Quadrupled property tax for owners of real estate in the United Kingdom residing in Italy after Brexit.

Discover with us how to comply with the tax requirements of the IVIE property tax.

What is IVIE?

All real estate located abroad owned by individuals residing in Italy, regardless of its intended use, is subject to the tax on the value of real estate abroad (IVIE): the property tax is due at a rate of 1,06% in proportion to the share of ownership. Those liable for the tax are the owners of buildings, building land, and land used for business purposes. The tax also applies in cases where the properties are held through a trust company, as well as in cases where such assets are registered in the name of legal entities (e.g., companies, foundations, or trusts) acting as intermediaries, while the actual availability of the properties is attributable to resident individuals.

The value of the property is that stated in the deed of purchase (in the case of a newly constructed property, reference is made to the cost of construction, while for properties acquired by inheritance or donation, the value is that stated in the declaration of succession or in the registered deed or in other deeds provided for by foreign laws with similar purposes).

How was IVIE calculated pre-Brexit?

Owners of leasehold or freehold properties located in the United Kingdom are required to pay IVIE. Before Brexit, the property tax base for properties located in the United Kingdom was calculated using a multiplier of Council Tax, the municipal tax on housing introduced by the Local Government Finance Act 199, i.e., an English tax for local services provided by the council where the property is located, which had no relation to the property’s asset value.

How is IVIE calculated post-Brexit?

The advent of Brexit changes the rules and, from the 2021 tax period, the United Kingdom’s exit from the European Union has resulted, among other effects, in precluding the use of the value taken as the basis for determining Council Tax for the purposes of calculating IVIE on properties located in the UK: this “cadastral” preclusion reopens the criterion of purchase cost (and, in its absence, the most probable market value). In essence, tax base for properties located in the United Kingdom, unlike properties located in EU Member States, must be determined on the basis of the purchase cost rather than the “cadastral value”.

From 1 January 2021, the tax base for properties located in the United Kingdom will be determined on the basis of the purchase value from the Land Registry or, if not reported as “Not Stated”, the calculation will be made using the market value certified by a property valuation.

How much has the tax increased?

Previously, for a one-bedroom flat in South Kensington worth approximately £1 million, you would pay £2,000 in IVIE in relation to its Council tax of £1,560. Today, you would pay £7,600 per year, approximately four times as much.

Tax obligations, value to be attributed to the property in section RW ‘Properties in the United Kingdom’

Another aspect to consider for UK real estate post-Brexit is the completion of section RW in income tax returns and, in particular, the value to be indicated in column 8 of line RW1 for the correct determination of the tax base.

As clarified, from the 2021 tax period onwards, for properties owned in the United Kingdom, the value used to determine Council tax can no longer be used for IVIE purposes, but the purchase cost criterion (and, in its absence, the market value) applies.

How is the market value of a property in England calculated?

Each year, for the calculation purposes, you will be required to declare a value to be attributed.

To obtain a value in line with the market, it is best to ask your trusted estate agent to provide you with an appraisal or market valuation, preferably certified by an RICS-certified valuer in the United Kingdom.

At Welcome Home, RICS certified agency, we are always ready to support our clients, helping them to comply with all tax regulations in the best possible way.

Contact us for a valuation of your property in London or simply to comply with property tax regulations.