Comparing Italy and UK property: Taxes and holding costs

28 Feb Comparing Italy and UK property: Taxes and holding costs

tags: UK property prices, Italian prices, taxes and holding costs.

Comparing the UK property market

Across the UK market, average home prices have increased by 38% over the last 10 years and the average house price today is £232,000 (In London it is £477,000) Across Italy, house prices today are on average 30% below what they were 10 years ago. It’s very much a different story.

Hamstrung by low economic growth and a culture that avoids personal debt in pursuing any growth strategy, Italy’s property market overall has struggled to overcome the financial crisis of 2008-2010. Naturally there are wide price variances across all property types and locations in Italy.

However only the biggest city markets were showing price growth recently, at least up until the pandemic began.

As a result, and comparatively speaking, Italy offers numerous affordable locations to the international buyer.

Taxes on property

The largest taxes on property are capital gains tax and inheritance tax.

This article focuses only on UK and Italian properties.

When holding property in Italy, capital gains tax only applies to property sold within 5 years of purchase, and therefore the tax is a deterrent to short-term trading. Owners are rewarded with zero capital gains tax if they hold property for more than 5 years.

The rate of tax you pay on capital gains from the sale of UK property depends upon your UK income at the time of sale. The higher your UK income when you sell, the higher your tax burden. This presents a planning opportunity to time your sale appropriately if you are changing countries, so you should take advice before selling your UK property.

In the UK, capital gains tax laws on non-home property (especially for foreign owners) have been changing. Recent rule changes provide that UK property owners are expected to advise HMRC of your property’s capital gain and pay the capital gains tax within 30 days of the property’s sale, from 2020. (source:lawsociety.org.uk).


For those holding UK property it’s very important to remember that UK Inheritance tax applies to any UK property held at date of death of the owners, regardless of residence. (UK inheritance tax rate is 40% of the value of an asset above the exemption threshold of £325,000.)

Italian inheritance taxes on property only applies on the amount above €1 million per beneficiary, and the rate of tax depends on to whom the property is passed. For the family home, the spouse or children would pay 4% above €1,000,000 received in value, and for second homes or holiday homes the tax is essentially 7% including stamp duty and local taxes.

Italy applies an annual wealth tax on property and this includes foreign property. Tax is calculated differently depending upon the location of the property – whilst tax on EU based property is calculated on council (comune) linked land valuations, non-EU properties are taxed based upon purchase price or market valuation of each non-EU property. From 1 January 2021 this includes UK property.

Local property taxes in Italy are levied on Italian comune property valuations and paid twice per year. The applicable tax rate ranges approximately from 0.40% to 0.76%, depending on the property location. Using the example of a €100,000 property value in Italy, and a tax rate of 0.55% the Italian local property tax would be approximately €550 per year.

Uk council rates are based upon valuation bands and the local council’s own rates. For example on an equivalent €100,000 property in Richmond upon Thames, the council rates are approximately £2,200 per year.

It will pay before buying or selling to create your own summary of the tax impacts of holding property in Italy or the UK, including capital gains, wealth taxes, local council taxes, inheritance tax and tax on any rental income.

*(UK home prices source: Propertydata.co.uk)

Please note this is a general summary of tax implications on property and is not to be construed as legal advice or financial advice.

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