There are a number of factors to consider when donating immovable property in Italy, including tax, succession planning and any future sale of the property.
Tax consequences
A donation requires the payment of the following taxes:
- l’imposta di donazione;
- l’imposta ipotecaria;
- l’imposta catastale;
- l’imposta di registro;
- l’imposta di bollo.
The value of the imposta di donazione depends on the relationship between donor and donee. Donations made by parents to their children benefit from a high tax-free threshold of Euro 1.000.000 beyond the threshold. Tax on the donation from a parent to a child amounts to 4% of the land registry value of the property. Therefore, 4% will only apply to the value exceeding Euro 1.000.000.
In most cases, a donation among family members is more advantageous than a sale, as it is rare for there to be any applicable donation taxes.
The applicable tax for donations between siblings is 6% with a lower threshold of 100,000; for donations among relatives up to the third degree, a rate of 6% applies with no available threshold; and a rate of 8% applies on donations to any other person, also with no available threshold.
The remaining taxes imposta ipotecaria and imposta catastale are applied at rates of 2% and 1%, respectively, of the land registry value of the property.
For example, if a donated property* is worth Euro 200.000 the donor must pay:
4,000 euro- imposta ipotecaria (2%)
2,000 euro – imposta catastale (1%)
*exemptions apply if the donated property is the donee’s main residence.
The remaining imposta di registro and imposta di bollo must be paid to make the deed official and register it with the tax agency (200 and 230 Euro respectively).
Effects of a donation on the donor’s Italian succession
Under Italian law, a donation is treated as anticipation of the inheritance distribution made by the donor. It is therefore considered a portion of inheritance that is assigned to the beneficiary prior to the donor’s death.
As such, if a donation affects the share designated to specific heirs by law (quota legittima), the heirs have the right to make a claim by azione di riduzione. This action ascertains that the affected heirs are entitled to a larger share of the estate than that which they received (expiring 10 years after the death of the donor), and aims to obtain the restitution of the donated property, and may partially or totally invalidate the donation (this would only occur if, on the deceased’s death, the value of the deceased’s estate was unable to fulfil the share designated by law to the heirs). Depending on the circumstances, the donee must then return the donated property, or a part of it, or its corresponding monetary value, to the deceased’s assets within the legal limits of the amount due to the heirs by law.
What happens if the donated property has been sold to a third party, to the detriment of the heirs (quota legittima)?
The current law states that heirs have 20 years to recover the donated property that has been transferred to another heir or third party, starting from the date when the donation is registered. This is called azione di restituzione, and it requires that the third party return the donated property or its corresponding value (in the event that the original donee could not return the equivalent amount to the heirs).
Problems associated with purchasing a donated property
A potential buyer is often discouraged from purchasing a property which is owned based on a donation deed or that has a donation deed in the past 20-year title history. This is due to a variety of reasons, including but not limited to, the effect on the market value of the property and the complications that arise when applying for a mortgage. Even if there are no family members entitled to pursue azione di riduzione and azione di restituzione, banks are usually hesitant to grant mortgage loans when the property has been received by the borrower through a donation deed.
Furthermore, if you chose to sell the property within 20 years of a donation, you may find that buyers request extra considerations due to future uncertainties (e.g. a price reduction, declaration of renunciation to make a claim from the legitimate heirs, insurance policy etc).
If you are thinking of transferring your Italian property to a relative or a third party, please contact our experts who can provide professional advice on the best and most tax efficient way of doing so.
