GordonHowe

Hello!

I've just retired, and my partner will be taking early retirement in the summer. We will be living on private pensions and income from a property rental here in the UK, not a massive amount altogether but enough for us to live reasonably, provided the pound doesn't fall in value too dramatically!

We would really like to sell up here (retaining the rental property), move to Italy later in the year, and apply for Italian residency. But looking at the tax situation we're now concerned that we just might not be able to afford this.

My understanding is that our total (UK based) pension and rental incomes would all be taxed in Italy at 23%, and we would (as long as brexit doesn't lead to us paying double tax) pay no UK tax.

My rough calculations show that, largely because of the UK tax-free personal allowances, we'd be paying nearly three times more tax in Italy than if we stayed in the UK.

Does this sound correct, or might I be missing something? If I'm right it will reduce our income quite severely, and could sadly be a deal-breaker.

Any advice welcome!

Thank you

- Gordon

Geordieborn

Have a look at this recent post,#11 has the rates. A lot worse than you think if you have more than 15000 each. Over 182 days in Italy and you will be tax resident.

Ruby2

And if you're tax resident you also have to declare your world-wide assets and pay a form of wealth tax on them, both property and investments.

philat98

As 37100 pointed out in the thread about Piemonte a lot depends on the outcome of Brexit. The residency rules for non EU citizens are much more demanding than for EU citizens. Have you thought of Portugal? Pensioners can live tax free there so I believe.

Capo Boi

Hello Gordon,

As you aware Italy does not have personal allowances. What it does have, however, is a system of tax credits. Much less generous than the UK personal allowance but it does give some help. For pensions up to €7750 for example a 23% tax credit is applicable. So in effect at this level you can use €1783 to offset taxes elsewhere. Now whether this applies to non Italian pensions I do not know but I would think that there must be a good chance.
Also although it is very much a grey area, it does seem (at least in the past) that the Italian authorities accept a net figure (after standard qualifying expenses) on U.K. rental income.
You will however have to pay an annual 0.76% (as Ruby says) on the value of your rental property (but at least this is now assessed based on your council tax band) and on any other wealth you have.

Best wishes.

CB.

GordonHowe

Thank you everyone for your helpful suggestions, I really appreciate them. I'm afraid philat98 that we're not really attracted to Portugal in the same way as we are to Italy.

I suspected we might have to pay a higher rate of tax on some of our income, thanks Geordieborn, but it looks like it won't be a great deal extra, as we each only just exceed it a little.

I'll have a further look into the tax credit possibilities, thank you Capo Boi, if they are applicable to us it they could help significantly. As for the tax on the capital of the U.K. rental property, a hadn't been aware of that, but it looks as though it wouldn't be too harsh in our case.

We're planning to come out for a year or so, at least initially, applying for residency whilst renting, and whilst we find out if we can live on the income we'll have, and indeed if the life suits us (finding it difficult to believe that it won't!). We're also hoping that maybe we might be able to get a better idea about what problems brexit might bring. If, at the end of the trial period, we end up returning to the UK, at least we'll have had an adventure for a year or so!

Thanks again everyone!

mikelincs

One of the biggest problems we found while living in Spain was the uncertainty of how much money we would be getting each month with changes to the exchange rate, in fact that was what drove us to return to the UK.

GordonHowe

Hi Mike,

Sorry to hear you had to leave Spain because of that.

We can see that the fluctuating rates will be a real problem, but are hoping that we've built in enough flexibility in our budgeting to cope with that. Unless of course the pound drops dramatically....

Geordieborn

Gordon it looks like you have made your mind up no matter what
and the very best of luck to you. Renting is a great idea and a very sensible thing to do, but make sure you can get residency using the rental as with a lot of places you can't do so. Think about transport whilst there if you have not already do so. We've found that the more "Italian" we live the cheaper it is living here and unless you have expensive taste I think you will be pleasantly surprised...
Getting back to tax I'm sure I read elsewhere not too long ago about retirement income not being taxed in Italy, something I doubt very much, but worth investigating. Enjoy!

philat98

If the government proceeds to make the UK a tax haven and Italy decides to add the UK to its list of fiscal paradises then UK earnings will be taxed at 95%. That will come as a shock to the financial planning.

Ruby2

Sorry Geordieborn, retirement income is taxed in Italy unless it's from a civil service or local authority pension (when it is taxed in UK). But as Capo Boi suggests the pension tax credit can be used with respect to other non Italian pension income.

Another consideration will be health cover. You will need either private health insurance or, if you are in receipt of a UK state pension you can get a S1 form from the International Pension Centre which gives you entitlement to Italian state health care.

Any of this could change post Brexit.

So dipping a toe in the water, renting and taking it year by year sounds very sensible. That's how we took it, and 5 years in we're still here! Good luck.

modicasa

Bizarrely when Brexit happens, and you are no longer an EU citizen, in theory you can applyfor elective residency, whereby you do not earn in Italy so have no taxable income here, but do fulfill the other requirements for residency. Some people say that at the moment you can still ask for elective residency, but in my experience its not been possible.
It will of course mean returning to the days of Permessi di Soggiorno and yearly trips to the questura - but financially you may gain. Its all theoretical as nobody knows what will happen.
As far as renting - make sure you get a registered contract which will allow you to claim residency.

GordonHowe

Thanks Ruby2, I've been looking into this since you alerted me to it, and it seems that the tax is based on the council tax band rather than the current market value of the property. As the council tax bands are based on the property's 1991 market value, and the tax is (as far as I can see) 0.76% of that value per year, it should only be a couple of hundred pounds on the place we'll be retaining here. So that shouldn't be too much of a problem, although it all adds up!

GordonHowe

Haha! I think our hearts have made their minds up, but our heads just keep having little wobbles as we find out more.
We're going over next week to have a bit more of a recce, and hope to meet up with some English people who are in a similar position to the one we'll be in, so we hope to grill them about their experiences.
As you say, our year's experience should give us a good idea of cost of living etc. Thanks!

GordonHowe

That would indeed be pretty devastating, hopefully very much a worse-case scenario though!