1159 House Value Declaration

Reg, it is not a malpractice matey, we are very lucky to have a real live Notaio on this forum who has explained everything in a couple of posts,if you find a post by Notaio (look in Legal section), click on his name, then select "view all posts by notaio, all will be revealed. Good Luck
Your last question, yes, but, Buyer be aware, there are many potential difficulties, at the very least, use a solicitor...

[QUOTE=RegMiller]Hello everyone,
This is my first posting here - hope I don't seem a complete simpleton!

I've been seriously looking into the idea of buying property in Italy to which end I've read just about everything and spent copious amounts of time in Italy looking at properties. I understand (at least I think I understand) just about everything involved, however, there is one area that still confuses me.

It's about this catastal value business and the declaration of the purchase price at the Notaio's office. Let's have a look at an example:

Agent's window selling price: E100k

Agent's fee at 3%: E3k

Notaio's fee at 2.5%: E2500

Government tax at 3% (single residence) E3k

Total: E108,500

Ah but hang on a minute the tax paid to the government should be based on the selling price but instead something funny happens. Each house has a cadastral value which is recorded on a document called the Visura Catastale. In this instance let's assume that the cadastral value is E7k. The government tax now changes and becomes only E210 giving us a total of E105,710. As far as I can tell this malpractice occurs all the time and is in effect looked upon as normal - a method by which buyers pay less tax and sellers declare less wealth to the government.

First question: I am more or less correct with my description of the costs outlined above?

Moving on. From what I have been able to discover it would appear that most transactions at the Notaio's office are carried in out in cash and that this is linked to the above mentioned catastal value versus the actual selling price. It seems that whilst the malpractice of under-declaring the house value is widely accepted, cash payments are made 'just to be on the safe side' because of course cash payments cannot be traced.

Second question: Is this in fact what happens or am I dreaming?

Moving on a bit further. If I were to want to purchase a property from England using a proxy, or perhaps in person, but paying by cheque, where would I stand with respect to this under-declaring business? Since the cheques are traceable, am I likely to have at some point in the future, a government official knocking on my door requesting a payment for the difference in tax on the value declared and the actual sale value? Would/could there be the possibility that the seller would be put off by the idea of being paid by cheque rather than cash?

I know of an English couple who bought a town house for E65k and insisted on paying the full government tax of 3% on the 65k. Is this always an option too or could there again be problems with the sellers?

If you can answer these questions with the result of my feeling better about buying a house in Italy I shall be mightily impressed!

One last question. As you travel around Italy you often see signs on houses saying 'Vendesi' which means 'sells itself'. Now in England I know that it's possible to sell your own house without the use of an estate agent. Does this sign mean the same thing in Italy? Is it possible for Italians to make themselves know to the people selling houses and for both parties to choose a Notaio between them and sort everything out that way. If so, then presumably a Brit with an excellent knowledge of the Italian language could do the same thing. Yes or no?

Regards, Reginald Miller.[/QUOTE]
I ONLY WANTED TO COMMENT ON THE LAST QUESTION,in any case we have bought and sold privately 3 houses in Italy without any complications and without the direct involvement of lawyers.Nevertheless ,and especially if one does not speak Italian,doesn't live here or does not have enough knowledge of the seller i would advise going thru a regular agency the last place we bought was thru an agency,we live here ,speak Italian but it never even occured to us to "go round the agency" to the seller directly.The declared value was paid by cheque the difference in cash.

Hi Regina

I have also sent you a private message but I have tried to answers to your question below (in capital letters for easier reading):

[QUOTE=RegMiller]

First question: I am more or less correct with my description of the costs outlined above?

ANSWER: THERE IS ANOTHER RECENT THREAD WITH A CALCULATOR OF THE COSTS OF BUYING A HOUSE IN ITALY. YOU SHOULD MAYBE ADD THE LEGAL COSTS OF USING A SOLICITOR, IF YOU DON'T SPEAK ITALIAN AND YOU ARE NOT FAMILIAR WITH THE ITALIAN CONVEYANCING PROCESS.

Moving on. From what I have been able to discover it would appear that most transactions at the Notaio's office are carried in out in cash and that this is linked to the above mentioned catastal value versus the actual selling price. It seems that whilst the malpractice of under-declaring the house value is widely accepted, cash payments are made 'just to be on the safe side' because of course cash payments cannot be traced.

Second question: Is this in fact what happens or am I dreaming?

THIS INFORMATION IS ALSO NOT VERY ACCURATE AS WE HAVE BEEN MADE AWARE (BY SOME ITALIAN FRIENDS, A NOTARY AND OUR SOLICITOR) THAT THE FISCAL POLICE IS INCREASING THE CHECKS ON THE PRICES DECLARED IN THE DEED OF SALE AND UNDER-DECLARING SEEMS TO BE A CRIMINAL OFFENCE.

PLUS- IF YOUR PROPERTY IS SUBJECT TO PRE-EMPTION RIGHTS- YOU WILL HAVE TO FACE A REAL NIGHTMARE BECAUSE YOU MAY LOSE YOUR LAND TO YOUR NEIGHBOURS FOR THE NOMINAL VALUE DECLARED IN THE ATTO DI VENDITA: SEE A RECENT POST BY JULIED IN THE LEGAL SECTION WHICH SHOULD BE A WARNING TO EVERYONE THINKING TO UNDERDECLARE WITHOUT SEEKING LEGAL ADVICE FIRST!

Moving on a bit further. If I were to want to purchase a property from England using a proxy, or perhaps in person, but paying by cheque, where would I stand with respect to this under-declaring business? Since the cheques are traceable, am I likely to have at some point in the future, a government official knocking on my door requesting a payment for the difference in tax on the value declared and the actual sale value?

YES

Would/could there be the possibility that the seller would be put off by the idea of being paid by cheque rather than cash?

I THINK (NOT SURE THOUGH) THAT YOU WILL HAVE TO PAY THE NOTARY AND HE WILL PAY THE VENDOR ON YOUR BEHALF.

I know of an English couple who bought a town house for E65k and insisted on paying the full government tax of 3% on the 65k. Is this always an option too or could there again be problems with the sellers?

SELLERS DON'T REALLY CARE HOW MUCH TAX YOU ARE PAYING, WHY WOULD THEY?

If you can answer these questions with the result of my feeling better about buying a house in Italy I shall be mightily impressed!

Regards, Reginald Miller.[/QUOTE]

[QUOTE=will]
1.You have a ratable value/council tax band on your property in UK, this was determined by its market value in 1991 ......the govt set this value using valuers. All that happens in Italy, Spain etc that is different to the UK is the tax is generally paid on that price, its rateable value, (which has been arrived out by prescribed calculations, sq meterage of habitable space etc) rather than the actual selling price......would be careful with terms like malpractice.[/QUOTE]
Hi Will, why are you a Senator and I only a Pleb?

Thanks for the analogy with the UK Council Tax banding; very useful.

Laura72 said:

[B]"THIS INFORMATION IS ALSO NOT VERY ACCURATE AS WE HAVE BEEN MADE AWARE (BY SOME ITALIAN FRIENDS, A NOTARY AND OUR SOLICITOR) THAT THE FISCAL POLICE IS INCREASING THE CHECKS ON THE PRICES DECLARED IN THE DEED OF SALE AND UNDER-DECLARING SEEMS TO BE A CRIMINAL OFFENCE.

PLUS- IF YOUR PROPERTY IS SUBJECT TO PRE-EMPTION RIGHTS- YOU WILL HAVE TO FACE A REAL NIGHTMARE BECAUSE YOU MAY LOSE YOUR LAND TO YOUR NEIGHBOURS FOR THE NOMINAL VALUE DECLARED IN THE ATTO DI VENDITA: SEE A RECENT POST BY JULIED IN THE LEGAL SECTION WHICH SHOULD BE A WARNING TO EVERYONE THINKING TO UNDERDECLARE WITHOUT SEEKING LEGAL ADVICE FIRST!"[/B]

But at the same time GesorgeS said:
[B]"Reg, it is not a malpractice matey, we are very lucky to have a real live Notaio on this forum who has explained everything in a couple of posts,..."[/B]

If it's a criminal offence to under declare the value of the house then why isn't this malpractice?

I had a look at other posts by 'Notaio' and found this:

[B]"The taxation of the real estate sales is hypocritical !
The law says the the tax (registrazione) must be payed on the declared price.
The tax office can verify the price and, if finds that the price in higher can recover the tax you didn't pay.
BUT, if you declared a price compatible with the valore catastale, the tax office MUST accept your price as real and is not allowed to verify it.
This is good for the tax payer, but has no legal sense, because in this way most of the public contracts have a simulated price.
The system works because the post contract litigation is very low, since all the problems are normally solved before the notary, that give a good guarantee to the buyer about the effective proprety of the seller and the absence of mortgages etc and so the declared price becames not so important, since it very unlikely that the parties will litigate.
It could be dangerous when the seller is a person that could have debts, like an entrepreneur.
In thise case, the buyer is at risk, because, in case of failure, if the price of the sale is too low, the creditors can presume that you have taken advance of the seller's problems, buyng at a price in froud of the creditors.
As notaio I always try to give the best advice I can, but is not easy persuade people to pay more taxes."[/B]

He says that the system works but has no legal sense and that the only reason the system works is because post litigation is low. Well what if as Laura72's post intimates post litigation becomes high. Also, why does he want to persuade us to pay more taxes if we're not talking about malpractice?

I suppose if we imagine the situation years ago when the amounts of money involved were paltry (or indeed poultry) it all wouldn't have mattered so much. But these days the idea of paying say E100k with a cheque and E120k from a very large brown envelope gives me the willies.

It all sounds very, very, very dodgy to me. More dodgy in fact that a sunny day in Windermere.

Regards, Reginald Pleb. :o

Reginald - you might want to think about UK CGT. Maximising your acquisition cost could save you 40% of the gain on the otherwise undeclared capital outlay (and to UK tax authorities therefore disallowable ), more attractive perhaps than saving 10% now?

Obviously the Notaio is an expert in this field whereas my advice comes from my own experience, however the bottom line is simple:

if you are buying a house and land, DO READ JULIED POSTING on pre emption right. if you are buying an apartment in a condominium, maybe you can underdeclare the price.

If in doubts, always consult a solicitor who will be able to advice you as to what is best according to your own personal circumstances; I believe that the best price to declare will depend on how risk-averse you feel!

i thought u only paid CGT in Italy and not in the UK? if the contract is Italian and you sell in Italy, why would she have to consider UK CGT savings???

The operative word is MIGHT. If, for instance, you are non UK resident then it's not a problem. But if you are UK res and your Italian property is a second (third) home, don't think that Gordon won't want want to get his clutches on any profit you might make on sale. Obviously your circumstances dictate exposure.

I thought the UK had a reciprocal agreement with Italy as far as tax is concerned i.e. any tax liabilities apply to UK or Italy but not both. This certainly applies to income tax e.g. income on Italian property rental is subject to tax but there is an element of choice as to whether you declare it and pay tax in the UK or Italy. If this also applies to CGT and you declare any capital gain in Italy then it would be subject to any Italian CGT applicable at the time and would not be relevant as far as the Inland Revenue is concerned.

My point was that short-termism over saving tax on purchase may not suit everyone in the longer term. Clearly tax treatment will depend on each individual's affairs and how their asset (house/land) is held. However, the point seems to have got lost in a tax exchange, which does reveal some fundamental misunderstandings about taxing rights under DTAs, residence status and the effect of DTR. I would humbly suggest anyone buying a second property seeks professional advice on how this MIGHT impact on future disposal of their properties.

Will - I share your doubts over the choice element in re income from letting. I suspect the Italian fisc would see the return of income earned in Italy as mandatory. For the really keen, have a look at Article 6 of the UK/Italy DTA at this link. I believe this is the up to date position since renegotiaion of the treaty last year.

[URL]http://www.hmrc.gov.uk/manuals/DTRmanual/html/DTR09950/11_0074_DT10205.htm[/URL]

CGs are covered at this link (article 13)

[URL]http://www.hmrc.gov.uk/manuals/DTRmanual/html/DTR09950/11_0081_DT10212.htm[/URL]

Ever wish you had not said something!! No more tax ....... please!!

I've got two questions on this topic. Let's say you buy a holiday house in Italy for €100k but the declared value is, say, €75k. You will have been requested to pay the undeclared €25k in cash. You do up your house, the value goes up and 10 years later you sell the house for €200k:

(a) If you have a declared value less than the sale price on this contract (let's make it €180), what do you do with the €20k cash? If you put it in your bank account, won't it look suspiciously (in fact, actually) like money laundering? I'd have thought the UK tax authorities would be on you like a ton of bricks, and

(b) Do you tell the Inland Revenue that you've made a capital gain of €100k (i.e. the difference between real sale and purchase prices) or €105k (the difference between the two declared values). It seems to me that you can't declare a figure in the UK that is inconsistent with the declared one in Italy.

Fortunately, we have no immediate plans to sell our house, but I'm not looking forward to this dilemma in the future. Anyone any thoughts?

Licciana - factually you have made a gain of 100k (less any allowable expenditure for renovation and relief). Anything else is a fabrication (can I say that??). Remember you have two reliefs; annual exempt amount (x2 if you own your propertry jointly) and taper relief which increases over time. Assuming any residual gain is chargeable in the UK, what you return to HMRC depends on your perception of the risk of getting picked up by them. If you are letting your holiday home then it won't take long for HMRC to enquire what has happened to the letting income once this ceases; it doesn't take a genius to work out that cessation of rents could mean sale of the property = potential CG. As to whether you can convince HMRC that you made a part cash payment for the purchase which should be set against the gain (when it's not reflected in the purchase contract or receipted); hmmm don't fancy your chances. You could find yourself assessed on £125k (£200k - £75k) if it goes really badly. Under the DTA, Italy and UK are entitled to exchange information relating to potentially taxable transactions in either state. Anti-money laundering regs mean that professional advisors are not supposed to participate in such arrangements (in fact are obliged to report them in certain circumstances); tax evasion is within the scope of the anti-money laundering regs. Sadly, this advice is rarely given by Italian agents when it comes to black money.

Will, that's not even funny!!!! I guess you never know who could be reading this forum....so writer beware......
By the way, I do not work for IR :eek:

[QUOTE=Kae]Will, that's not even funny!!!! I guess you never know who could be reading this forum....so writer beware......
By the way, I do not work for IR :eek:[/QUOTE]

Now, there [B]is[/B] an interesting comment!!! :rolleyes:

Inresponse to the replies about my indication that there is an element of choice about where to declare any rental income - this is the advice we were given by our Italian solicitors who, taking in to account our existing UK income suggested that the declaration and tax liaibility should be in Italy. It was not suggested that as the property is in Italy it would be compulsory to declare it as Italian income. perhaps it has something to do with whether the income is paid in to our Italian or UK bank accounts?

I think it will depend where you are considered to be a resident for tax purposes. Most countries (at least Australia, Canada and, I think, England) require their residents to declare ALL income, WHEREVER earned, in the tax returns for that country. They are also subject to Capital Gains tax (if it applies) in the country of residence.

Gerry is partially correct. The general rule for UK residents is that you are chargeable in the UK on your worldwide income and gains. But income arising in other territories may already be taxed (quite legitimately) under Double Taxation Treaties between the UK and that other territory. So in the case of rental income from a property in Italy, the Italian authorities have taxing rights irrespective of whether you are resident (note that is tax resident as opposed to any other determination of residence status). But the good news is that while you are also obliged to return the rental income to the UK (assuming you are UK tax resident) you will get credit up to the limit of the Italian tax paid against the UK tax payable on the rental income (but not against any of your other income). Simlar rules apply for gains, but note that just because a gain may be correctly declared and exempt in Italy, it does not mean that the UK cannot charge the gain to tax in some circumstances.

Note that each tax treaty with each country, although broadly similar, may have different treatment for certain items. So you cannot rely on say, no tax charge on your property in Sunshineland automatically implying no tax charge arising on your other property in Skiland.

Complicated isn't it!

Will, I have taken professional advice from the right profession - the Italian solicitors I referred to are tax lawyers!

Brendangfc - you would be well-advised to follow this link. It's free advice, unlike your Italian tax lawyers I imagine. In my opinion they have given you incomplete advice, but you decide.

[URL]http://www.hmrc.gov.uk/pdfs/ir139.htm[/URL]