Second home in Italy: Favorable tax system

If you are going to buy a vacation home in Italy, then you are 1 lucky. After all, there is no capital gains tax in Italy. You also only have to pay tax on any profit you make when you sell your second home in Italy if you have owned it for less than five years.

Basically, Italy levies inheritance tax when you leave Italian property to your heirs. However, for the surviving spouse and children, there is an exemption of €1,000,000 per person. This means that in most cases they pay no inheritance tax. If their inheritance exceeds the exemption, they pay only 4 percent inheritance tax on the additional amount.

Second home in Italy: Italian inheritance tax

Sometimes Italian inheritance tax does have to be paid, especially if the second home in Italy goes to the partner with whom you live unmarried. Unmarried partners are not entitled to an exemption in Italy (they are in the Netherlands). As a result, they pay 8 percent inheritance tax on their share of the estate.

Family members outside the direct line (for example, brothers, sisters, cousins) pay a flat rate of 6 percent if they inherit the second home. Only siblings receive an exemption of 100,000 euros per person.

Second home in Italy: double inheritance tax

Italy and the Netherlands have not concluded a treaty to prevent double taxation of inheritance tax. Heirs can, however, invoke the “Double Tax Avoidance Decree 2001. They may then deduct the Italian inheritance tax from the inheritance tax they have to pay in the Netherlands.

If the inheritance tax in the Netherlands is lower than that in Italy, they may only deduct the lower amount. If an heir does not have to pay inheritance tax in the Netherlands, he or she cannot deduct the Italian inheritance tax either. Usually the Italian inheritance tax is lower than the Dutch. As a result, heirs are almost always allowed to deduct the Italian tax in full from the Dutch. Thus, it usually comes out more advantageous.

However, some situations are less advantageous. For example, if the unmarried partner has to pay no inheritance tax in the Netherlands thanks to the exemption, while Italy levies 8 percent on the full amount. In that case, it is more interesting to leave the second home in Italy to the children, if you have any. They are entitled to a generous exemption in Italy, as described above.

Don’t have children? Then a mortgage debt on the vacation home in Italy can prevent or at least reduce this disadvantage. With such financing debt, the tax base in Italy is reduced. As a result, the partner pays less or no inheritance tax in Italy.

If you are about to buy a holiday home in Italy, be sure to visit the Second Home Expo. Various providers present their offerings of homes. There are also seminars in which all aspects of buying a home in Italy are discussed.