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Investment bonds in Italy

By The Spectrum IFA Group Italy - Topics: Investment Bonds, Investment Risk, Investments, Italy
This article is published on: 22nd October 2021

If you are resident in Italy, or planning to move here, it is important to complete a review of your investments to avoid unnecessary and expensive tax liabilities locally. It is well known that how to handle your finances is one of the major challenges of moving to a new country – the tax and legal systems are different, and on top of this, everything is in a language you might not fully understand. An experienced adviser based in Italy will help to ensure your finances are arranged both tax-efficiently and appropriately for your individual circumstances.

The best time to carry out a review of your investments and to develop a long-term financial plan is before you make the move. This is something many people don’t consider, but acting early allows you to make the most of valuable planning opportunities and to avoid costly mistakes, for example with the timing of a property sale or taking a pension lump sum. But even if you are already here, it is never too late to make sure you are making the most of your money.

There are many ways of saving and investing as an Italian tax resident, including with banks, in directly held portfolios, in collective investments, and in trust and pension structures. Taxation in Italy is complex, and you will need an accountant to help you with tax returns. One structure that is highly tax efficient, which simplifies annual tax declarations and is also widely used across Europe, is the investment bond.

The 10 benefits of investment bonds in Italy

There are several advantages to using life insurance investment bonds for Italian residents:

  1. Tax deferral during the accumulation phase – unlike a directly held portfolio which attracts ongoing capital gains tax and income tax, investment growth within a bond is not taxable (income and gains are able to accumulate on a ‘gross roll up’ basis)
  2. Low effective tax rates when withdrawing funds from the policy – when withdrawing funds from an investment bond, the withdrawal is split into two components: the initial capital, and the growth element. Tax of 26% is due only on the growth element of the withdrawal, so effective tax rates are low.
  3. Gains are calculated net of all costs – directly held investments in Italy are always less efficient than a life insurance bond.
  4. Availability of asset management services otherwise inaccessible to Italian residents – there is a wide range of investment options, including EU authorised funds, discretionary portfolios and index trackers, all available in the currency of your choice.
  5. Your money is outside the Italian financial system – investments are held securely in Ireland or Luxembourg.
  6. Simplification of reporting and ongoing tax administration – there is only a single asset to declare in your tax return whatever the number of investments within the bond, as opposed to the complicated declarations necessary for directly-held foreign assets.
  7. Reduction in VAT – asset management services in Italy generally attract VAT at 22%, but using a life insurance bond results either in a substantial reduction to, or an exemption from, VAT.
  8. Inheritance tax savings – beneficiaries named in a life insurance bond receive the proceeds free from Italian inheritance tax.
  9. Portability – the investment bond structure is widely recognised in other jurisdictions, so you do not necessarily have to encash your investment if you relocate. However, care is necessary to take into account the differences between tax laws, so take advice prior to moving jurisdictions.
  10. Time apportionment relief on return to the UK – if you decide to return to the UK, investment bonds are particularly attractive as time apportionment relief under UK tax rules state that only investment growth generated whilst resident in the UK is taxable.

Whilst the ideal time to review your finances is before you move, we can also help if you are already resident in Italy. Contact one of our advisers (free of charge and without obligation) for an introductory discussion and an outline of how we can help.

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