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A Financial adviser in Italy

By Gareth Horsfall - Topics: financial adviser in Italy, Financial Planning, Italy
This article is published on: 2nd January 2022

02.01.22

Being an adult in the financial services business

Immediately prior to joining The Spectrum IFA Group in 2010, I was in my 30th year and wanted to take a bold new direction in life. I was working for HSBC bank in Doncaster, Northern England, at the time, and thankfully the years there were good to me.

However, some things in life seem to change the way you think, permanently. My personal experience of this was during and after my international travels (backpacking ) in 1998/99, visiting S.E. Asia, Australasia and N. America. It was an experience that just wouldn’t leave me. After having grown up in England for the first 24 years of my life, where sunshine is a rare commodity, and then spending a year and a half in sunbaked, tropical and generally sunnier climes, on my return to England I set myself a goal: within 5 years I aimed to move abroad to a sunnier/warmer country.

During those 5 years after returning I had put my time to good use. I had retrained as a fully qualified UK financial adviser, worked on the front line of a bank call centre, worked as a sales agent for an insurance company and was a successful candidate for a financial planning manager role at HSBC bank.

But now, it was about 3 months before my self-imposed 5 year deadline and I still wasn’t anywhere near meeting my objective. Then, by pure luck, by word of mouth through some family connections (sounds very Italian!) I was approached by a local UK IFA firm (also in Doncaster) to be one of their advisers and to open up their first international office in Rome.

I can tell you that I didn’t need much convincing. It would be a commission only role, which was quite frightening as there would not be a fixed regular income. However, my urge to live somewhere warmer overcame everything and I jumped at the chance.

Moving to Italy

I had never been to Italy before, didn’t speak Italian and had no idea about the culture, quality or standard of life in the country. This was never more evident that in my first month of work in July 2004.

We were expected to dress to work, as we would in the UK, i.e. suit, shirt and tie. However, as anyone who has ever been to Rome in July will know, it is no place for a UK style heavy woollen suit, shirt and tie. In addition, I had to take public transport everywhere because I didn’t have the money to take taxis.

I still remember vividly the time when I was returning from an appointment with a 1km walk to the metro station. I was sweating so much that everyone was giving me a very wide berth. I assume that they just thought I was suffering from a deadly disease. This was my introduction to life in Italy. But I was also now experiencing the sun, beaches, mountains (I started skiing for the first time), countryside and not to forget the food! (I remember saying to my now wife when I first arrived in Italy that food was just fuel for me. That attitude soon changed when she served me my first mozzarella di bufala and introduced me to her family, who mainly originate from Southern Italy).

I lived the next 5 years in a kind of expat bubble, never making an attempt to learn the language and just focusing on my work with the same company, but at the same time becoming more disillusioned with what I saw as the future of the business and their ideas.

During those first 5 years I also split with my long term partner in the UK whom I owned a home with; never an easy thing to do. But, I also met my wife (Italian, but educated in the UK), got married in Ravello on the Amalfi coast and we tried to start a family.

Unfortunately, starting a family was not as easy as we would have liked. After a few years of trying we were told that the only route would be IVF and our hearts sank! It was a heart wrenching journey, but in the end we were lucky enough to be successful after only the second attempt (further attempts never brought more children our way) and we were blessed with a baby son.

However, as is often the case with IVF children, he was premature. Our son was born a month early, severely underweight and with serious health concerns. The next few months were some of the hardest of my life, not helped by the fact that my failure to learn the language was now coming back to haunt me. During a time when your child is at the most vulnerable point in their life, you would hope that as a parent you could communicate and understand the doctors. In my case I couldn’t and had to rely on family members to translate for me. This led to me swearing that I would never be in this situation again in Italy. The following 2 years were an eternal wall of worry, but thankfully he came through. We, my wife and I, were left with some collateral damage, but my son is now healthy and a great child. I am very proud of him.

Spectrum-IFA-Group-Logo

I am not sure why, but during those 2 years, I also decided to jump ship to another company, and after 1 year with a firm which was destined to failure from the start, I ended up meeting Michael Lodhi, CEO of The Spectrum IFA Group, with a view to taking on a position in either Barcelona or Amsterdam, and travelling from Italy a few times a week.

The conversation (abbreviated here), over a meal and wine, went something like this :

ML> “Gareth, tell me about your work in Italy.”

G> “There is no infrastructure for foreigners living here, unlike France and Spain, no serious tax or financial planning service, people are looking for professionals but can’t find anyone. I think there is a business here but it will take a few years to build.”

ML> “Hmmmm…it seems like you know the market here in Italy. Why don’t you open, build and manage our first move into the Italian market?”

G> “Well that’s what I was really wanting – deal!”

And so that was my start with The Spectrum IFA Group. I now had an idea of what I wanted to build and how I wanted to do it and I had the support to do it the way I knew it should be done.

During that period, and much before, the English speaking community in Italy were mainly being contacted by cold call by firms that would trip in and out of the country to pick up a client here and there, but there was no permanent and serious presence. I had done cold calling myself in the past but I hated it as an approach to prospective clients. It is called COLD calling for a reason. So I decided to take a closer look at the stats behind it. I found (not surprisingly) that the success rate from cold calls to taking on a new client was about 1%, if you were good!

It wasn’t long after when someone challenged me about how I was going to build the business in Italy if I wasn’t going to cold call. I turned the question around and asked: if cold calling brings, let’s say, a 5% success rate and you focus on this as your main way to contact clients, what exactly do you do with the other 95% who refuse the call? I explained that this was where I would be focusing my energies, and I did.

I estimate it took me 2-3 years of holding conferences around Italy, meet-ups with anyone of interest, writing numerous articles for magazines and websites and continuing my own E-zine newsletter, doing drop in financial planning clinics, speaking with numerous commercialisti and lawyers and spending hours in the car covering 100,000s km. All the time making the commitment that unless I was doing a 2 or 3 day event then I would return home to my wife and son at the end of every day, no matter what time I got home.

I didn’t think much about it at the time, but when I look back, I realise just how much I achieved in a short space of time and boy oh boy I learned some lessons in the meantime. I often say to people who contact me with a view to moving to Italy, “you don’t need to worry about making loads of mistakes because I have made them all for you, and paid the price already. If you follow the necessary steps I have laid out, your chances of running into trouble with the tax authorities are very small indeed”. I paid dearly for not taking the right advice in my first years of incorporation in Italy, and not understanding clearly what professionals had told me.

But, after the personal and work struggles of those years, things started to get easier. My name was now being passed on to friends and family members, my online content was, and still is, being discovered and my commitment to staying away from cold calling and building a strong online presence started reaping rewards. I had finally built the foundations of the business that I had always wanted.

Gareth Horsfall

The following years are much like anyone else’s, I imagine, as we advance through our 30s and into our 40s. The aches after the gym visits take a little longer to go away and the now infrequent evenings out on the wine take days of detox to recover from. But the life lessons, places I have seen, people I have met, knowledge of my business and life experiences seem to, in a beautiful way, replace all those things that you can no longer do. It feels like there is a natural cycle of renewal and replacement taking place.

My life is now more Italian than I ever would have imagined. After years of making no effort to learn the language, the birth of my son and the experience with the doctors gave me the impetus to ‘get my finger out’ (as we say in Yorkshire) and learn it. Whilst I am far from fluent I can live a comfortable and enjoyable life in Italy now, and learning the language made a huge difference with building relationships and friendships.

And it goes without saying that I no longer consider ‘food as fuel’. After finding out that my wife is a terrible cook, I took on the role of cook in the house. I learnt from my Italian family and found out that I am not as bad as I had thought.

Finally, one more point is worthy of note here: the UK’s decision to leave the EU. This created a bit of an existential crisis for me. It brought into question where my heart now belonged. I had never intended to, nor ever would turn my back on the country of my birth, but the subsequent years of campaigning to protect UK citizens’ rights in Italy and the UK’s hard-line stance on exit convinced me to apply for Italian citizenship. It was awarded in 2019. I am glad I have it.

Every time I look at my passport I realise just how much I am now connected to this ‘Bel Paese’, my business and my clients who are as fortunate to also live this amazing life as I am.

Inflation in Italy

By Gareth Horsfall - Topics: Inflation, Italy
This article is published on: 8th December 2021

08.12.21

I don’t think this E-zine can go by without writing about inflation and the impact that Covid has had on the rising cost of goods and services.  I don’t know about you but I am starting to see prices rise in Rome, particularly around food.  I was shocked to find pears in the supermarket at €5.49kg the other day.  Also, when I travelled to the UK at the end of October car hire prices were through the roof, partly fuelled by Brexit I imagine, but crazily expensive.  I was also talking to a friend who owns a company making the sun curtains that you see on balconies and terraces in Italian cities.  She was telling me that their raw material prices had risen 30% in the last few months. Lastly, there is the impetus of all these housing bonuses at the moment which means that both tradespeople and building materials are in short supply, and when things are in short supply, prices only go one way!

In the US there has been a lot of rhetoric about a ‘transitionary inflation’ which will pass once the world’s supply chain gets back to normal after Covid, when goods and to some degree services as well will start to circulate as they did pre-pandemic.  But, I think it is plain for all to see that this is now going to be a bit longer than we first suspected.  Even if Omicron turns out to be a much weaker variant and have very little impact on our health, government intervention in trying to stem the infection rate could mean that further travel restrictions are on the cards.

This all has the effect of making it more difficult for raw materials to find their way to factories, production of goods themselves (nothing gets made when people are at home), distribution, administration, shipping etc.   The list goes on.

When you bring everything together it means that supply side issues are likely to remain for some time and that has had an effect already. 

I was talking to someone at Prudential International last week and they were telling me that their indicators were showing a 6% inflation rate in the UK and 4% in Europe.  The general rate in the USA likely to be much higher, into double digits.

This has a serious effect on our savings and for any eagle eyed observer, you may have noticed that your government (Italy or otherwise), even faced with these inflation figures have not started to raise their central bank rates yet.  Why?

The answer is very simple.  Inflation erodes savings but it also erodes debt and since 2008, what have most governments around the world been creating copious amounts of? ….you got it, debt!  So, if they can hold interest rates low for as long as possible, whilst getting a 6% annualised reduction in their debt, then that is good for them.  But it is horrendous for savers and people on fixed incomes!  


inflation

I always give the example of a table that is worth €1000 today.  At a 6% annual inflation rate it will cost €1060 next year.  If my savings have been squandering away in a bank account at 0.5% interest, then my €1000 is now worth only €1005.  My money is no longer worth what it was last year and my ability to purchase the same amount of goods and services has diminished considerably.  Imagine if that were not a table but a prescription drug?

Inflation is a serious issue for many people and there is a simple way to calculate the compounding effect of this over time: The Rule of 72.  Simply divide 72 by the rate of inflation and you will find out how many years it will take to halve the value of your savings.  At 6%, your €1000 will be worth €500 in just 12 years.  Frightening given how quickly inflation can take off and difficult it can be to bring it under control.

Don’t get caught out!  Where you can, invest for the long term.  I understand it comes with risks, but the long term risk of not having enough money to pay for a retirement, schooling for children, or even healthcare expenses is significantly more problematic.

And on that happy note, I am going to leave you for this E-zine.  I am sure that you are all now starting to think about your 2022 tax return and how you can use those €s worth of tax savings!   But, before you do that, run out and order your turkey before the prices rise too high.

As always, if you would like to speak to me about any of these issues you can contact me on gareth.horsfall@spectrum-ifa.com or message/phone me on my cell +39 3336492356.  

Income Tax Brackets Italy 2022

By Gareth Horsfall - Topics: Income Tax, Italy, Tax in Italy
This article is published on: 7th December 2021

07.12.21

Well, it’s the moment that we have all been waiting for.  The announcement was made on the 25th November.  The new income tax bracket bands (IRPEF) from 2022.  Unfortunately, I have to report that they really are not going to make a big difference to most people, but some savings might be available.

I know I mentioned in one of my previous E-zines that there was also talk of a possible allowance being introduced as well, but this area is still being debated.  The talk is that an allowance will not be forthcoming for everyone, but that they will merely extend or enlarge the current no-tax area.  This is not the same as an allowance which everyone would receive regardless of their income; instead it is offered to those with lower incomes, in different classifications.  At present the no-tax areas apply as follows:

For employed workers: €8145pa
Pensioners: €8130pa   (this increases for the over 75s to €9000pa)
Self employed workers: €4800pa

**  You would not be taxed at all if you were earning / receiving income equating to those figures exactly.  However, the more that your total income increases over these figures, the more of the no-tax area that you lose.  Hence distinguishing this from a tax allowance.  It is more like a means-tested benefit   ***

Remember that Italy also has its highly complex system of detractions and deductions which can help to reduce your overall tax bill further.  This, with the changes made in the income tax rates, will also be under review, but I suspect it will still remain in some shape or form for the future.  The complication here is always knowing what you are eligible to deduct and how.  To keep on top of the current system of deductions and detractions, you almost need to make it a full time job, from tax deductions for installing a water filtration system in the house, to veterinary bills and expenses.  Anyway, more on that as and when I know more myself.

For now, let’s concentrate on the fact that income tax rates have now been reviewed and subsequently will change for 2022.

tax-italy-guide

Entrepreneurial progress?
I think that back in 2019, maybe earlier, I wrote an E-zine bemoaning the fact that Italy’s tax system was cutting off the opportunity for entrepreneurs and small business owners to go to the next level and start to create the next generation of SMEs (small to medium sized businesses), purely because of its taxation and ‘contributi’ system.  My bug bear was that as soon as your income went over €28000 then Italy imposed a taxation of 38% on income earned, until total income exceeded €55000, when the tax rate increased again.  This, in addition to the high level of social security contributions, was the equivalent of asking someone to run a marathon but chopping them off at the knees before they started, and as the marathon progressed (if they could even make it that far) then would start to chop more of the leg off as they progressed.  Hence, why would you even start?

(I am exaggerating a little because for some years now there has been a tax regime for self employed people earning up to €65000pa where they can pay just 15% income tax per annum, but without the opportunity to offset any business expenses.  Most small business people I know are on this regime, which is great, but what if you can, or want to, earn more than €65000pa and take your business to the next level?) 

These were always the bigger questions.  Well, thankfully, Sig. Draghi has used the cloak of Covid (or more likely the cloak of a serious amount of funding from the EU) to do something about this and has made changes to the income tax rates.  However, let’s have a look at the current system of taxation before we look at the new. 

IRPEF as things currently stand is charged as follows:

€0 – €15,000 23%
€15001 – €28000 27%
€28001 – €55000 38%
€55001 – €75000 41%
€75000+ 43%

The biggest leap here being the move from 27% to 38% after €28000pa 

In the shake up, we now go from 5 bands to 4 and the bands have been widened as follows:

€0 – €15000 remains at 23%
€15001 – €28000 will now go from 27% to 25%
€28000 – €55000 will fall from 38% to 35%

And the biggest change here is that from €55000 pa the rate will pass straight to 43%

What can be learnt from this? 
I think the lesson from this change is very simple.  One which I think fits into current world thinking.  The individual earning more (in this case €55000pa) is now going to pay more tax and those on lower than €55000pa incomes, in Italy, are going to be incentivised to spend more with lower taxes.  It’s not a stupid strategy in all honestly because people with less income will naturally spend the extra cash that is available to them.  Those with higher incomes will normally siphon off surplus income into reserves (investments/pensions etc).
So, all in all Italy is doing what a lot of countries already do.  And we are told that this is just ‘stage 1’ of the reformed income tax regime (essentially to get something over the line before the end of 2021), but more reforms are pending from 2022 onwards.  As my classic phrase goes ‘I wait to be amazed!’.



Summary
That all being said, for a lot of people it will mean some tax savings, especially those with income between €15000 and €55000.  The full saving in these tax brackets will be €1070pa.  Not to be sniffed at as the cost of utilities and food has increased substantially in the last year.  For anyone else, you are not really going to see much change at all, and I suspect the system of detractions and deductions will continue for now to help anyone reduce their income tax liabilities even further.  In Italy, it would seem, things happen piece meal and over a longish period of time.  No one politician or political party really has the political clout to push such sweeping reforms as might be needed and get them put into place, even Mario Draghi.  However, the ability to push through smaller reforms which make a big difference over time seems to be more the status quo.  As usual, we bumble along and react to things as they happen and continue to enjoy the life that Italy affords us.

Do I need a different Will as an expat living in Italy?

By Gareth Horsfall - Topics: Italy, UK bank accounts, Wills
This article is published on: 24th November 2021

24.11.21

Here I am again after a recent trip to the UK. I am pretty sure the whole affair of travelling internationally with a family during Covid restrictions has taken 10 years off my life. What a nightmare! The evening before we flew to the UK I spent 5 hours in front of the computer trying to work out which forms were needed, for when, and which Covid tests would be required, and when. We also had to spend approx £150 on Covid tests to travel. I have spoken to many people who have had a similar experience. The whole process was not aided by the fact that we were diverted through Barcelona because the direct flight to London had been cancelled, and even transitioning means that the necessary Covid protocols must be adhered to in the transiting country as well. Despite the administrative and logistical headache of planning all this pre-journey, the actual trip itself went well.

Wills in Italy

So, after surviving that experience and deciding not to travel outside Italian borders again until it starts to eventually settle down, I got called to another meeting in Barcelona in December. I will have to go through it all over again!

Anyway, after all that I thought I would write about something which is ordinarily outside my field of expertise in this Ezine: making a will. I haven’t touched on this subject for some time, but recently we have teamed up with another International lawyer called Jessica Zama of Buckles solicitors. She is British/Italian and is well versed in the world of whether to make a will in Italy or not, and not just for Brits. I asked her to write a piece that I could share with you about the importance of making a will in Italy when you have assets in the country, i.e. a property in most cases, which I have copied below.

However, before I get into that I wanted to write about a couple of other things which may come in useful if you need to travel, post-Brexit banking arrangements in the UK and a new Italian website that might come in handy.

Travel Insurance

Travel Insurance
I myself used to have travel insurance through a UK firm, pre Covid, pre-Brexit. This firm no longer offers insurance to EU resident individuals due to Brexit so before my trip to the UK I needed to shop around to find a cost effective option. Unfortunately, it was quite difficult to find a solution that wasn’t going to cost the earth. The usual Italian market suspects (Generali, Allianz, Zurich, Unipol) etc were rather more than I wanted to pay. However, on doing some research I stumbled into my favourite comparison website: facile.it It was there that I discovered that they were offering travel insurance packages from a French firm ‘InterMutuelles Assistance’.

One of my colleagues in France informed me that MAIF, MACIF and MATMUT are big French insurers and this firm is a part of the group, so likely to be a solid firm.

The French company is merely using its European license to passport its services into other EU states, in much the way that the UK firm I used to buy travel insurance from used to do. So, I wanted to communicate that there are lower cost more competitive options in the market place. This is by no means the only option and I would urge you to do your own research if you require travel insurance, but if you are interested you can find them under their brand in Italy:
www.traveleasy.it/

UK Banks closed

UK banking arrangements
A lot of my clients who are UK account holders with Natwest have now received a letter informing them that likely action to close their account will take place before the end of 2021, as a result of Brexit, and the fact that Italy has been very clear (as early as April 2020. See document HERE) that they do not want non-Italian, non-EU financial firms, advisories, or intermediaries operating on Italian soil or for Italian resident individuals. Italy, along with the Netherlands, seem to have the most strict measures in place, and it would appear that in both cases accounts of clients of Natwest are now being shut down, if they haven’t done so already.

This obviously leads to the question, what can you do for continuation of banking services in GBP? Thankfully in the last few years with the development of the Fintech industry, a myriad of options have arisen. The most popular seems to be Wise (formerly Transferwise) who are offering not just currency exchange services, but different currency accounts through which you can move money. Wise are not a bank, so you may be restricted on exactly what you can do and who can send money to that account, but it does work for some. I myself use Fineco bank in Italy and they provide current account holders with EUR, GBP and USD accounts, to which money can be sent, and then moving money between one and the other does not attract any currency conversion costs. There are also a number of online banks and services offering these options and so you shouldn’t be short of options.

The only problem
There is however one area which may still cause an issue if your UK account is closed down. UK direct debits. I myself have not been contacted yet to close my First Direct account in the UK, but should it happen it would cause a very big problem as I have a number of insurances which I took out years ago in the UK that provide protection for me and my family. However, they only accept payment through direct debit on a UK account. Should my banking services be pulled I may find myself losing my insurance. You may find yourself in a similar situation with UK direct debits. In this situation, there really is not a lot you can do about it, I am afraid.

But moving on from banking arrangements, I want to now lead into the idea of making a will in Italy. It still surprises me how many people have not done so yet. I understand it is one of those ‘to do’ list items, but the truth of the matter is that it shouldn’t be. It should be a priority item. To die, leaving an asset such as a property in Italy, without clear instructions as to how you want this asset to be treated, could create all sorts of complications for your family and/or beneficiaries. I made my will a few years ago now and whilst it probably needs updating again, I know that I have a valid Italian will in place in the event of my death.

So without further ado I am passing to the words of Jessica Zama, who wrote the following piece, and which I hope spurs you into making your own will if you have not already done so.

A very useful Italian website
From the 15th November a new Italian government website has been launched called ‘Anagrafe Nazionale Popolazione Residente’ www.anagrafenazionale.interno.it/servizi-al-cittadino/ (ANPR for short).  It allows every Italian resident the ability to download all those certificates which traditionally you had to take an appointment at the comune, to attain.  As anyone who has lived in Italy long enough, at some point or another you will need one of the certificates, mentioned below, and since they only have a 6 monthly validity the fact that you can now easily download them online is fantastic.  Other services do exist, which I have used myself to avoid queuing at the comune offices, but they do charge a pretty penny for the service.  For the moment they are also free of charge through this website, and it is expected that this will be the case until the end of 2022, at which point you may be expected to pay just the ‘bollo’ at the point of download.   The certificates include:

  • Anagrafico di nascita;
  • Anagrafico di matrimonio;
  • di Cittadinanza;
  • di Esistenza in vita;
  • di Residenza;
  • di Stato civile;
  • di Stato di famiglia;
  • di Stato di famiglia e di stato civile;
  • di Residenza in convivenza;
  • di Stato di famiglia con rapporti di parentela;
  • di Stato libero;
  • Anagrafico di Unione Civile;
  • di Contratto di Convivenza.

To enter in the website you will need a SPID or Carta d’Identità Elettronica.

Wills for expats in france
Protecting your Italian assets – where there’s a will, there’s a way

If you hold assets located in Italy, it’s important to obtain legal advice to draw up a will that covers them, regardless of whether or not you live there.

There are several reasons for doing this. If you have any specific wishes relating to the distribution of your Italian assets following your death then you need to put them in writing, in a will that is considered legally valid in Italy.  If you do not have a valid will in place, your Italian estate will pass to the beneficiaries set by Italian law (in most cases the spouse and children).

The validity of your will in Italy is crucial, particularly if it is drafted and/or signed abroad and is to cover all your Italian assets, both present and future. For example, if you were to specify in your Italian will that you wish to leave a specific property in Italy to your wife, but this is then sold during your lifetime, your Italian will would not cover the proceeds of sale held in an Italian bank account.

Your will must also take into consideration the Italian inheritance laws and succession procedures. In Italy certain relatives, such as the spouse and children, have a right to a percentage of the deceased’s estate regardless of the terms of the will. This is known as forced heirship and it must be taken into consideration when drafting a will relating to Italian assets, as it can somewhat limit your testamentary freedom.

However, there may be the possibility to avoid this restriction by electing for the law of your country of nationality to apply to the will and the succession (thereby allowing for more freedom in disposing of your assets) although you would need legal advice on whether this can be applied in your case and how to draft your will so that the Italian forced heirship rules are avoided.

It is also important to consider the wording of the will and the legal terminology used within.  A will signed in another country may potentially cover all your worldwide assets, including your Italian assets, but its wording may cause issues regarding the administration of your Italian estate in the future. Therefore, once again it’s important to obtain legal advice on this subject.

When you also have a separate will which covers your assets in another country (even if this will excludes Italian assets), it’s important that your lawyer checks to ensure that there are no conflicts between the two wills which could render one or both invalid and thereby potentially leave your assets exposed in both countries.

Holiday rental owners in Italy

By Gareth Horsfall - Topics: Italy, Tax in Italy
This article is published on: 29th October 2021

29.10.21

It would seem that governments really do exploit disruptive / destructive events to tighten the tax net on citizens and this has, once again, been used effectively during Covid.

This time it is the turn of the short-term rental market (I assume short-term means anything up to a month in duration)

The Italian government is about to launch a platform to collect relevant information on ALL activity, across Italy, involved in short-term lodgings / holiday lets. The objective being to create a clear map, across the country, of who is involved in this activity.

Everyone who is involved in short-term rental will be required to register with the platform and will be provided with an identification code specifically for their activity. This code will need to be quoted on every advert for a rental where a rental is advertised on a ‘homes 4 rental’ style website, with the local estate agent or on social media. Failure to quote the number will generate a fine of between €500 and €5000 for every advert where the code is not listed. The fine will be doubled for a repeat offence!

Some regions, such as Lombardia, already have this system in place. They operate the Cir (codice identificativo regionale). This information is automatically communicated to the comune in which the short-term rental is located. If a region does not operate the system, owners will now be required to register on the national platform and obtain the identification code this way. The information gathered will be passed back to the respective comuni.

The legislation for the platform is set to pass within the next few weeks and then will go into force 90 days after the publication in the Gazzetta Ufficiale. The specific date to list the identification code will be communicated at this time.

Holiday rental owners Italy

Just one more bureaucratic hurdle
This is clearly another administrative burden that rental property owners are going to have to jump through in the search for income and/or profit from property rental.

The government are trying to weed out the ‘in nero’ rentals that have clogged the market in the years preceding Covid, particularly in the cities. These have changed the landscape of the cities so much that palazzi (much like the one I live and work from in Rome) are now full of apartments catering to foreign holidaymakers, rather than people who live and work in Rome. It is the same story around the world in big cities.
In the Italian government’s favour, a lot of these rentals are undeclared for taxation purposes and try to fly under the radar, but it’s difficult to see how an identification code requirement will flush them out.

Many of the people I know who are involved in this activity are unlikely to be affected as they are conforming to local and national requirements already. However, occasionally I do get contacted by people who have a home in Italy and are renting it out to holidaymakers on overseas holiday rental websites and running all the earnings through a foreign bank account, with the assumption that they do not need to therefore declare anything in Italy. Obviously, this is wrong and my advice, as always, would be to ensure that you are meeting the various fiscal and administrative requirements in Italy.

If you own a property in Italy and generate any income from it, then it must be declared to the Italian authorities first! The Agenzia delle Entrate do regularly troll through holiday rental websites and cross reference against tax returns.

Oh, and if you are in any doubt. ‘I didn’t know’ is never an excuse, so get informed!

I hope you found this article useful. I am still waiting on the latest structural tax changes to be announced shortly. There is lots of press flying around about what and how things will be changed. At time of writing the only thing we know is that the ‘catasto’ on properties is being slightly changed and the partita IVA forfettario regime will be phased out within the next 2 years. For the rest I am still waiting. I will let you know as soon as I do.

In the meantime, if you would like to speak to me about your financial plans for life in Italy, if you would like to simply know if your money will last as long as you and/or if you are concerned about ensuring you will have enough money for all your different life stages and expenses, then do get in touch. I am happy to help. You can contact me on gareth.horsfall@spectrum-ifa.com or on cell +39 3336492356.

My initial consultations are free and there is no obligation to discuss things further, if you so wish.

Market volatility

By Gareth Horsfall - Topics: Investment objectives, Investment Risk, Italy
This article is published on: 21st October 2021

21.10.21

We are undeniably in full swing after the Italian summer. Almost everything seems to be operating on a normal basis again, although ‘normal’ is always subjective depending on where you live in Italy. Roma doesn’t really qualify for normal, even on it’s best days!

Just how much people are getting back to normal again after Covid has amazed me. The memory of lockdown and ‘esercito’ trucks rolling out of Bergamo seems to have disappeared into the small corners of our minds. It might just be a self-protective mechanism, or maybe, like me, you are just happy to be able to go about your life in a relatively normal way again.

Normal for me is also talking to and seeing clients in person regularly, of which the latter has been somewhat missing for the last 18 months. I was reminded of this on a telephone conversation with a client the other day who said, ‘I haven’t seen you for a while Gareth’. It was said in such an innocent way, almost forgetting the last 18 months of various travel restrictions. A completely inoffensive remark and it made me realise that I haven’t seen many of my clients for quite some time now and that I really must get back on the road again. So that is my plan over the winter and coming months. I feel starved of client contact, something which I really cherish, and so I will be getting out there very soon.

Anyway, I don’t want to go on too much about my work plans as I have something much more interesting to write about…financial markets. Well, interesting for me at least!

As I am sure you are acutely aware there are millions of in-depth, factual and accurate analyses of the current global economy and the response of financial markets to Covid. I don’t wish to get into that (If you would like a recent world market roundup then just email me and I can send one through easily enough). What I do want to talk a little about is how we respond to financial market volatility (i.e. the rising and falling valuation of your portfolio) as the Covid recovery continues.

Market volatility

“When a long-term trend loses its momentum, short-term volatility tends to rise.
It is easy to see why that should be so: the trend-following crowd is disoriented”.

George Soros

The Covid recovery is likely to mean a prolonged period of uncertainty for economies and companies. The initial market momentum after Covid and subsequent recovery is stalling a little at the moment. This is not a long term structural problem, as most indicators point to a return to ‘normality’ (there goes that word again! What is normal anymore?), that being travel, consumption, leisure etc, within a year or so. But the global recovery is not taking place uniformly. Herein lies the problem. Some emerging markets for example are still suffering from high Covid infection and death rates and battling the pandemic. Supply issues mean that many raw materials in our Western economies are scarce and we are seeing price rises as a result, and while this continues it means that there are more risks for companies and individuals. This inevitably means more volatility in our investment portfolios than we have seen in the last two years, which have largely been positive.

My usual advice when we enter periods of volatility is ‘Don’t constantly monitor your investments’ – that well worn recommendation that doesn’t really help anyone’s anxiety. The fact that we now have 24/7 access to information can be a curse when it comes to your investments.

The value of your investment can go down as well as up
I understand nervousness around investments. Is my money going to be there when I most need it? Is it safe from fraud? Will I recoup those losses or are they lost forever? I invest my own money and like anyone I like to see numbers in black rather than red. But I also understand that it’s a matter of patience, time and calm, rather than frustration, anxiety and rash decisions, that will see you through any period of volatility. It should be noted at this point that most of you who are reading this newsletter will have invested through the Covid crash, which was markedly more worrying than the current pull back in prices. So, when looking at our portfolios it is always good to have perspective. You may remember from 2020 that crashes happen quite suddenly and dramatically in response to a very specific trigger, whereas pull backs in stock market prices are often talked about for weeks or months and hypothesised on for what seems like ages before anything actually happens.

Success in investments is not about whether you climb that wall of worry or not (we all worry about our money) but whether you make rash decisions based on factors which are outside your control.

What is exchange rate risk?

Are you a person who is more susceptible to making rash investment decisions?
You might be interested to hear that the University of the Massachusetts Institute of Technology (MIT) have conducted some interesting research on personality types and decision making.

They wrote a paper in August this year, entitled ‘When do investors freak out? Machine learning predictions of panic selling’ and discovered that the investors who tend to ‘freak out’ with greater frequency fall into one or several of the categories below:

  • Male
  • Over the age of 45
  • Married
  • Have more dependents
  • Self-identify as having excellent investment experience or knowledge.
  • (It does bear mentioning that I fall into every category! – scary thought.)

In addition to the above, they identified other characteristics in panic sellers. Only 0.1% of investors panic sell at any point in time. However, when there are large market movements, they occur up to three times more.

Interestingly, 30.9% of panic sellers never return to reinvest in risky assets. However, of those that do, nearly 59% re-enter the market within six months.

The really sad fact is that the median investor earns a zero to negative annual average return after the panic selling. This is the most worrying statistic of all. The evidence is therefore clear: panic selling leads to losses.

But regardless of the figures and the logic coolheadedness just can’t complete with human irrationality, and the same mistakes happen again and again, even if logic dictates it should be the other way around. In one way, that’s why I am here. To help you navigate that mind swamp!

I am reminded of a few clients who contacted me around the time of the Covid market crash and said that this was a new world event, a new norm and that things would never be the same again. I encouraged them to ride the wave, and they are today sitting in a much better financial position then they were before. I had no way of knowing what would happen in financial markets, and I can tell you I did worry myself, but I do understand human nature after working in this business for over 20 years.

I do know that whatever event creates a crash, the only truth is that when markets fall there is an opportunity to buy more of the same at reduced prices! Capitalism is not going to fall, just yet!

Tax & Pensions in Italy

By Gareth Horsfall - Topics: Italy, pension transfer, Pensions, Tax in Italy
This article is published on: 27th September 2021

27.09.21

Well, another summer has passed and contrary to my previous article I have decided not to become a communist, not that I think there was ever any chance of it happening anyway. Being a financial adviser pretty much excluded me from the start.

Anyway, as the hot days roll on here in Rome and the fresher ones will start soon, I was thinking how I could get started on some more serious topics of finances for residents in Italy. One thing I have come up against this summer on a number of occasions has been the subject of personal private pensions, and how they are treated for taxation, so I thought it might be a good idea to explore the different types of personal pensions which are in existence in the EU, which type Italy uses and what we can learn to help us understand the taxation of such a financial product in Italy.

Tax in Italy

EET, ETT, or TTE?
This subject can get complex, but every so often it’s good to delve in and try to make some sense of it. The main problem is that throughout the world, and even between European states, different models of taxation are applied to the different models of personal private pensions that exist. Italy has adopted one of these models, which in itself is no problem, but when we, as foreigners, move to Italy we may find that our existing private pension plans don’t fit into the same model as the Italian one. In most cases our commercialista has the ‘enviable’ job of choosing how to apply the Italian way to our scheme. It’s a bit like trying to fit a square peg into a round hole.

So what are the main models? As the title of this paragraph alluded to, there are three main models used which go under the monikers: EET, ETT and TTE.

What do these stand for?
The initials mean the following:

EET: Exempt, exempt, taxation. (The majority of EU member states adopt this approach, including the UK)
ETT: Exempt, taxation, taxation. (Italy, Sweden and Denmark adopt this model)
TEE: Taxation, taxation, exempt. (This used by Hungary and Luxembourg)

**The US also falls in the EET system**

As you might have guessed, the ‘exempt’ and ‘taxation’ tags refer to the point at which taxation is applied to the monies in your private personal pension. So, the first tag refers to the point at which the contribution is made into the pension fund (monthly or lump sum payments are treated equally), the second tag refers to the money when it is invested and accumulating within the pension (capital gains and income generated from the invested funds) and the third is the point at which one goes into retirement and starts to receive payments from it (the actual pension payment). Clear as mud? Let’s continue…

Pensions in Italy

The EET model
The UK, US and many other EU member states apply the EET model (exempt, exempt, taxation), and it is my favourite model! I think it is the easiest to understand and the fairest model. I also expect that this model may also be adopted (or phased in) by Italy as part of Mario Draghi’s big tax shake up, for which we are still waiting for details (end October is the latest news).

Fundamentally, a model which allows someone to accumulate funds in a tax efficient environment throughout their working life and then be taxed at normal tax rates when they eventually come to take that money back, would seem to be the easiest and fairest way to allow individuals to accumulate as quickly and efficiently as possible. It also incentivises people to want to make more contributions into these types of savings plans for their future.

The ETT model
However, our beloved country of residence, Italy, adopts the ETT (exempt, taxation, taxation) model. Interestingly, the other two countries which adopt this model in Europe are Sweden and Denmark. I don’t think I need to point out the significant difference between the social security systems of Denmark and Sweden versus Italy, but it merely highlights the fact that Italy remains a higher taxing EU state. That being said, I love Italy, as I know a lot of you do, and it deserves much more than an critical look at its taxation system. The fact that the fund is taxed in addition to the pension payments on retirement means that their model doesn’t complement sufficiently the lower benefit payments on offer from the state through the contributi scheme, previdenza complementare’ and is not a great attraction for savers for retirement. However, you need not take my word for it. Between Italian workers, private individuals and public scheme employees, only 25% contribute to a separate private pension scheme to top up their existing benefits from the state. That figure is well below the EU average!

That low number might be due to the fact that between the low tax benefit (a maximum deduction against tax of only €5164.57 per annum), the rates of tax applied to the fund itself (between 20% and 26% depending on which fund you hold your private pension with), the restrictive ranges of investment options and the higher charges, then it comes as no surprise that not enough people are choosing to top up their pension with a private arrangement, but are more likely to buy property or find other ways of supplementing their retirement income, assuming they have surplus income after the state has taken their contribution for the state related pension.

There is, however, one advantage. The monies when received as an income payment in retirement attract a tax rate of 15% and can fall to 9% if you have contributed for 35 years to a previdenza complementare. This additional benefit stills fails to be attractive enough for people to save in this way for their future, probably because the benefit is too far in the future for many people to even consider when they have more pressing financial needs today, which brings us back to the point that the incentive for people to save today needs to correspond to a benefit received today i.e. a tax break on contributions, or no tax on the invested fund.

tax in italy

So what does this mean for the taxation of your non-Italian pension
As you might imagine it’s not as simple as saying that a personal pension that you own from one country will be considered the same, for tax purposes, as an Italian private pension (previdenza complementare).

The complexity lies in the fact that because Italy cannot analyse every different type of pension in the world, it is impossible for them to legislate for each one as well. Therefore, we have to use some logical thinking, but even that may be interpreted differently by the tax authorities in Italy.

At this point you might want to take a moment’s silence for your commercialista whose job it is to make that interpretation and on whose shoulders, ultimately, that decision lands. Although it is unfair to say that they don’t have any information to hand, because one client, whose commercialista was clearly on the ball, alerted her to an ‘Istanza di Interpello’ dated 27th May 2020, (click HERE, basically it is an opinion provided by the Agenzia delle Entrate on a specific case presented by a specific individual). This interpello went some way to explaining the thinking of the Agenzia behind the taxation of pensions which fall into the EET model (exempt, exempt, taxation). The ‘opinion’ was based on a UK pension.

Taxation on accumulation or not?
What it all seems to boil down to is how the pension is taxed during the accumulation phase. Italy taxes the fund during this phase but gives a preferential tax rate when the monies are drawdown. A UK pension, for example, is not taxed during the accumulation phase, but then drawdowns are taxed at regular income tax rates. So, going back to the logical thinking approach, if someone moves to Italy with a UK pension, it doesn’t make sense that they would benefit from tax efficient growth in the fund AND be provided with a preferential tax rate on drawdown. That would constitute a double tax benefit, which I doubt the tax authorities would approve of.

It doesn’t matter what you or I think!
The interesting point here is that even with all this information and supposition, the reality is that your commercialista can still choose to apply any method of taxation that falls in any of the different models because the legislation doesn’t exist to do otherwise. Therefore, the best you can do is to take a guess.

Attention, however, because the Interpello from 27th May 2020 gives a pretty good outline into the thinking of the Agenzia regarding the EET model, in that when payments are taken they should be taxed at income tax rates, not the 15% preferential tax rate. If you are advised to, or you choose to apply the 15% preferential tax model, there is always the chance that the Ageniza could come looking at some point in the future. It’s highly unlikely given the circumstances, (in my opinion), but not beyond imagination.

Given the complexity around pensions it comes as no surprise that it is often easier to bury one’s head in the sand rather than checking exactly what you have and how it should be declared. If you have any doubts then you can always contact me for a free no-obligation analysis of your situation. It is a part of the overall service package that I provide to clients and others looking to regularise their pensions arrangements in Italy. For clients, I also liaise with their commercialista directly to clarify their current choices and determine if anything should be done differently.

Qualifying Recognised Overseas
Pension Scheme

Staying on the subject of pensions
For anyone who is intending on living away from the UK permanently, we have over recent years been helping clients review existing UK private pension arrangements to determine whether a QROPS transfer may be appropriate. This is a type of overseas pension, which operates like a UK private pension plan, is always domiciled in Europe for EU resident individuals and is operated under an EU framework of compliance and oversight.

Since the UK’s exit from the EU we have been wondering whether the UK would stop the possibility to move pension monies from the UK into the EU to slow money flows out of the country, out of spite or any other number of reasons relating to the future relationship with the EU. To date this has not happened, but could be announced in any UK budget. (the next budget has been announced for the 27th October 2021).

There are potential tax consequences of having a UK pension plan which is now no longer ‘harmonised’ with EU legislation and there could be adverse tax consequences in the future. In addition, moving pensions to QROPS is considered removing a tie to the UK for anyone looking to remove UK domicile for inheritance tax purposes. Therefore, if you have a private personal pension arrangement that you are waiting to receive benefits from and /or drawing down from, I can offer a free analysis of the benefits of transferring it away from the UK.

Moving to Italy

Superbonus 110% – discussions on the beach

There is a lot of discussion going around at the moment about the Superbonus 110% that the Italian government is offering to bring your property into the eco-friendly age. I won’t go into details because it’s so complex that I am totally lost with the whole affair. However, I did happen to have some discussions on the beach this summer with an Italian gentleman of 73 years of age. He is a practising architect in Milan and has built buildings all over Italy. I struck up a conversation on the subject of the 110% Superbonus and how his company was coping with the bureaucracy. I was a bit taken aback by his answer that they had made a decision not get involved, at all.

His view was that the process of attaining permissions and subsequent documenting of the process is so incredibly complex and time consuming that the professionals involved in the process are forced to increase their fees substantially just to cover the cost of work and /or monitoring and reporting. He also explained that because ultimate responsibility for the Superbonus 110% will fall on the shoulders of the professional following the process, that their insurance risk against the Agenzia delle Entrate poking around in the future, and finding faults in the documentation is so high that they would have to increase their fees substantially to compensate for that risk.

This architect said that he had been talking to other firms in Milan who were charging significant fees, and that in total, between architects, geometre, and builders, costs could spiral to 40% of the amount claimed for the work.

Now, I am no expert on this particular area and I am sure that there are some of you reading this who will be able to pull this logic apart, but my point is that if you are looking at significant renovation work through the use of the Superbonus 110%, then make sure you check the small print and the costs. Remember that in addition to the costs of following the work, building material prices have sky rocketed due to Covid and continue to rise. What is claimed from the Agenzia delle Entrate may be less than the cost of work if these costs continue to rise.

Ultimately, it is the client who pays the fees and so my advice is just check that the NET amounts claimed from the Agenzia delle Entrate will cover the cost of your work and you are not going to be left with half finished properties.

And on that happy note, I will leave it for this E-zine. Life is slowly returning to normal after the long hot summer and it will shortly be time to be putting on those thick woolly socks again and wrapping up tight for the winter. In the meantime, if anything in this E-zine has piqued your interest, or you would just like to review your financial plans for life in Italy then please do get in touch on gareth.horsfall@spectrum-ifa.com or send me a message/call on +39 333 649 2356

Investing in China

By Gareth Horsfall - Topics: Investments, Italy
This article is published on: 16th August 2021

16.08.21

Is communism the way forward?

Whilst on holiday, peering out over turquoise bays, ones mind starts to wander and what better route to take than pondering whether communism really has some postive aspects which we, in the capitalist world, would do very well to replicate.

I think my mind has had the space to wander into this rather philosophical space because there has been little to discuss on the Italian tax front (one of my favourite topics). We are waiting for the big announcement on exactly how Mario Draghi intends to overhaul the tax system in Italy and that decision is ‘supposedly’ being announced shortly (but will likely take longer than expected, as is always the case in Italy!). As soon as I know anything I will let you know.

So to continue my thought wanderings I thought we should talk about China.

But before I get into the detail, I want to write about a conversation I had with some clients (who shall remain nameless), who took a long trip along the old Silk Road some years ago. They had been amazed at the development they had seen along the old route, and that it had mainly been funded by China. They also travelled in China itself and commented on the magnificence of its technological and infrastructure progress. These clients, who I would say could easily be classified as socialists and defenders of free speech, said that given what they had seen and the speed at which China can just ‘get on and do things without arguing about it’ does make you wonder ‘if there is some merit to their form of communism’.

And with that thought in mind, this E-zine will explore some of those aspects of Chinese governance. This E-zine was inspired by a blog post I recently read from an asset manager called David Coombes at Rathbones Asset Management (a collaborative partner to The Spectrum IFA Group). His blog puts some recent issues surrounding China’s political decisions in a new and interesting light.

investing in china

So what is happening in China?
Late 2020, Chinese regulators stepped in and forced Ant Group, a digital payments spin-off from ecommerce giant Alibaba, to abandon its stock market listing on the Shanghai exchange. More recently ride-sharing app Didi Chuxing was pulled from Chinese app stores days after it brushed aside regulatory concerns about data security to list on the stockmarket in New York. In addition, the Chinese authorities have levied a record $2.8 billion fine on Alibaba for anti-trust violations, and regulators are investigating food delivery app Meituan and internet and gaming conglomerate Tencent for the same issues.

Not only are they attacking the tech industry but the government, in an overnight decision, seemingly abolished ‘for-profit’ education in core subjects for kids up to 15 years old, sending an entire private education industry into complete chaos.

Many investors are concerned about a wider crackdown across multiple industries.

investing in china

The way of the Dragon!
Before we become too shocked by how the Western media portray decisions by the Chinese government, it is a good idea to look at the problems from a Chinese perspective rather than only through our Western lens. China, in much the same way as the West, is struggling with the tremendous power that Chinese online giants now wield over various sections of society. They have created a kind of ‘winner-takes-all’ online marketplace in technology and data. Equally Chinese families are now have to pay increasingly large fees to send their children to school to get even a half decent education.

Does all this sound too familiar?

If so, let me ask you a few questions:

* Do you think that big tech firms( Amazon, Google, Facebook, Apple etc) play a much too important role in our lives and do you think they should be more heavily regulated in the way they keep and use our data?
* Do you think that big tech firms should pay more tax?
* Do you know anyone with kids who is paying a fortune for private education? From supplementary English, sports or music lessons and /or having to pay a small fortune in nursery costs to secure a place in a good nursery school for their kids?

investing in china

Technology
I don’t know many people these days who can easily defend the growing, and rather worrying power of the tech companies in and on our societies. I, personally, am concerned about the use of data, the power of their lobbying and their continued ‘legal’ tax avoidance (Amazon paid an effective tax rate of 1.2% in 2020 when their marketplace exploded with Covid stay at home policies, which drove even more people to online shopping!). Yet, in many ways we are slave to these beasts. I couldn’t run a business without them, and they do make life much easier.

Education
The Chinese authorities felt that competition in education was putting too much pressure on children and creating a financial drain on parents that is possibly slowing the birth rate and affecting property prices. This was putting children of less wealthy parents at a huge disadvantage. Sounds oh so familiar! Some ‘3 year old’ Chinese children were receiving extra tuition to prep for entry exams to get a place in kindergarten. The Chinese government says this was having a negative impact on the social cohesion of the country. As a father, I think I have to agree!

China does what the West keeps talking about
Could it be that China have looked at the Western model and decided it would like to introduce more regulation to benefit families and the populous, instead of corporations? Given they are named the ‘Central People’s Government’ one might be forgiven for thinking that they are looking at putting people first and corporate expansion second. Wouldn’t it be nice if our own governments could do the same?

investing in china

Do you prefer democracy or dictatorship?
The truth of the matter is that Chinese leaders don’t pull any punches when they want to implement new policy. They don’t need to put it to a public vote; they can do it overnight. This means that businesses, small and large, suffer hugely as a result. I would be very worried as a father, contributor to the family purse and businessman if the Italian government had the power to introduce legislation which effectively put me out of business overnight.

So, what do I prefer: democracy or dictatorship? In all honesty, I think I am a middle-ground man. I don’t think either work well. I think I would probably choose to compare socialism versus capitalism as economic models and once again, I don’t think either work well in the extreme. I think that we live in an advanced capitalist society in the West which should be reigned in through more regulation in these new and influential sectors. What is perpetually annoying is that I work in financial services which is one of the most heavily regulated businesses and yet we have the big tech firms, the new world of ‘influencers’ and the online world which is largely unregulated and can operate in whichever way it pleases. Maybe China has got it right and they are trying to create a more socially cohesive society.

So should you still invest in China?
You could actually think of the Chinese Government intervention as ethically responsible politics. It is focussing on inequality and trying to improve society as a whole. If you look at it through that lens, then Chinese investment starts to look quite appealing.

That being said, it would be foolish to say that this doesn’t come with some inherent underlying risks. Which industries / sectors might they attack next? And what about corruption, unquestionable power, individual rights etc? That is why it is important that when allocating a part of your portfolio to China, you must be precise – you can’t just buy a Chinese market tracker and expect explosive returns. It is a large market, but one that is still maturing. Company governance is going to have to improve from here or authorities won’t just fine you, they will close you down (or your whole industry!).

So whatever Western media might have us believe, it might just be that this inequality / social-pact shake-up is a sign that China might be a better place to invest over the next decade. And whilst we always advise caution when investing, in line with your own risk profile and using well established, competent asset managers, I would expect to see some allocation to China in almost everyone’s portfolio.

And on that note, it just leaves me to wish you a Buon ferragosto and I hope you manage to stay cool in the ‘Lucifero’ African anticyclone currently covering the country. Keep your anguria close at hand! As I write this E-zine, I notice that the hottest ever recorded temperature in Europe has been set in Siciliy at 48.8 degrees Celcius! PHEW!

As always, if you have any questions about this E-zine, or would like to contact me about your financial and/or tax planning needs in Italy, then feel free to get in touch on gareth.horsfall@spectrum-ifa.com or on cell +39 333 649 2356.

Moving to Italy and the average cost of living

By Gareth Horsfall - Topics: Italy, Moving to Italy
This article is published on: 12th July 2021

12.07.21

You have made your tax calculations for life in Italy, but have you included everything?

In this video Gareth talks about the costs of living in Italy and how it varies depending on where in Italy you want to live.

He also explains that whilst it is almost impossible to calculate until you are living here, it has the same effect as a tax reduction and should be taken into account when making your decision about life in Il bel paese.

If you are interested in moving to Italy or perhaps already live here,
but need to discuss some financial areas of concern,
please use the form below to contact me.

    The Spectrum IFA Group is committed to building long term client relationships. This form collects your name and contact details so we can contact you about this specific enquiry. For further information, please see our Privacy Policy.
     

    Tax Reporting in Italy

    By Gareth Horsfall - Topics: common reporting standards, Italy, Tax in Italy
    This article is published on: 4th June 2021

    04.06.21

    Excuses that will not fly with the Agenzia delle Entrate

    You wouldn’t believe it, but I started venturing out last week. I actually visited some clients and spent time with people, in the flesh, who exist outside my social bubble! It really was quite a bizarre experience because the first thing that hit me was that apart from the fist bumping and/ or deliberate distancing, that the relationship had not changed one iota. It was business as usual, which I found odd at first because after everything we have been going through I assumed that maybe that things would have changed a bit. I am now totally convinced that it will be business as usual once this phase passes!

    So I am going to let life take steps to getting back to normal and move onto important financial matters. This article is entitled ‘Excuses that will not fly’ because since tax reporting time is upon us again, I thought I would look at the most common excuses that I have heard over the years when it comes to reporting taxes correctly…and I have heard a few! I also want to cover the Common Reporting Standard again, what it is and why it is very important that you get the tax reporting right every time.

    Excuses, excuses
    I have to be honest and say that I have heard probably every excuse possible for not having made tax declarations in Italy, and whilst in many cases I do actually feel quite sorry for the person, because it is a genuine mistake mainly due to lack of knowledge, excuses will not fly with the Agenzia delle Entrate (AdE), no matter what your intentions were.

    tax reporting Italy

    So here are the top excuses that the Agenzia delle Entrate do not care about.

    1. I didn’t know I had to.
    This has to be at No 1 because it is the most common one I have heard over the years. Needless to say the AdE has no interest in whether you knew you had to do something or not. It is your responsibility to get informed, and failure to take the right advice or do the right thing means you are liable for all back taxes if they catch up with you.

    2. I am not a tax resident.
    I have written about this many times in the past. If you are registered as resident in Italy, i.e. you have registered at the comune and are registered at the Anagrafe, then you are more than likely, in the eyes of the AdE, going to be considered fiscally tax resident as well. Just because you live in another country for more than 183 days per calendar year and your main work and/or family interest are outside Italy, it does not matter to the tax authorities. You have registered to say you are resident and therefore they can legitimately come after you for taxes.

    I was recently contacted by someone who said that she had been registered as resident in Italy since 2007, when she bought a house, but the home had only ever been used as a holiday home (she was informed by the estate agent that if she registered as resident then she would only have to pay 2% VAT on the purchase rather than 9%). However, the registration meant that she was also fiscally tax resident. The tax authorities have recently contacted her to ask for all back taxes in the last 5 years on her worldwide incomes, assets and gains.

    The only way to resolve this now is to put a case forward to demonstrate than she was UK tax resident and falls under the double taxation treaty. That will likely mean lawyers and accountants needing to get involved and an extensive negotiation with the AdE and the UK tax authorities. In addition, they can legitimately ask for all the taxes to be paid whilst the situation is resolved.

    One simple rule to remember is that if you want to simply own a holiday home and have no intention of becoming a fiscal tax resident in Italy then do NOT, under any circumstances, register as resident at your comune!

    **A small note here, just to say that because of Brexit a number of Brits asked me about taking residency, pre 31 December 2020 as a way of getting around the travel restrictions imposed by the EU for non-EU citizens: 90 days in 180 day travel in the Schengen area. The answer is very simply that it is not possible unless you want to be on the radar for taxes as well. It is an all or nothing situation!**

    3. I am covered by the double taxation treaty (DTA) between my country and Italy, and therefore considered non-resident.
    This is one that I also hear often and stems from a misunderstanding of the DTA. The tie-breaker clause in the DTA states that where two states cannot agree on the residence of an individual then a number of criteria will be applied to determine the residency of the said person.

    This might seem cut and dried, but if you register as resident in Italy but maintain your family/work/social and business interests in another country it DOES NOT mean that you automatically fall under your home country rule. In reality Italy, as any other country, could ask you to pay your taxes for your time registered as resident. You would be expected to pay and then deal with the respective tax authorities to reach a ruling as to exactly where your actual residence lay in those years. The important part to note is that, if asked, you would be expected to pay your outstanding taxes and then claim them back! Better to plan your residency carefully before a permanent move or a simple house purchase.

    4. My commercialista told me not to declare it.
    This is another well-worn example of getting informed before you decide a course of action. The simple rule with the commercialista is that whatever they ‘advise’ must be written down either in an email or on headed paper and signed. The excuse that they told you not to do it, which you later find out not to be correct, will not pass AdE inspection. In addition, if it isn’t written down then you have no come back against the commercialista if they have advised you incorrectly. All commercilisati have to hold professional insurance in the case of them giving bad advise, but no evidence, no claim!

    Commercialisti are in general good at what they do, but you may find that your local firm is more knowledgeable about running a local agriturismo business than how to advise ‘stranieri’ with their overseas tax declaration. I now speak and intermediate with my clients’ commercialisti to ensure a) they know what products they are dealing with and b) how they should be declared. Most commercialisti are willing and want to learn and very frequently tell me something I was not aware of either.

    One quick rule: If your commercialista tells you that you don’t have to declare something then go and find another one. Everything needs to be declared in Italy!

    5. I pay tax already on my house in the country where it is located. Why I should pay the Italians as well?
    I can’t recount how many times I have heard this one and whilst I understand the feelings around paying taxes in one state and then having to declare them again in Italy, these are the rules. Property is a fixed asset, and by fixed I mean physically fixed to the ground (unless it’s a caravan!) and therefore you must, by law, declare the asset and income from it in the country where it is located, first. Once you have been through that process you then need to declare it in Italy in the same way. If there is a double taxation treaty between Italy and the country in which the property is located, and it covers property specifically, then you should be able to claim a tax credit for any tax paid. You will therefore end up only paying tax in Italy at Italian rates.

    I often hear people tell me that their commercialista has said that they cannot deduct expenses in Italy. This is correct. If your property is located in the UK, for example, then you cannot deduct any UK generated expenses ‘directly’ in your Italian tax return. However, this misses the point that they can still be deducted. You can and should still apply allowable expenses in the UK (in this example). In Italy, you report the UK income generated after UK allowable expenses.

    6. I don’t want to declare that for tax in Italy, it was a gift.
    This is one I don’t hear so often but it comes up every now and again. You may have received a gift from someone or received an inheritance as part of the distribution from an estate and obviously taxes may need to have been paid in the state where the estate is administered. Once you receive the money then it needs to be declared in Italy in whatever form you choose to hold it, annually. The gift/inheritance will not be taxed again as Italy respects the fact that taxes have already been paid on the gift/inheritance. Therefore, not declaring the monies you receive doesn’t make any sense and would be merely seen as a deliberate attempt to hide money from the tax authorities.

    7. My ‘stranieri’ friends have been living in Italy for years and none of them pay tax in Italy.
    These excuses are not in any particular order because if they were then this one would be nearer the top of the list. It’s a common one and makes me sigh with despair every time I hear it. It is also my favourite!

    The chances are that your friends are not doing what they should be doing and it is only a matter of time before they get picked up by the tax authorities. I know there are plenty of people who are living in Italy, and have been for many years, without having made any declaration to the Italian state. I don’t think I need to say that this is 100% illegal and is advice that should not be followed!

    For EU nationals, taking the risk of hiding under the EU Freedom of movement directive seems to be an option that some are happy to take. They remain resident in their home country but live in Italy all year round. Admittedly, I think they would be hard to find, but then they are not registered in the Italian system, are unable to buy a car or claim on the state for medical or other benefits.

    Those people who are registered as resident, but also failing to declare themselves as fiscally tax resident in Italy are in a much more precarious situation and given the recent example, (as highlighted above in excuse No 2), then it is not a position that I would want to be putting myself into.

    For non-EU nationals, then it is cut and dried. If you obtain a Permesso di Soggiorno to remain in Italy for over 6 months a year, then you are fiscally tax resident. If you fail to declare your taxes in Italy, and are subsequently contacted by the Agenzia delle Entrate, then you can’t say that you weren’t warned.

    I think that finishes the list of excuses. Clearly it is not a definitive list. I am sure there are more but these are the most frequent that I hear. I hope that they provide you with some direction if you are wondering about what or how to declare in Italy. I have a very simple mantra which I stick to which may also help you:

    IF IN DOUBT DECLARE THE ACCOUNT!

    common reporting standard

    The Common Reporting Standard

    In this next part I want to go over some old ground, but which will put what I have written above into context and show why getting your declaration right in Italy is becoming more and more important.

    I remember well, during the spring back in 2014/15 when I was contacted by a large number of people who had recently been contacted by the Agenzia delle Entrate (AdE) for unreported assets in their Italian tax return, or in a high number of cases, failure to even submit an Italian tax return for income/assets that they held overseas.

    This is now happening again but with more rigour!

    This is all coming about because of The Common Reporting Standard and Automatic Exchange of Information (AEOI).

    These are international agreements that were developed by the 34 member states of the Organization for Economic Cooperation and Development (of which Italy was one) via its permanent “Global Tax Forum”. AEOI was designed to help combat cross-border tax evasion by individuals who were not reporting and paying applicable taxes on assets held through non-domestic financial institutions, whether these assets are held in the name of the individual or through certain offshore entities such as companies, trusts, foundations, partnerships and similar. It is primarily focused on individuals and “passive” income (i.e. dividends, interest, capital gains, etc.). It came into force in 2017 but information was backdated to the 1st January 2016.

    How does Italy know if I have assets abroad?
    Have you been contacted in the last few years to provide your TIN. (Tax Identification Number) to your overseas bank and/or financial institution? I have, on numerous occasions! If you a resident in Italy this number is your codice fiscale in the UK it would be your National Insurance number and in the US, your social security number, to name a few.

    It is now a legal requirement to provide your TIN number on any financial contracts that you adhere to, be it banks accounts, investment portfolios, insurance policies, or other financial instruments. I have a small investment account with Hargreaves Lansdown in the UK and was recently contacted by them to update my codice fiscale. Through an error in their systems they had failed to pick up on the fact that I had given it some years ago, but they were refusing to allow me access to my account if I did not provide it again. It got resolved, but it shows you how seriously this is now being taken when financial institutions will block access to your accounts if you don’t provide them with the information needed to share information with the correct tax authorities.

    data privacy

    What information will they share about me?
    Under the Common Reporting Standard the financial information reported includes the name, address and tax identification number (where applicable) of the asset owner; the balance/value, interest and dividend payments and gross proceeds from the sale of financial assets. The financial institutions that need to report include banks, custodians, financial institutions, investment entities such as investment funds, certain insurance companies, trusts and foundations.

    The tax authority will receive much more information than ever before and even simple bank account balances showing money coming in and out can raise red flags and the AdE can choose to investigate where the source of the money came from.

    Is this new?
    Exchange of financial information across Europe has been going on for a long time now and can be traced back to the introduction of the European Savings Tax Directive 2005. The Common Reporting Standard is an enhancement of this.

    I remember that in 2012 when I was contacted by a number of UK rental property owners who had been legitimately declaring their UK property income in the UK for tax purposes. However, as residents in Italy they had not declared anything because they didn’t know they had to. A clear exchange of information took place and the Guardia di Finanza did a significant number of visits to these people to fine them.

    ***This is also happening again this year! We are seeing the AdE issuing letters for unreported income going back as far as 2015/2016***

    ***The Covid crisis has sharpened the eyes of the tax authorities as they are now searching desperately for more tax revenue lost through the pandemic. We have seen AdE activity rise since the start of the year and even seemingly small mistakes on tax returns or undeclared assets are being investigated***

    Low hanging fruit!
    Remember that with the kind of information that the tax authorities are receiving from one another, we really are the lowest hanging fruit to pick from. Easy pickings! So, my advice is always the same. The past cannot be corrected but you can change your future. Hiding and hoping the problem will go away is not an option. The only solution is to get your financial situation ‘in regola’.

    What will I pay?
    How you declare your money and how much you will pay to regularise your situation is a question that can only be answered by a commercialista, but it does make sense to have a look at your whole financial situation beforehand to see what damage limitation you can do by planning efficiently as a tax resident in Italy.

    “Never look back unless you are planning to go that way”