Before making the move to Italy we will be investing some cash savings in a purchased life annuity. HMRC only tax on the interest paid element of the monthly income this produces as a large portion is considered original capital investment repayment. The tax on the interest portion of the monthly payment is calculated and deducted at source by the annuity provider,which, when requested, will stop deducting tax once we are tax residents in Italy. Does anyone know if Italy treats this type of income in the same way, ie only charge tax on the interest earned portion of the payment?

Italy and the UK have had a double taxation agreement in place since 1991 for Income Tax and Capital Gains Tax - which should mean you will only be paying tax in one country even if in the other - ie you pay whatever is due in the UK and receive your money without paying extra tax in Italy.

However, you should you should get a professional, qualified tax advice from someone who knows both systems treatment of annuities as there may be reporting obligations or specific ways annuities are treated in Italy you need to be aware of.

Thanks for reply. Yeah, understand the double taxation issue, it was more about the issue of how Italy treats this type of annuity income I was asking about, if anyone has similar product already and how to declare it.

Hi, I'd definitely recommend speaking to a commercialista, but based on my understanding.

You can elect to receive it gross in the UK and pay tax here in Italy, or if you pay tax in the UK, you effectively receive a tax credit for that amount and pay the difference in tax here. We do not have a personal allowance in Italy so you can expect to pay more tax. Certain areas have favourable tax rates but again, one for the commercialista.

I appreciate it is not really answering your question but I'd be prepared to pay additional tax here.

Yeah, know all what you have said, thanks. Swings and roundabouts with tax, but understand the net tax take in Italy is greater than in the UK. Put it out there for if anyone has the same type of annuity and can shed light on how Italy treats it.

Explain exactly what you want to know then....?

Geordieborn see my original question. HMRC only tax on interest earned part of income from a life purchased annuity. Do Italy treat this income in the same way?

I've never been totally sure of the DTA wording, or know anything about annuities, but the DTA here does mention them as part of Art 18. on Pensions. You are never going to really get answers unless AdE crosses your path. This includes so called "tax experts" who at the end of the day will bow out if the AdE do get involved. If you do use the latter I would be asking them to get something in writing for you from the AdE, if such a thing is possible. Others here might be able to advise if what I'm suggesting is rubbish!

Have you looked at this website?
When I first arrived I went to see Gareth Horsfall. He gave me some good advice.

A name that's been around for years and from what I read is highly rated.

thanks. Looks a useful contact

You really do need professional advice on this ,avoiding Italian Commercialistas as they either do not understand the DTA or will tell you what you want to hear whilst taking your money so Speak to Mr Horsfall or a UK based Italian/UK tax expert.(search online)
Remember that the DTA specifies exactly which country has first dibs at taxing income from wherever it originates;you cannot choose.Also the DTA does not mean that you can only be taxed in one country on a source of income.A lot will depend on exchange rates one off payments and how each country treats a particular type of income in their tax system.If you have not taken this annuity yet I would hold fire until you have had specific advice on your specific situation