How Much Does It Really Cost to Buy a Property in Italy?
Transactions Costs Matter More than You Think
The price of any asset is made up by two factors: 1) market price and 2) transaction costs.
In setting up a budget to purchase a property it is fundamental to determine in advance how much taxes and professional fees will have to be added to the market price of the property, how that price influences other fees and under what circumstances can fees be legally reduced.
In this article I aim to provide a full overview of the different transaction costs that a buyer will have to bear when purchasing a property in Italy. These costs do not include mortgage related costs.
Real Estate Agency Fee
In Italy real estate agents normally act as impartial brokers between buyers and sellers. As such they are entitled to be paid a fee from both parties if the deal closes because of their mediation.
These fees are usually a percentage of the final purchasing price and are already payable once both parties sign the preliminary contract (contratto preliminare or compromesso in Italian) and not when the actual deed of transfer is signed in front of the public notary (Notaio).
The percentage may vary from city to city depending on the local practices. It used to be common to receive 3% + VAT from both the buyer and the seller, but in a market with more buyers than sellers it is often requested that the buyer pays 4% and the seller pays 1–2%. It is also frequent that on lower value transactions the agent will ask the buyer to pay a fixed fee of €3,000–4,000 irrespective of the agreed purchasing price.
Public Notary Fee
Buying a property in Italy is a very formal process that requires the intervention of a public official called Notaio. The Notaio is a self-employed professional whose task is to certify that some important deeds are lawfully executed. In addition, the Notaio collects all property taxes that are due to be paid because of the transaction.
As self-employed professionals, different Notaio may provide different cost estimates for their services so it is worth shopping around a bit, but estimates shouldn’t vary much for standard property purchases. The buyer can pick any Notaiobut he will also have to bear the cost entirely. As a pure guideline, on a property valued around € 150,000, buyers should expect to pay around € 1,500–2,000 for the Notaio’s fees.
Property Taxes
Here is where the purchase experience will differ the most from buyer to buyer. While real estate agent and public notary fees will not change much, the amount of taxes paid by a buyer for an Italian property will be highly influenced by several factors e.g. his\her elected residency, age and number of properties already owned.
For the purpose of this short article, I will highlight some of the most common scenarios but it is recommended that you consult a qualified accountant to correctly assess your individual circumstances.
a) Preliminary Contract Registration
Most of the time a deal is secured by signing a preliminary contract (contratto preliminare or compromesso). If such a contract is signed, the estate agent will have to register it with the local tax office. The following taxes are due for the registration of the preliminary contract:
● € 200 (irrespective of the value of transaction)
● € 16 for every 4 pages of the contract
● 0,5% of the holding deposit (this amount will then be offset against the taxes due on the deed of transfer)
b) Property Transfer — General Rule
Unless the buyer falls in one of the circumstances that will be discussed later, these are the taxes that will normally be paid for a residential property transaction:
One important thing to note is that the variable tax component is normally calculated on the purchase price (e.g. if I pay €100,000 for a property, I will have to pay 9% or 10% of this amount for the Imposta di Registro), but there is a notable and important exception if both seller and buyer are private individuals or they are both not subject to VAT. In this case it is possible to request the Notaioto apply the prezzo-valore system which, in short, uses as a tax base the estimation prepared by the land registry instead of the agreed price. This matters quite a lot because most of these evaluations have been made several decades ago and do not normally reflect the current market price of that property. Calculating the tax due under the prezzo-valore system is quite easy (it can be done with an online calculator) and it normally results in a sizable and completely legitimate tax saving.
c) Property Transfer — First Home Incentive
Italy offers a very advantageous regime for first-time homeowners, under certain conditions. In such circumstances the applicable taxes are as follows:
It is easy to see that taxes are greatly reduced for first-time home buyers and it will still be possible to apply the prezzo-valoresystem described above to further reduce that amount. In addition, it is worth noting that the same favourable fiscal treatment can also be extended to the property affixes (e.g. a garage, storage area) which would be taxed a lot more if bought separately.
These fiscal benefits, however, come under strict conditions which can be difficult to be met — especially for foreign buyers. Specifically:
a) The homeowner, within 18 months, needs to formally transfer his residency to the municipality where the property is located. Or the property is located where the owner habitually works or studies. Or the owner is an Italian citizen who resides abroad.
b) The homeowner cannot own another property in Italy that was acquiredusing the First Home Incentive.
c) The homeowner cannot own another property in the same municipality (even if it was inherited or acquired without any incentive).
d) The property cannot be classified as a luxury property.
It is important to note that, for foreign buyers, the formal transfer of residency to an Italian municipality can affect their overall tax liabilities and it is therefore very important to evaluate pros and cons of such a transfer. On the other hand, taking advantage of these benefits without fulfilling the requirements will almost certainly result in a legal action from the Italian tax authority to collect the difference between what was paid and what should have been paid, with added interest and a 30% penalty on top.
Please also note that the First Home Incentive is also lost if the property is resold within 5 years of the purchase and no other property in Italy is bought within 1 year of the sale.
e) Property Transfer — First Home Incentive for Under 36 years old
This is a very recent initiative originally created in 2021 and just extended for purchases that will be made until 31st December 2023.
This is essentially a supercharged First Home Incentive for those that would be eligible for the standard First Home Incentive and that also possess the following requirements:
a) People with less than 36 years of age
b) With a ISEE — an income and wealth indicator — of no more than € 40,000 per year
If all these conditions are met, no taxes or VAT will have to be paid on the transfer and, if the purchase is financed through a mortgage, no taxes will be paid on the mortgaged amount either.
A Real-Life Example
The buyer was a foreign individual, over 36 years of age, who already owned another property in Italy. Both buyer and seller were private individuals.
Purchase Price: € 145,000.00
Calculated Value of the Property under the Prezzo-Valore System: € 45,612.00
Preliminary Contract Registration: € 216
Agent’s Fees: (4% of € 145,000.00) + 22% VAT = € 5,800.00 + 22% = € 7,076.00
Notaio’s Fees: € 1,539.40 (inclusive of VAT)
Imposta di Registro: 9% of € 45,612.00 = € 4,105.08
Imposta Catastale: € 50
Imposta Ipotecaria: € 50
TOTAL = € 216 + € 7,076.00 + € 1,539.40 + € 4,105.08 + € 50 + € 50 = € 13,036.48
