Buying a property in Italy with main residence excemption

Introduction

When you decide to buy a property, in addition to the purchase price, you even have consider other expenses, such as those for professionals and taxes.

By taking advantage of the main residence excemption, you can pay less tax than if you buy without this benefit.

However, there are certain requirements to be met in order to be able to purchase using this benefit.

Paper, pen and let’s take note of what these requirements are and how taxation changes.

Main residence excemption and cadastral category

The first requirement concerns theproperty, which must belong to one of the cadastral categories:

– A/2 civil type dwellings

– A/3 low-cost dwellings

– A/4 popular dwellings

– A/5 ultra-popular dwellings

– A/6 rural type dwellings

– A/7 cottages dwellings

– A/11 typical dwellings

Dwellings belonging to cadastral categories A/1 stately homes, A/8 dwellings in villas, A/9 castles and palaces of eminent artistic and historical value are excluded from the first home relief.

Main residence excemption and appurtenances

Main residence excemption may also be applied to appurtenances falling into the cadastral categories:

– C/2 warehouses and storage rooms

– C/6 barns and garages

– C/7 closed or open canopies

In this case there is a limit of one appurtenance for each category, and, obviously, it is necessary that these are intended in a durable manner to serve the principal dwelling that is purchased taking advantage of the main residence excemption.

Main residence excemption and location of the property

The property must also be located in the territory of the municipality where the purchaser has his residence.

More specifically, it is necessary that the purchaser

– is resident in the territory of the municipality where the property is located at the time of the deed of purchase; or,

– transfer, under penalty of forfeiture, the residence in the same municipality within 18 months of purchase. In this case, the deed of purchase must mention this commitment.

On the subject of the relationship between the main residence excemption and the location of the property, some clarifications must be made regarding specific cases:

– first home relief is granted if the property is located in the territory of the municipality where the purchaser carries out his activity (even if not remunerated);

– pursuant to Article 2 of Decree-Law No. 69/2023, the purchaser of a property located in the territory of the municipality where he was born or where he carried out his activity before moving abroad for work reasons, is entitled to the main residence excemption, when he was resident in Italy or when, in Italy, he carried out his activity for at least 5 years, even if not continuously. In this case the reference is to any type of employment relationship and the requirement must be satisfied at the time of the deed of purchase of the dwelling (Revenue Agency Circular No. 3/2024).

Taxes to be paid with main residence excemption

Pursuant to Article 1475 of the Italian Civil Code, if the parties have not agreed otherwise, the purchase expenses and the ancillary expenses shall be borne by the purchaser.

We have anticipated that in the purchase with main residence excemption, a reduced preferential tax rate is applied as follows:

– when the seller is a private individual or acompany selling exempt from VAT:

proportional registration tax of 2% (note that without the first home allowance the tax would have been 9%)
fixed-rate mortgage tax of 50 euros
fixed cadastral tax of 50 euros

– when buying from a company selling with VAT:

VAT is reduced to 4% (so the 10% or 22% percentages are not applied)
Fixed registration tax of 200 euros
Fixed-rate mortgage tax of 200 euros
Fixed cadastral tax of 200 euros

In any event, the proportional registration tax can never be less than 1,000 euros. It is worth noting that, in application of the main residence excemption, the tax may be lower as a result of the deduction of the proportional tax that the promissory purchaser has already paid on the deposit at the time of the registration of the preliminary contract, or for a tax credit.

The basis for calculating taxes

We have seen that some taxes must be paid as a fixed amount and others as a percentage. So on what basis are the latter calculated?

Again, a distinction must be made between sales subject to VAT and sales not subject to VAT.

In the case where the sale is not subject to VAT, the value-price system can be applied (for more on value-price: https://antonellolawfirm.com/2024/02/14/the-value-price-system-in-italian-law/).

Conversely, if the sale is subject to VAT, the taxable base is that of the sale price.

Main residence excemption when the buyer already own a property

A situation may arise in which the purchaser who intends to take advantage of the first home tax relief is already the owner of a property.

As of 1 January 2016, a purchaser who is already the owner of a property may also purchase (or receive free of charge by will or donation) a new home with the first home relief, but must sell the property already owned within one year of the deed of purchase of the new one.

In this case, the commitment to sell within that period must be mentioned in the deed. If the commitment is not fulfilled, the purchaser loses the first home relief and has to pay a penalty of 30%.

Main residence excemption for appurtenant land

The Court of Cassation (nos. 33629/2023 and 2351/2024 and 2364/2024), in contrast with what has been asserted by the Inland Revenue Agency, admits the application of the first home allowance to the land appurtenant to the dwelling purchased as first home, even when it is surveyed separately.

The ruling is based on the assessment of the character of pertinentiality, which, according to the Supreme Court, must be carried out according to the civil law notion concerning the actual use of the land to ornament and serve the main property.

Moreover, it is interesting to note that, unlike for other appurtenances, the previously mentioned upper limit of ‘one per category’ does not apply to land.