# Moving to Italy - rental income from the UK



## martinsco (Jul 28, 2015)

Hey guys, my name's Martin

I'm hoping to move to Italy at the beginning of October but don't want to sell my house in the UK. So I'm planning on renting it out to help with the mortgage costs.

Because this is obviously income, do I get taxed on this as well as my earnings in Italy ? I've already got a job lined up in Italy so having done some research on the internet, I believe what happens is that I declare the rental income earned in the UK in Italy, as I would be a resident there.

Is this correct ? Or would I pay income tax on my earnings in my home country of the UK ? I've also read about a double taxation treaty, which means that I wouldn't be taxed twice...

Has anybody here had any experience with this ? Any help / comments would be most appreciated.

Cheers


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## BBCWatcher (Dec 28, 2012)

martinsco said:


> Because this is obviously income, do I get taxed on this as well as my earnings in Italy ?


Typically, but you'd have to check the U.K.-Italy tax treaty for any exception. Please also note that Italy has a wealth tax (IVIE) that may apply. You may also have to pay some IVAFE, another wealth tax.


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## Bevdeforges (Nov 16, 2007)

Check with the UK tax authority, but generally speaking, you pay tax on income from real property (i.e. land and buildings) in the country where the property is located. Italy has some oddities in its tax treaties, but until you find out differently, I'd assume you'll probably continue to pay tax on the rental income back in the UK.
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

Bevdeforges said:


> Check with the UK tax authority, but generally speaking, you pay tax on income from real property (i.e. land and buildings) in the country where the property is located.


I'd explain it this way (as a second attempt):

1. Absent a tax treaty, the _usual_ requirement is that you pay income tax to the tax authority in the income source country first, then you pay remaining income tax (if any) to the tax authority in your country of residence second, after taking a tax credit for the foreign income tax.

2. The U.K. and Italy do have a tax treaty, as it happens, so refer to that for what the actual requirements are.

3. Property, wealth, and other taxes must be separately checked and paid as required. Indeed, Italy has wealth taxes that apply to its tax residents. As I understand it, IVIE (a wealth tax) applies to foreign real estate include U.K. real estate, though it may be possible to credit certain U.K. taxes on that property against IVIE.


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## martinsco (Jul 28, 2015)

Thanks for the input everybody, I really appreciate it.

Having researched further online, this is what I believe occurs:-

1) I declare income from the property on my tax return in the UK. However I can claim back expenses against the income such as mortgage loan expenditure. This would then yield the net income tax, against which I would be taxed. As it so happens, this would be reasonably negligible.
2) Because I would be spending 183 days or more of the year in Italy I would be known as tax-resident there. Therefore I would have to declare my income earned in the UK on my Italian tax return. However I would only have to declare the net income, i.e. the same amount as I declared in the UK. Again, as this is negligible - happy days
3) Due to the double taxation treaty, I would offset one tax payment against the other.
4) Just when it was too good to be true... I would also have to pay a wealth tax in Italy (IVIE). This is 0.76% of the property's purchase price. Which isn't negligible.

So for argument's sake, if the following were to be true:-
£500 rental monthly income = £6,000 per annum
£450 mortgage loan monthly payment = £5,400 per annum
Property purchased for £150,000

Then I would pay the higher of...
a) Net income = £600 (£6,000 - £5,400) charged at basic rate = £120 per annum
or
b) £600 taxed in Italy depending on what tax band that would put me in

Plus £150,000 x 0.76% = £1,140

Is that correct ?

Cheers,
Martin


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## BBCWatcher (Dec 28, 2012)

Roughly, so far. Property tax is generally allowable as a subtraction from the 0.76% IVIE, though you'll have to check the latest wisdom on council tax and whether that's allowable to reduce or eliminate IVIE. I'm not sure if the property purchase price is the correct IVIE valuation, so check that. Your U.K. income tax on U.K. income should be allowable as a tax credit in Italy.


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## philat98 (Aug 21, 2010)

If you planned to stay a while you might think of buying a house in Italy.

The Italian housing market is at a low while the UK market is on high. 

Added to that the Pound is high against the Euro. You would get rid of that IVIE charge and have somewhere to live.


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## accbgb (Sep 23, 2009)

I just want to add that it is a mistake to believe that mortgage payments are fully deductible as an "expense" in this situation. If for no other reason than that a significant portion of your mortgage payment may be paying down principal and thus increasing the net worth of the property. 

There are other issues at play here as well. I don't know about the UK, but in most areas of the US real property tax rates are higher for income properties and 2nd homes vs. primary residences. There are also issues regarding the deductability of interest and taxes paid on income property vs. primary residence.

Truthfully, you need to discuss this matter with an accountant to ensure that you don't end up owing far more money than you might earn.


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