UK Resident Selling Property in Italy

Understanding the tax implications and reporting requirements for UK residents who sell a property in Italy can be a complex matter. This guide aims to provide clarity on this topic.

1. The Need to Report Sales in Italy to HMRC

For UK residents who are domiciled in the country, the global horizon of taxation encompasses both incomes earned within the UK and any global gains or incomes. This means:

If a UK resident disposes of an asset, such as real estate in Italy, the transaction must also be reported in the UK to HMRC.

The mode of reporting this sale is via the self-assessment tax return, an annual document where individuals declare their incomes and gains.

Importantly, the UK and Italy have an active Double Taxation Treaty, which ensures individuals are not burdened by paying taxes in both countries for the same asset or income. If you have already settled any Capital Gains Tax (CGT) in Italy post the property sale, the UK will grant you a tax credit for this amount, effectively reducing your tax liability in the UK to the difference between the UK rate of CGT and the Italian rate of CGT. 

Should the UK rate of CGT be less than the Italian rate, no additional tax is due to HMRC.

2. Decoding CGT: Italy vs UK

Both countries levy CGT on the profit earned from selling properties, but the manner and rates at which they do differ.

Italian Capital Gains Tax for Non-residents:

The taxable gain is the difference between the sale price and the purchase price of the property.

EU or EEA non-residents are usually subject to a 19% tax rate, while individuals from outside this region face a heftier 24% rate.

Deductions available:

Sale-associated legal fees.

Documentation-backed property renovation costs.

Adjustments for inflation.

There is an additional benefit for residents from countries within the EU and EEA. Since 2015, they might qualify for a CGT exemption if they sold their primary residence in Italy and intend to purchase another primary residence with the proceeds. However, the recent changes in light of Brexit might limit this advantage for UK residents in upcoming years.

UK’s Perspective on Capital Gains Tax:

The taxable gain is determined by the difference in the property’s sale price and purchase price. From this, you can subtract costs associated with the transaction such as legal fees, estate agent’s commission, and stamp duty.

Depending on whether you are a higher rate or lower taxpayer, the CGT rates can be 18% or 28%.

For a detailed understanding and calculation of UK capital gains, please see the following:-

How to work out your capital gains tax – UK Landlord Tax

3. Reporting Mechanics

For UK residents, the capital gain from the sale, as part of the worldwide capital gains, must be explicitly reported to HMRC.

While Italian properties do not need to be disclosed to HMRC within a 60-day window, it is advisable to mention them in the annual UK self-assessment tax return.

4. Conclusion

The sale of Italian properties by UK residents brings with it several layers of tax considerations and reporting requirements. It is always recommended to consult with a tax professional or advisor, especially when dealing with international assets, to ensure compliance and to make the most of available deductions and exemptions.

If any readers have any additional tax queries please reach out to the team at UK Landlord Tax on 01902 711370 or email enquiries@uklandlordtax.co.uk

If you found this article informative why not read about stamp duty on transferring property to a limited company or transferring properties to a limited company next?

Thandi Nicholls Ltd
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Wolverhampton
West Midlands
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