Superbonus 110%

 

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 blog. 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 blog 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

 

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The Common Reporting Standard

 

I want to go over some old ground, which will 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.    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" If you would like to talk to me about this blog or anything else then you can drop me a line on gareth.horsfall@spectrum-ifa.com or call me on 3336492356        SIGN UP TO MY EZINE.  If you received my Ezine from family members, friends, or it was forwarded to you then feel free to sign up yourself.  Just click HERE

LEARN MORE ABOUT YOUR SPESE DEDUCIBILI FROM YOUR DETRAIBIL!

 

DO YOU KNOW YOUR SPESE DEDUCIBILI FROM YOUR DETRAIBILI? In one of my recent newsletter I explained the difference between imposte and tasse. In this newsletter I go one step further to help you understand your expenses and how they can reduce those imposte e tasse. Everything depends on whether your expenses are categorised as deducibile or detraibile.  So what is the difference?  Deductable (deducibile) expenses are simply those which reduce your overall taxable income (redditto complessivo) before tax is calculated on the final amount. Simply imagine that you have taxable of income €20,000 and an expense of €1000 which is deductable: your income is reduced to €19,000 before tax is calculated.  Detractable (detraibile) expenses on the other hand are those which reduce your tax bill, once calculated. A simple example in Italy would be the usual medical and pharmacy expenses. Most of these types of expenses do not benefit from a 100% detraction from your income, but might be mainly detractable at 19% of the cost. So, if you have an expense of €100 then you will only be able to detract €19 from your income tax bill.  If your income tax bill on that €20,000 income, in the example used above is €4,000, then you would be able to detract the €19 from the tax bill itself.     If you are interested in what expenses you can deduct or detract then Sole24Ore created a nice table which I included in a previous newsletter and which you can look at HERE.  As I said in my previous newsletter, this complicated system of detractions and deductions may come under review with the Mario Draghi government with a view to simplification of the overall system. As yet we are awaiting any details, but as soon as I know then I will pass it on.    There are a few points in this newsletter which may interest you and as always if you require further information or clarity on any of the topics aforementioned then please feel free to get in touch on gareth.horsfall@spectrum-ifa.com or text/call on +39 333 649 2356

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There is a new technocrat government in Italy!

 

I thought I would write about the colour yellow in this E-zine. 

I never knew how much I liked the colour yellow. It had never really come on my radar until Lazio moved into 'zona gialla' again on the 1st February. 

This lockdown has been quite challenging in many ways but it has really made me appreciate the small things which enrich our daily/weekly/monthly lives and break the daily monotony. For me, it's those meals out with family, friends and clients, those mid-week trips to the cinema to see a film that has been newly released or a special theatre trip because some performing artists are in town.  And I have to admit (I never thought I would ever write this) that I actually miss those kids parties when the parents lurk around at the back of the room talking and  the fathers sneak off to have a beer or a glass of wine (or 2).   Oh, and not forgetting those little trips, overseas or in Italy, that have been off the table now for sometime, but are the icing on the cake of life.  I long for the day when I can make, even short trips away, with the family and friends again. 

Anyway, enough of my Covid colour thinking.

Well, if you have missed it, there is a new technocrat government in Italy. This time under the supervision of Mario Draghi. For anyone who is unfamiliar with Mario Draghi, he is the last ex-President of the EU Central Bank, previous head of the Bank of Italy, previous economist for Goldman Sachs and has also worked at the World Bank.   If you are interested, he also has a house somewhere near Citta delle Pieve, Umbria.

What's interesting about this appointment is that he was the man who pretty much stopped the EU crisis  of 2012, merely by announcing that the 'Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough'.   With those words he stopped the attack on Spanish and Italian government debt, being launched at the time by the worlds financiers, and prevented a complete meltdown when Greece was also in fear of default. 

There is no doubt that 'Super Mario' (his other widely known name) is a very adept politician and economist who has the ability and knowledge to get Italy out of it's current predicament, as a result of Covid.   

It was Matteo Renzi who pulled out of the coalition which was keeping Giuseppe Conte in power and managing the Covid crisis, but Renzi being a 'supposed' pro-business politician didn't think that Conte had the ability to manage the €266 billion Recovery fund which is shortly arriving from the EU, and which will be used to help rebuild the economy.   I happen to agree (although I think Conte has done a good job of managing the pandemic in Italy) and also believe that Mario Draghi is probably the best person for the job. 

However, to what extent he will be prevented from doing so by the warring parties is anyone's guess.  He is a no nonsense economist/politican and has already made it clear that he wants to surround himself with capable people, and not politicans who are looking to advance themselves or their parties. 

I suspect he will get some new and interesting projects approved by Parliament, but like the technocrats before him (Letta and Monti), will eventually be stopped by the other political parties who will want to merely push their own agenda and take power. 

But, let's not take this step for granted because if Mario Draghi is given enough leash to enact some serious recovery plans, and real effects can be seen, then they may give him more leash than we might expect.   

My thinking is that alot of the burden will now be placed on his shoulders, and should he be able to magic the economic bunny out of the crumbling Italian economy top hat then the other political parties will quickly amass like children around a fresh birthday cake, to benefit from his good work and look to ultimately grasp power and take all the credit.

It's all to play for.  I shall be watching this one carefully. I think like most of us who have been living in Italy for quite some time, we really hope that something significant happens because we see so much potential for change. 

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DISCLAIMER The views expressed here are my own. They are not necessarily shared by The Spectrum IFA group or any other company named or implied. They are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. Neither should this be considered tax advice. If in doubt we always recommend that you consult a suitably qualified tax consultant. References to specific securities or companies are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities REGULATORY INFORMATION

Brexit - Important Financial News - Part 1

 

 

I normally like to start a new blog with a story or some kind of recent experience to try and provide context to what I am about to write. However, because of my lack of travels, I am lacking stories at the moment. In fact, I am now starting to believe that there is a government conspiracy to bore me to death, or they are in collaboration with Netflix to lobotomize me with endless series and films. Lockdown phase 2 is proving somewhat monotonous! 

So, with the fact that there isn't really much to tell you other than work related matters, then we might as well crack on, because the truth is that as a result of Brexit a number of financial things have changed. A lot of my clients are now non-EU citizens (i.e. Brits), and so a better understanding of Italian tax legislation is essential. We have done some extensive digging in this regard and our investigations have sprung up some unwelcome news for some. 

The information we found was buried so deep in Italian tax law text that it took us (in reality my colleague Andrew Lawford ended up discovering it through sheer determination and persistence) quite some time to dig it up. So make sure you read the whole E-zine as something might be relevant to you.

I should add that the financial services industry is still trying to work itself out and we should remember that there is no deal for financial services as part of the Brexit trade agreement. A lot of hope is being placed on a potential trade agreement being reached on financial services by the spring, as professed by Rishi Sunak, but I have my doubts.    

 

 

So, what are the concerns? 

Let's start with the one that got the most press leading up to Brexit. The automatic closure of UK bank accounts for EU residents. 

There is not much to say here, other than the main culprits seem to be Barclays, Lloyds, Nationwide, Royal Bank of Scotland and Halifax. To date, my experience with clients is that the closure letters are a bit of a scattergun approach. Not everyone I know with an account in these banks is being approached to close it. 

I am asked a lot about the possibility of using a UK address of a relative or friend and whether this would alert the bank to you living in the EU or not? The likelihood is that it will for 2 reasons. The first is that under the Common Reporting Standard (International sharing of tax and financial information) banks only need to 'suspect' that you are resident in another country. This might be determined from activity on your account, or other financial information that they may receive from foreign tax authorities. The second reason is that ultimately you should be asked to prove the address you provide. A simple check on the land registry can avert them to the fact that you are not the registered owner of the property. A standard requirement is to request a copy of a utility bill showing your name and address on it or some kind of official tax authority document. If you are unable to prove these, then the chances are that the banks will catch up with you sooner or later.

So, what are the alternatives? I have recommended Fineco as a good Italian bank alternative (for transparency purposes, I have been an account holder for approx 10 years) but I believe that more of you than ever are finding it easy to open and use Transferwise as a transitionary online solution. But it's NOT a bank, so beware! There are online banks as well, such as N26 and the online offshoots of the regular Italian banks. There are certainly lots of options available although finding a non-UK alternative that will allow UK direct debit payments is pretty much impossible.

UK property ownership 

I have written previously about this and the increased wealth tax that will now be charged on UK property ownership for Italian residents. 

To recap, in a pre-Brexit world a UK property owned by an Italian resident would have had a wealth tax charged against it each year, in Italy. The value for calculating this charge was 0.76% of the council tax value of the property. This is considerably lower than the market value in most cases. However, now that the UK has left the EU the method for calculating that wealth tax changes. 

Properties that are located outside the EU are subject to the same charge, 0.76%, but in this case the valuation basis moves to the purchase/acquisition value of the property, where provable, and the market value otherwise. For most people I am finding that this is quite a difference, and for anyone who has bought in the last 10 years or so, this means a mostly, higher annual wealth tax charge. To date, I have only come across one person who retired to Italy and had retained the family property in the UK for many years, and could benefit from a very low purchase value for calculation purposes, hence a net tax benefit as a result of the tax change post Brexit. Most are going to find that their cost of holding UK property will increase as a result of the UK leaving the EU.

 

Tax break 

For anyone inclined to sell their UK property then we shouldn't forget that there is the possible 'sale-of-home' tax break as an Italian resident. If you have owned the home for more than 5 full tax years then Italy does not consider a property sale speculative (even a property located overseas) and so no capital gains tax is charged in Italy. You may have tax applied in the country in which the property is situated, in which case you would need to check the local tax laws. In the case of the UK, a property sale as a non-UK tax resident means capital gains tax would be charged on the property, but only from the date at which the legislation was introduced: 6th April 2015. What this means is that any gains made up to that point can effectively be written off, and the cost value for the purposes of calculating the capital gain would be the value as at the 6th April 2015 or later, depending on when you bought the property. A handy tax break for anyone who has held property in the UK for more than 5 years. 

 

 

UK IFAs

Now, we come onto the more technical points and an area which I see evolving over the coming year/years: UK IFAs (Independent Financial Advisers). 

Even when the UK was inside the EU it was not uncommon for me to come across people who had existing relationships with UK based IFAs who advised them on their finances, in the same way that I do for my clients living in Italy. But, even inside the EU most firms were not licensed to work with clients who were living in an EU state (it was easy enough to check on the Financial Conduct Authority website in the UK), and even in the few limited cases where they had the licence they did not have any experience of the Italian tax and financial system, so their advice was mainly useless and normally bad for the client. However, many continued to operate regardless, protected (loosely) by being a member of the EU. 

Fast forward to a post Brexit world and the fog has cleared. If you are working with a UK based IFA, and living in Italy, then you should not be receiving any advice from them. They will not have the necessary authorities or licences to operate in the EU, and as such, you as a client are not protected for any advice that they give you. This has been very clearly highlighted in a Banca D'Italia document which was released at the end of last year. 

If you do work with any UK based financial professional it would be in your interests to contact them and ask if they have an EU based entity to ensure they can continue to work with you. In much the same way as the banks are pulling out of the EU (the ones that have no intention to develop or maintain their existing EU business), IFA firms (small or large) should also be doing the same.  

I have to admit, that I have benefited from this because a number of UK firms with Italian resident clients have already contacted me about passing on their clients because they are no longer able to work with them. I expect this to continue as more firms understand their legal liability of working with clients in an un-licensed capacity.  

If you are in this situation please speak with the firm and/or send me a message and I can help you to look into it in more detail. 

Asset managers

This is a category, very similar to UK based IFAs. These are firms which generally manage sizeable portfolios for clients and have a direct relationship with the end client. To date there are mixed messages coming out of this sector. Some asset managers are aiming to pass EU based clients to EU based firms, like ourselves, others are clinging onto various legal loop holes to retain business. If you have a portfolio managed by a UK based asset manager directly, then the best you can do is to contact them and ask them what their post Brexit plans are. We expect that over time the EU will develop a more protectionist and hardline stance on working with non EU based firms.T his will ensure that they can more readily protect their EU residents and citizens and also win business from the UK. 

Where UK asset managers are used inside Italian tax compliant accounts, in the way that we mostly structure assets for our clients, then you do not have to worry as the provider of the account will be keeping abreast of legislation as it changes. 

***For all my clients, please be aware that we are on top of any changes in this regard and you do NOT need to contact your asset manager as a result of the content in this blog. If anything changes we will notify you as soon as we become aware. We also have contingency plans in place should any changes need to be made*** 

You can contact me in the usual ways on cell +39 333 649 2356 or on email gareth.horsfall@spectrum-ifa.com.

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Italian banks - should we be worried?

Italian banks - should we be worried?    In this month's blog, I promised I would take a slightly closer look at Italian banks and at what our risks are as deposit holders in banks, which, in all probability, are going to be a risk in the near future as the Italian economy slides further into contraction and a likely deflationary spiral.

Life post-lockdown in Rome

I thought a little update on life post-lockdown might be in order. 

Quitaly?

WARNING - READ ON AT YOUR OWN RISK 
 

What is your barometer for political talk? Where do you go to get informed?

Coronavirus...stay safe!

As I write, the financial markets are entering free fall due to the events surrounding coronavirus in the last few weeks, no more so than in Italy. 

HAPPY NEW YEAR 2020

This is the start of a new decade and it will surely bring fresh challenges for all of us, but there is much to look forward to as well.  

CUSTOMER SERVICE IS MAKING A COMEBACK AND IT'S GOOD FOR INVESTORS

I don't think a day goes by when I speak with someone living in Italy who cannot recount a story of just about the worst customer service they have experienced. 

An intro to the friend you didn't know you had...

Buon Anno...I hope you had a relaxing Christmas and New Year and are ready for the shenanigans of politics which await us in 2019. 

Tax Reporting or Tax Planning?

REPORT /rɪˈpɔːt/ verb gerund or present participle: reporting give a spoken or written account of something that one has observed, heard, done, or investigated.   PLANNING /ˈplanɪŋ/ noun the process of making plans for something.

TAX REPORTING OR TAX PLANNING WHAT SHOULD YOU DO?  I am often contacted online for help on calculating Italian tax liabilities for English speaking 'stranieri' living or thinking of living in Italy, but I have a confession to make:  I am NOT a commercialista.

PEOPLES' VOTE MARCH - LONDON 20TH OCTOBER 2018

I participated in the Peoples' Vote march in London on Saturday 20th October with other members of the British in Italy group. 

Italy goes BOOM!

For Italian politics it looks like it will be the continuation of an interesting battle with the EU, games with the world financial markets and internal cat fighting between the various factions. 

BREXIT It's not just Deal or NO deal

The urgency of the moment is certainly Brexit and we will see whether a deal can be reached with the EU this autumn.  

All this talk of a flat tax

The current political environment in Italy is one which I find very interesting, notably in how it is perceived in foreign media and presented to us through the usual media outlets.

Are taxes in Italy really 'that' complicated?

As I walk my son to school in the morning we have the opportunity to walk through the palazzo of an 'Archivio di Stato' in the centre of Rome. 

Hands off my pension!

Hands off my pension!   As promised, I thought I would follow up with my last Ezine on the complicated issue of trusts, with a less complicated issue of the tax treatment of pensions / retirement funds in Italy.

THE ELEPHANT IN THE ROOM

If you have been following the news recently you will have seen recent wobbles in global stock markets.  A wobble in the best sense because they fell, rose, fell again and seem to have stabilized for the moment.  The main issue driving this volatility is the threat of inflation.