12 Nov Swapping London for Tuscany?
3 things to consider when swapping London for Italy in the current environment.
You may be thinking about or planning a move to Italy right now, and if so, you’re not alone. Italy has long been a desirable destination for millions around the globe, however these are particularly strange and interesting times, especially for those living in the UK and considering the twin challenges of Covid19 and Brexit.
Covid19 has created a new layer of uncertainty about the future of our lives. It has brought into sharp perspective the attention we place upon our health, and the health of our loved ones. It has raised awareness about how interconnected we all are, and made us more appreciative of our collective impact upon our environment, and perhaps the delicate balance of life around us.
The full economic impact is yet to be realised on the global economy, however millions of people have lost their jobs, others have taken enforced leave and nearly all of us have been forced to take stock of our situation and our lives.
Prior to the pandemic, those of us in the UK have been living through the many divisive and chaotic consequences that the UK’s stumbling exit from the EU has triggered in the UK community, and within its political system. The subsequent turmoil is leaving a lasting impression for many people.
For example many Europeans who have made the UK their life for decades have been shocked and hurt just knowing that their residency status has been open to question. “For the first time in my life, I’ve started thinking the UK is maybe not my country,” says Dimitri Scarlato, UK resident of 15 years,1 about the psychological and mental toll of Brexit.
In this turbulent context many people have moved, brought forward life plans or made career changes, (or have been forced to consider them) and are still changing their current life plans, including where to live.
As the pandemic crisis has progressed, workers and businesses have adjusted remarkably quickly to the new reality of working from home at least part-time, of virtual meetings and/or remote working, together with adapting to online collaboration in its many forms.
The pandemic has birthed a trend toward moving away from big cities, and the boom in remote and homeworking activity has triggered many to consider relocating.
People are asking ‘Why pay big-city rents for an undersized apartment if you can pursue an equally attractive career from a house in the hills? ‘
Speaking of hills, Europe is hard-pressed to find more iconic or picturesque hills than those of Tuscany!
Ironically, Siena in Tuscany was a thriving urban city over 700 years ago, when the plague hit and the city lost 60% of its inhabitants – including thousands who moved out of the city to the country, to flee the Black Death.
Taking a different path after Brexit and Covid19
Here’s 3 reasons why moving from London to Tuscany is attractive today, and especially for British citizens contemplating life after Brexit;
- Remote working is opening up more possibilities.
- There are significant Tax Incentives to move to Italy today.
- Holding property in the UK or Italy … a comparison to consider
Remote working is now possible for many of us
Now more than ever companies all over the world are open to or actively encouraging remote or home-based working for their employees, consultants and service providers. The clearest impact on work, aside from the tragedy of lost jobs brought about by the pandemic, has been the requirement to work from home for a majority of people for at least a few months this year in most countries.
Working from a home office is not only possible but often expected and facilitated by employers and customers.
When considering a home office, it’s worth noting Tuscany has excellent infrastructure including fibre optic broadband in many small towns and not only in the larger cities (as in many other areas in Italy too). The phenomenon of moving to ‘greener pastures’ can really gain pace in less-populous areas, where the following factors exist:
- Your employer or customer accepts remote working
- high speed internet access is available;
- the area has an enviable lifestyle with some infrastructure, and;
- is within reach of a major centre, to provide greater health infrastructure and more of the conveniences we’ve all become used to in our lives.
In a recent referendum in Switzerland to confirm or deny free movement, Swiss voters resoundingly voted to support free movement of people between Switzerland and the EU, as a valuable benefit of close relations with the European Union.
Italian citizens and residents can move freely throughout 27 EU countries without special visa requirements. The ability to travel freely for work or leisure provides unique opportunities for anyone.
The current financial advantages of moving to Italy today for both working people and retirees.
The Italian government has introduced attractive tax measures to new tax residents in Italy and Italians moving back to Italy, like never before.
There are 3 principal measures that are summarised here briefly. The first applies to everyone who arrives and works in italy today either as an employee or an entrepreneur providing goods or services to others, and who have not been tax-resident in Italy in any time within the past 2 years.
The incoming workers tax concessions
These laws provide that at least 70% of gross employment income is completely exempt from income tax for most new tax residents, for 5 years. This means that only 30% of your income is actually taxable. That’s pretty unique.
This tax exemption is increased to 90% if a new resident moves their residency to one of the following southern Italian regions: Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia, Sicily.
If you are a sportsperson the tax exemption is 50% and for Professors and researchers however the standard exemption available is 90% and it’s available for 6 years.
Furthermore the tax exemption period can also be extended beyond 5 years providing a further 50% tax exemption each year if the new resident has children or buys a home in Italy within 12 months of arrival, with longer extension periods of tax exemption available for professors and researchers.
Retiree or pensioner capped rate of tax at 7%
The second measure attracting new residents is the retirees capped rate of tax on pension and foreign income of 7%, where retirees entitled to a foreign pension move to less populous areas in southern Italy. The chosen municipality must have less than 20,000 residents and be within the regions of either Sicily, Calabria, Sardinia, Campania, Basilicata, Puglia Abruzzo or Molise.
New residents must have been non-Italian tax resident for 5 years previous to moving to Italy, and the tax concession lasts for 9 years.
The exceptional feature of this measure is that the tax rate applies to all foreign source income, not only pensions, with no wealth taxes or requirement to disclose wealth held outside Italy. It is also possible to exclude certain incomes from the program where a new resident is already paying foreign income tax.
New Tax resident regime for HNW families
The third measure is the New tax resident flat tax regime, designed for higher net wealth taxpayers who can elect to pay a fixed maximum €100,000 per year for 15 years, in exchange for no obligation to report any further income or assets from activities abroad.
Clearly this includes entrepreneurs and wealthy families moving or returning to Italy and who have made their wealth abroad. Italy is inviting foreigners and Italians alike in this category, to move to Italy. There is also a specific Investor Visa scheme available for non-EU citizens moving to Italy.
This article does not deal with the Italian Super-bonus providing unique tax concessions for property renovations, however this program allows a property owner to access significant tax deductions up to 110% of qualifying renovations costs.
When planning your move to avail yourself of these tax concessions in Italy, professional advice is always recommended.
The costs of holding property.
Whilst London prices have increased on average by 70% over the last 10 years and the average house price today is £477,000 in London, Italy’s house prices today on average are 30% below the values of 2010 across the country, and hence there are numerous affordable locations. Notably, there are wide price variance across all property types in Italy. Only the biggest city markets are showing price growth in general.
(UK home prices source:Propertydata.co.uk)
In Italy, capital gains tax only applies to property sold within 5 years of buying and therefore is a deterrent to short-term trading, however longer-term owners are spared this cost. In the UK capital gains tax laws on non-home property (especially for foreign owners) have been changing and owners are expected to advise HMRC of a property’s capital gain and pay the tax within 30 days of the property’s sale (from 2020, source:lawsociety.org.uk).
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.
For those holding UK property regardless of current residence, it’s very important to remember that UK Inheritance tax applies to any UK property held at date of death of the owners. (UK inheritance tax rate is 40% of the value of an asset above the exemption threshold of £325,000.)
Italy applies an annual tax on property and this includes foreign property. Tax is calculated differently depending upon the location of the property – within or outside the European Union. Whilst tax on EU based property is calculated on council rate-linked 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.
Italy has a unique fiscal and tax system and any international move like this one should be planned carefully, taking into account specific and experienced local advice.
With good investment and pension planning, your international and local financial assets like pensions and investments can be structured in a tax efficient manner for those who become resident for tax purposes in Italy, and without the need to use Italian banks or financial intermediaries.
For British nationals the clock is ticking
Time is running out when considering how to take advantage of the current process for registering your residence in Italy. You can rent or buy to establish residency in Italy as a British citizen with few other requirements, before December 31, 2020.
When the Brexit transition period ends on 31 December whatever deal the UK has or has not made with the EU will be implemented in full, and consequently the presently-available residency rights of British citizens in Italy will cease for new arrivals (unless the UK and EU create an alternative arrangement between now and then).
British citizens looking for Italian residence thereafter will need to apply to stay in Italy in the same way a non-EU citizen applies for temporary visas today.
With good advice, an international move such as this one could be the opportunity of a lifetime – and perhaps for many, just at the right time.
The above does not represent financial or taxation advice and is for general purposes only. Tailored information should be sought for your specific situation.
1. The Guardian, “All I hear is anger and frustration ..” article, 4 April 2019.