Some of these expatriates are said to be considering selling non-Italian properties they happen to own – such as houses back home they may have formerly lived in or inherited – and otherwise to make changes to their non-Italian asset portfolios that they had not previously planned to, as a result of the way these taxes will affect them.
For example, a retiree living in Italy, on a pension, with a property back in Britain worth £400,000, is now looking at an annual tax bill he or she previously did not face of around £3,500, says Gareth Horsfall, a Rome-based adviser with the Spectrum IFA Group.
“As you can imagine, people are worried,” he adds.
What has prompted this latest wave of expatriate upheaval in Italy is a new tax known as l’imposta sul valore degli immobili esteri (IVIE), which was introduced by the so-called technocratic government of Mario Monti last year in its ‘Save Italy’ budget, aimed at eliminating the country’s fiscal deficit by 2013.
For expatriates resident in Italy, the IVIE imposes a 0.76% tax on the purchase cost or market value of property they hold abroad, beginning this year. A similar tax charges 0.1% (rising to 0.15% in 2013) of the market value of any foreign financial assets held by Italian residents – including gold, silver, bonds and equities.
While being taxed on one’s overseas assets is business as usual to some nationalities, such as Americans and Britons, it is coming as a shock to many Italians and Italy-resident expatriates, who until now have enjoyed a famously benign tax environment.
Explains Paul Redmond of Rome-based Unity Financial Partners: “In most cases, it is quite easy to structure your affairs in Italy very tax-efficiently. But a lot of expatriates have never done so and do not know how to, and they often end up relying on poor advice, or advice they find online through expat forums.”
Horsfall says even those Italy-resident expats who come from countries with aggressive tax regimes, such as the UK, are struggling to come to terms with Italy’s new approach.
Those who think they can solve their problems by returning to Britain are in for a surprise, however, Horsfall, Redmond and other experts say, as Italy’s housing market has dropped substantially, even in popular markets like central Rome, since the introduction of new domestic property taxes that many people cannot afford to pay.
UK banks, meanwhile, are typically reluctant to provide mortgages to returning expats.
One silver lining in the gloom for expats living in Italy whose money or income is not in euros is that the single currency’s continuing problems are likely to mean they will have more money to spend, Redmond notes.
For advisers, the expat preference for keeping currency in sterling can mean work providing services such as foreign-exchange arrangements and in some cases, the opening of offshore bank accounts.
Redmond says Unity recently moved to accommodate what it believes will be a boom in new buyers into the Italian market, keen to take advantage of the values to be had.
At deVere Group, director Mike Coady reports that "most expatriates are adopting a ‘wait and see’ attitude’ to the new taxes. Although they could affect some people, he says, the tax on the value of overseas property can, in any event,"be offset by any taxes paid overseas".
"Property is illiquid, and clients need to study whether selling a foreign property is the right thing to do just to avoid a tax," he says.
"There is [also] the possibility of placing assets in a holding company, among other alternatives."
Coady notes that the reason people leave the UK to live in Italy, as in many other countries, is "for better prospects, lifestyle or family reasons", rather than solely to avoid tax, so unless there are other factors acting on them, there is not a rush to react.
