Real estate in Italy — whose name on the deeds?

You have almost certainly previously bought real estate in your home country and you know how it works. Raise the finance, sign on the line, and the house is in your name. But when it comes to buying real estate in Italy there are a number of ways of registering ownership of the property, each with their advantages and disadvantages, depending on your work, retired or financial status. It may even be worth not having your real estate in Italy in your name at all. Let’s explain as we go through the options.

Asserting ownership of your Italy real estate

Who technically owns your new villa in Tuscany or apartment in Venice can make a big difference to what happens when the property is disposed of. We’re talking death, wills and unseemly family wrangles. Not what you want to think about when you’re looking at your restored farmhouse in Umbria, but getting it right now can save a lot of pain later on. The point is that, under Italian law, anyone with a share of a willed property can insist on receiving their share … now.

Possible scenarios? You buy a house 50-50 with your partner and on their death their share goes to your stepson. He insists on selling up to get his half and you lose your dream home in Italy. Extreme? It happens. There are also tax implications during the period you own your Italian property. So let’s look at the options.

Sole or joint ownership of Italian real estate

Very few of us would elect for sole ownership of a property (unless of course we live alone). We’ve all heard the stories about co-habiting couples. A mortgage in the ‘husband’s’ name; the female member contributes financially and considers it her home, but is then left with no claim on the property when the man dies. This problem has been highlighted recently in the UK with the myth about ‘common law marriage’ conferring legal ownership rights. Italian property law is different of course, and as ever you must consult your notaio on every detail about buying an Italian home, but the same problems about rights of ownership can arise.

Even within shared ownership there are different ways of structuring your purchase of Italian property. Married couples buying real estate in Italy will have to decide whether they are to be joint owners (in regime di comunione dei beni) or are buying separately (in regime di separazione dei beni). There are parallels with UK and US laws here, though be careful about drawing any analogies, particularly as English and Scottish law differ from each other, as do the various State laws in the US. Again the lesson is, don’t attempt to apply what you know about buying property at home, you’ll only confuse matters; best to treat Italian property law as a completely separate entity.

Shared ownership of Italian property

So shared ownership (of whatever kind) should prevent you getting summarily turfed out of your Italian property in the unfortunate instance of your spouse popping their clogs, but what about the wicked stepson syndrome we mentioned above? There are ways round this, and while you’re looking at Italian real estate for sale you could at least consider splitting the ownership three ways or more. You could do this by giving your children a stake in the house. The principle is similar to that of a limited company in the business world — not allowing anyone a controlling share. Of course that can have problems of its own, and two ‘shareholders’ can always gang up to assert their authority so this is something you should consider very carefully.

Italian property for sale — buying with friends

Do we need to outline the problems of buying a property with friends? Okay we will anyway. Buy your dream villa, castle or apartment in Italy with your oldest friends and be prepared to see your friendship melt like the summer snows on the Apennines. There’s nothing peculiarly Italian about this of course — the UK is full of pals who, to tackle the horrendously high price of property — decided to buy jointly with university chums and then ended up falling out horribly. Rows about whose milk that was in the fridge can split friendships among sharers: think how much worse things can be when you’re arguing about sharing the bills, who left the house in a mess after their last holiday, or who gets first call on the house in those prime weeks in August.

We’re talking primarily about Italian holiday property here of course, but the principle persists: get everything clearly written down and clearly understood before you buy your home in Italy. Friends are wary of drawing up contracts with each other: it can be embarrassing talking about money (especially if you’re British) and ‘Hey, we’re friends, we don’t need pieces of paper.’ Trust us, you do. There’s an Italian proverb (there are thousands actually but this one says it very well). ‘Patti chiari, amicicizia lunga’. Which translates as ‘clear arrangements mean a long friendship,’ and we’ll raise a glass of prosecco to that.

Co-ownership? Use a lawyer to draw up your Italy real estate contract

When considering co-ownership, employ a lawyer to draw up a contract dealing with the following: your contribution to the purchase price of your property in Italy; your share of the various fees involved; due recognition of the work you’ve performed on the house (are you renovating a wreck, and are you doing most of the work?); shares of any rents you gain from letting out your Italian property; what happens if one of the co-owners marries/separates/divorces/dies/becomes mentally incompetent.

You also need to decide how to apportion profits should one of you decide to sell up. You need to decide that your co-owners get first refusal on buying you out, but do they buy at the original price or get a valuation and pay you for the increase in value of your Italian real estate. Getting the picture? The answer is to cover everything on co-ownership of your villa in Lombardy or apartment on Sicily. It’s not to say that you should have equal shares … it may well be that your fellow owners spend more time there so should make a greater/lesser contribution accordingly. But get it in writing and stay friends.

Buying Italian real estate: adding your children to the deeds

There may be nothing surer than ‘death and taxes’ but at least you can minimise the impact of the latter. Adding your kids to the title deeds when you buy your farmhouse in Italy is all about safeguarding your investment from the taxman. Many UK property owners rightly begrudge the fact that owning a quite modest property back in Britain (£263,000 at current rates) can put their children in line for inheritance tax, and they’re determined that their Italian real estate isn’t going to be carved up to pay the taxman. The theory is great. You buy a villa in Umbria which, on your death, is valued at €500,000, but because you split the shares 20 per cent for you and 20 per cent each for your four kids, they are only liable for tax on the €100,000 you owned.

As ever there’s a potential downside. Ensure you’ve got things correctly arranged with your lawyer or this arrangement could immediately become liable for gift tax in Italy. And, as ever, there are drawbacks in that you’re giving someone else ownership over your property in Italy. Argue with the kids in England or America and you may not speak for a while, but the vagaries of Italian property law can make things much worse. Row with the kids are painful enough without them forcing you to sell your Veneto villa and give them their share of the proceeds. Gifting a share to your children may also mean their spouse or children (or stepchildren) have a share ultimately. (We don’t mean to keep mentioning stepchildren as the root of family financial disharmony, simply to illustrate that Italian property can get very sticky if you don’t have ownership tied up correctly).

Italy real estate: tax liability in UK or US

And there’s the tax liability back home. Although the purchase of your real estate in Italy (and most subsequent tax liabilities) may be a matter for Italian law, there are exceptions. If you do gift a chunk of your Italian mansion to the children and you die within seven years, then under English law at least, the gift portion will be subject to UK taxes. As ever, check the status of any property share in Italy with a lawyer back in the UK or the US as appropriate.

An even-more tax-efficient ruse is to buy your home in Italy and then gift it in total to the kids, reserving for yourself a ‘life interest’. This means that it’s yours for as long as you live, and then the life interest passes to your spouse should you die first (so they won’t be evicted by greedy children). Once you’re both history, the house passes to the children, tax free. Of course, while the tax benefits of gifting your property in Italy are that much greater, so are the potential risks and disadvantages: prime among them being that you don’t own your own house. Other options include putting your property under the ownership of a limited company.