Traditionally, there are only set, limited ways of dealing with property, under Italian law. Property rights and contracts are restricted by law to what is expressly regulated by and available under current legislation. Until recently, an Italian property could only basically be sold, let or inherited.
New forms of property contracts were introduced last year with the “Rent to buy” legislation (please refer to my recent article – read more). Recently, the Italian Parliament introduced further legislation providing for some more innovative ways of dealing with property, under Italian law. These are new opportunities for property owners or for prospective property buyers.
Italian property equity release (Prestito vitalizio fondiario) – New legislation was recently introduced to allow
for equity release on Italian properties where the registered owner(s) is / are 60 years of age or older. If the owner cannot or does not wish to sell his property, then he can apply to a bank and obtain a loan that is paid as equity release on his property.
The amount of the equity that can be released usually ranges between 15% and 50% of the value of the property, as certified by an independent expert. There is no requirement for the owner to pay this loan back in his lifetime, unless he sells, does not take proper care of, or otherwise disposes / grants any rights over his property to third parties.
Equity release is secured by a mortgage. When the owner dies, his heirs will have 12 months either to sell the property affected and repay the loan with interest and other charges, or otherwise allow the bank to sell the property affected, so that the sum due on the equity actually released can be fully repaid.
Equity release, Italian style (Prestito vitalizio ipotecario) is treated as a medium – long term loan, and as such is exempt from most Italian taxes applicable to a sale / disposal of Italian properties. A special tax (Imposta sostitutiva) is levied at the rate of 0.25% or 2%, on the amount advanced, depending on whether the property in question is the first home (Prima casa) or is just another residential property of the owner. As for all Italian property contracts, Equity release will require the assistance of an Italian notary.
At the time the equity release contract is agreed, the bank will enter a charge (Ipoteca) on the property and will issue two schedules (Prospetti ) to the owner, one showing the progressive increase of the sum due on repayment at current rates and another showing the amount of repayment due, if interest rates are raised by 3%.
Every year, the bank / finance company is also required, under the new regulations, to notify the owner of the amount of equity actually released / advanced, and the total sum due on repayment.
The advantage for property owners is that with Prestito Vitalizio Ipotecario repayment will not take place in their lifetime. The current owner does not have to worry about it. The problem is left to his heirs and beneficiaries who will have a chance of keeping the property, if they can repay the bank / finance company.
Equity release will probably replace convoluted and expensive arrangements, such as the creation of a life interest in their property (Usufrutto) and then the sale of the “remainder”, that is, what is left of the property (Nuda Proprieta`), to third parties, in order to achieve similar results.
Italian residential leasing (Leasing Abitativo). This is a new way to finance the acquisition of Italian property, if the buyer does not have all the necessary funds immediately, but wish to get possession and enjoy the property, while he saves towards its purchase.
Under recent legislation, a bank or a finance company can undertake to buy or to pay for the construction of a residential building on the request of an individual, the ultimate user (Utilizzatore). The bank then allows the ultimate user in possession, on payment of a monthly charge / rent, which is calculated considering the purchase / construction cost of the property and the term of the proposed arrangement.
The property must be used as the main residence (Residenza principale) of the ultimate user, who after a few years (normally between 12 and 15 years) of charges / rental payments, will acquire an option to buy the property at an agreed, pre-set sale price (Riscatto).
This is advantageous to the prospective buyer, where the funds necessary to pay for the price, taxes and notarial fees and charges are not immediately available. The prospective buyer will get immediate possession of the property, against payment of periodical charges / enhanced rent and an option to buy it at an agreed price (Riscatto) in future.
No assistance from a local notary is required in the initial stages of the contract, and this will save additional costs, at least initially. A notary will only be required when the option to buy is actioned, that is, when the “Riscatto ” is paid and the legal title is actually transferred to the ultimate user, who becomes the new property owner.
The ultimate user is protected against the risk of insolvency of the bank, the finance company, the vendor or the builder of the property.
Special tax rebates are provided for young first time buyers. Where the user / buyer is less than 35 years of age, he / she will be entitled to deduct some of the charges / rental payment from any Italian income tax that may be due. Reduced deductions are provided for older buyers.
Where the property is to be used as “Prima casa ”, the reduced 2% rate of registration tax payable on acquisition of the property, is further reduced to 1.5%, while other associated taxes, payable on acquisition of Italian property, are also substantially reduced.
In exceptional circumstances, the periodical charges / rent can be suspended for a period of 12 months, without consequences / charges for the ultimate user / prospective owner. Special provisions apply where the user is unable to pay the agreed sale price (Riscatto). In this case the bank will be entitled to repossess the property and sell it to third parties. The bank however will be under a duty to account to the user for any credit balances remaining to his favour, after repayment of all charges has been effected out of the sale price.
It is not clear how this new legislation will be received and actually implemented in Italy. Further adjustments / legislation may be required. However new opportunities have now been created and are currently available to anyone who may be interested.
Dr Claudio Del Giudice – 07.09.2016 Copyrights reserved.