As has been seen above, in order to determine the type of tax and the amount and means of payment of the sums due for duties on the purchase of a so-called primary residence, one must first of all take into account the nature of the vendor.
When the vendor is the company that built (or renovated) the property and four years have not elapsed since completion, the conveyance is subject to VAT that the purchaser must pay directly to the company and not to the notary, along with the payment of the sale price (whether paid – as rarely happens – in a lump sum at the time the property is handed over and the notarised purchase contract is signed, or paid – as is more common – in several instalments) and upon presentation of a proper invoice (or invoices in the case of multiple payments); for the purchase of a primary residence and related accessories, the VAT rate is 4% of the agreed price, as will be specified in the invoice (or invoices) and declared in the deed of conveyance before the notary.
So even if the main tax has to be paid by the purchaser to the vendor (who will then pay it into government revenue) along with the purchase price at the time ownership of the property actually changes hands, the purchaser also has to pay to the notary, besides his (hopefully!) legitimate fees for the work done and still to be done, a series of taxes and charges directly connected with the stipulation of the sale contract (e.g. stamp duty, mortgage and land registry fees, etc.) and which the notary must pass on to the State when he has completed all the tasks assigned to him in consequence of the real estate conveyance (filing of the contract, its transcription at the relevant Land Titles Office, its cadastral registration).
Where instead the vendor is not a building/renovation company but a private individual (this could be a business or company but one which is not in the building trade, or where four years have passed since completion of the building, it will in any case be the job of the notary, in agreement with the vendor's tax accountant, to verify which tax regime is applicable to the specific case), the purchaser pays the notary on settlement, when application is made for the benefits associated with a primary residence, a sum equivalent to 3% of the cadastral value of the property (and not of the sale price declared and agreed in the notarial deed): this is a result of the specific option to apply the so-called price-value for stamp duty purposes.
In addition, another amount is due for the payment of a number of other taxes and charges connected with the contract and the consequent transfer of ownership (mortgage and land registry taxes, etc., as mentioned above regarding the case of a transfer subject to VAT).
All these are sums that the notary collects in his unwelcome role as tax collector on behalf of the State coffers, to which they are passed on at the time all legally obligatory tasks have been completed.
Current regulations stipulate four requirements in order to benefit from tax relief on the purchase of a primary residence, i.e. the (alternative) application of a rate of 4% (for VAT) and 3% (for stamp duty) instead of 10% (in the case of stamp duty) or 10%-20% (depending on the case, where VAT is applicable).
The first, of a subjective nature, is that the property being bought is “not a luxury dwelling” according to the definitions specified in the ministerial tables that describe the characteristics of such a dwelling (on this point, the notary will be able to offer all necessary explanations).
The first objective prerequisite is to have one's official residence in the Municipality where the property is situated or to establish it there within 18 months of the purchase or to carry out one's activity (not only work: it may, for example, be study) in that Municipality.
If the purchaser is abroad for reasons of work, the property must be situated in the Municipality where the company he works for has its offices or plant, while for members of the Armed Forces and of the Police Force the above residency condition is not requested (for example, a police officer may buy a home with the primary residence benefits and keep his residency in a Municipality other than that in which the purchased property is located); where, instead, the purchaser is an Italian citizen resident abroad, the property may be located in any Municipality in Italy.
It is important to emphasize that a foreigner, too, may benefit from this concessionary fiscal regime for the purchase of a primary residence so long as the conveyance complies with the requirements described for tax relief (in particular, obtaining residency in the Italian Municipality where the purchased property is located).
It should be noted that the primary residence benefits are not dependent on the fact that the home purchased is intended to be used as an individual's or a family's residence (a house may be purchased with such benefits and then be rented out); and this is because the law only requires residency within the Municipality and not necessarily in the dwelling purchased.
The second objective requirement is not to have sole or joint title with one's spouse to rights of ownership, usufruct, use or habitation of another dwelling within the territory of the Municipality where the purchased property is located.
The third is not to have, anywhere in Italy, title, or even a share in title (i.e. co-ownership of a property purchased with the primary residence benefits) or legal title by way of a common property arrangement with one's spouse, to rights of ownership or bare ownership, usufruct, use or habitation with regard to another domestic property purchased, even by one's spouse, taking advantage of the tax relief on primary residences.
The concessionary fiscal regime for primary residences extends, besides the purchase of the home, to specifically related accessories, to the extent of one of each type: the present rules allow the purchase, together with the dwelling and in the same or separate contracts, one only accessory from each of categories C/2, C/6, C/7 (cellar-storage room = C/2, garage = C/6 and a shed = C/7), on the price of which the purchaser will pay the reduced tax.
These rules apply too if the dwelling is still under construction or in the case of the purchase of a rural building converted to a residence; the rule does not however extend to dwellings not registered as such with the land titles office (e.g.: apartments registered as offices but in fact used as dwellings).
Once this tax benefit has been taken advantage of, it is not possible to resell the property purchased within five years of the date of settlement, on pain of payment of a sum equal to the difference between the tax paid and the tax that would have been paid for a “second home”, increased by a surcharge of 30% in addition to interest. Present rules, however, allow the resale of the “primary residence” without penalty if within one year of the date of sale the seller purchases another property in which to live.
In this hypothesis, furthermore, not only does one avoid the payment of the difference in tax and the penalty, but it is also possible to deduct from the amount due for stamp duty on the new purchase the amount of tax (stamp duty or value-added tax) already paid at the time of the first purchase (the classic “two birds with the one stone”!): this is, in technical terms, a so-called “tax credit”, for the method and range of application of which it is certainly a good idea to consult one's notary; by carefully evaluating the specific case, he will be able to suggest possible solutions and advise as to how to ensure the maximum savings provided for in the law.