Income Tax Question

Well, it depends on how 'correct' you want to be. You should still file a tax return here in theory and there may be tax to pay as the tax systems are different in the two countries. All the double tax treaty means is that any tax you have paid in the Uk will be knocked off your bill here in Italy. If you are self-employed there are no real tax free allowances unless you have dependents and then they are pretty titchy. If you are resident in Italy then your tax is due in Italy on worldwide income. Your choice if you want comply or not.

I don't know speficially the penalties but generally speaking, they are usually the amount owed, plus interest, plus costs, plus 30% of the original sum as a fine. Sorry - can't answer the last question but with the financial traceability limit going down and down I would be keeping my pension in a UK bank account.

Very interesting Penny, thank you for replying. So then, if in the arc of a year, Tizio earns €100 the state wants €20 of it and that's all there is to it. Well, the law is the law, they are the ones with the side arms. While I can't justify my stance there are two observations that come to mind: 1) A person should at least be allowed to earn the equivalent of the state pension without fear of extortion. 2) After having dealt with Italian bureaucracy for years I would have no faith at all in their being capable of marrying Uk tax paid against Italian tax due. I recently read a fantastic article on the Uk inland revenue's view on residency, to wit they will bend over well beyond backwards to class a person living abroad as still Uk resident simply so that, as and when, they can clamp their mits on capital gains tax - and of course any other tax that's going.  At the end of the day it's just a business like any other the only difference being that they provide neither good nor service.

Residency has very little effect on Inheritance Tax. The Revenue try to class you as resident in order to get income tax - they are now considering you resident if you spend as little as 90 days in UK. Inheritance Tax is governed by your domicility, and a UK domicile will find that very difficult to shake off. It affects CGT as well.

Also when I reach 65 and I want to have my pension paid into an Italian Bank, will that flag up anything at the tax office? With all the money laundering regulations it used to be the amount transferred at any one time that was flagged up on the system (was about  £10000/E12000 - but may have changed) however any regular transfer may also  feature, I just don't know. If you have a UK pension paid directly into an Italian bank account the exchange rate may be horribly poor - I would be inclined to continue to have the pension paid into a UK account and then transfer as and when via one of the currency companies such as Caxton, HIFX etc etc who tend to offer far better rates of exchange than the High Street Banks. They do offer a regular payment system so may be worth chatting to to see what they, the experts, suggest. They should at least be able to advise on all the current rules re international transfers and the various limits.

I think the threshold is currently five k and about to drop to one.

I think the threshold is currently five k and about to drop to one.   Is it really that low? Seems a bit odd when you can carry up to E10,000 in cash into Italy without declaring it!

Andiamo, it has changed in the austerity budget and is now €1,000 as Barns said. I'm pretty sure that would include cash brought into Italy without declaring it.

Thought the E10000 was an EU law and not specific to Italy. The new thing re E1000 is that all cash transactions over E1000 (used to be E2500) have to be done electronically to minimise the risk of tax evasion. "The package, the third austerity plan to be adopted in the past six months, touches on all aspects of Italian society with items aimed at shrinking the size of the government, raising theretirement age, forcing all transactions of more than 1,000 euros to be done electronically to fight tax evasion, an increase of the sales tax of two percentage points, and tax breaks for companies that hire young workers and women."  

The €1k trigger will apply to cash withdrawals from Italian bank accounts as well.

Its not that transactions have to be done electronically but that they are traceable.  An old fashioned cheque is fine, postal order even.  You will be able to get more than 1000 out of your bank, but you will have to be prepared for a GdF investigation.  The bank will be forced to notify the authorities because of 'unusual' movements on your accounts.  You will have to be able to explain with fatture why you needed a lump sum that was so, well, lumpy.   The 10.000 is specific to Italy,  in that you can bring in 10K and take out 10K in cash.   Today 10 cents on a litre of unleaded, 13.5 on diesel, 2.7 on GPL and less than 1 on methane - big incentive to ride a cow to work. 

My bank (when the amount was 2,500 recently) would not let me withdraw more than that amount every 10 days unless I filled in a form stating where it was going and providing invoices etc. So I am guessing different banks will have different rules unless it was a state form.

The rate is the current rate, and no charges are made, but it is best to tell your bank it is your UK pension being received to avoid confusion.