy do not declare any Uk income from renat property either in the UK or Italy.Be warned that if you do declare it you will open your self up to procedural scrutiny from both tax agencies; as an aquaintance of mine did and was landed with a large tax demand from the Uk and Italy at the same time........

arty is correct imo. If the IR consider you liable for UK taxation then their rules will apply. I think your problem could be arising because for UK residents by law your agent should withhold 20% on your gross monthly rental income. If you have declared that you are non resident then your management agents can pay you gross but this would then suggest that Italian rules should apply. You do really need a cross border specialist as arty says. Not cheap I'm afraid.

I don't see why the tax authorities can't produce a simple leaflet or flow diagram of instructions to help people out.I spent hours on the phone last year wondering who to inform about some very small UK rental income and never got a convincing reply.

Dear Holmesro, I was wondering how your situation worked out in the end? I received a similar letter myself a couple of weeks ago, and am not sure what to do. I have asked 4 Italian accountants to date, and they have all given completely conflicting advice, while admitting that they know nothing about this part of Italian tax law. I'd be very grateful to find out if you made any better progress in ascertaining the rules than I have so far!

As a uk home owner renting out a property you should contact the Inland Revenue if you are going to be out of the country for 6 months or more for whatever reason be it business or pleasure.  You should register as a non resident landlord which is simply a case of completing a form confirming your NI details, that your tax affairs are in order and that you agree to submit an annual tax return.   I think these forms can be downloaded from the IR  web site. Do not be fooled into thinking you can rent your uk property out without the Inland Revenue knowing especially if you employ the services of a letting agent either to manage the let or simply act as introducers.  Letting agents are obliged to submit a full return each year listing all landlords for whom they have let property in the preceding year

Yes Jackie, that's quite clear and I did that 10 years ago when I first left the UK. The problem at the moment, which seems to be affecting a large number of UK expats in Italy, is that the Italian tax authorities are seeking to levy tax on income derived from UK property over and above the sum levied by the Inland Revenue (which does not count as double taxation). I pay tax in the UK on my UK property rental income, and told my Italian accountant about this when I first made a tax declaration in Italy. They told me that as tax was paid at source in the UK, that it was not relevant to my Italian declaration. Unfortunately, this may have been incorrect, and the Agenzie delle Entrate have recently sent out letters to 6,000 Italian residents with property in the UK and France. The implication of the letters is that a supplementary tax needs to be paid in Italy on UK property income. The legislation seems to be blurry in this area, and four different accountants have given me four different interpretations of how to deal with it. If anyone in this community is experiencing similar problems / has already resolved them, I'd love to hear from you!

I would suggest contacting Michael Murphy who is a UK accountant based here who specialises in helping ex-pats with cross-border tax issues. He is a member of the forum or just do a google search.

indipendent from the issues concerning tax payment in the uk or italy there is however another issue.that is that under italian law it is permitted as a private person to rent their house for UP to 60 days a year.that doesn't mean what you got, but the max time it is allowed to be rented for.if however and people's booking calendars are the evidence of this, showing a 12 month calendar of possible vacancy then the italian authorities will consider it to be a business ie. not only does tax hit in but other authorizations ,VAT, health and safety obbligations/inspections and so on.

I completely go along with the advice to contact a reliable 'cross border' tax advisor. I have no idea about tax on rental property, but the tax regime has massively changed for people resident in Italy for fiscal years 2009 2010. If you are resident in Italy you are deemed to be liable to pay tax in Italy on your worldwide income. For sure the agreement on 'dual taxation' is in place, so pensions etc. are basically unaffected, (so long as they are paid after UK tax has been deducted.) But the suggestion that 'keeping your head under the parapet' will work anymore is just dreaming on. If you are resident in Italy and have any income from anywhere  (EU or otherwise)  - the Agenzia will be after you. The law is written in such a way that (if you have claimed residency) you will have a massive hill to climb to escape from their clutches. So - maybe this explains why many people are getting letters from the agenzia delle entrate. I repeat - if affects you, get some reliable advice. There is a person, who I have not heard anything bad about, called Michael J Murphy (you could google his name). He is (allegedly) not inexpensive, but maybe he knows his stuff.