Property Sale Tax: how to not pay the capital gain, the Italian “Plusvalenza”

From a fiscal point of view, the capital gain represents the gain that the owner gets by selling a property at a higher price than the purchase price. Our tax system provides for the taxation of the capital gains deriving when the properties are sold within five years from the purchase date. In this case, it is considered a speculative transaction, carried out for the sole purpose of enriching the property owner.

The subjects to whom the rule applies are the Individuals, the Non-commercial entities, and the Non-resident subjects. We often assist foreigners and non-residents with their property purchases and sales in Italy.

Regarding the Legislative framework, this can be found in the following laws and decrees:

  • Presidential Decree D.P.R.n. 917/86 (T.U.I.R.) – Articles 67 and 68 – regulating the capital gain on the sale of real estate properties.  
  • Law Decree D.L.n.223/2006: modifying the art. 67, paragraph 1, letter b) Decree no. 917/86, that extended the cases of capital gains also to property donations, previously excluded from taxation.

Assignments and Requirements

To be a taxable capital gain the requirements are as follows.

  1. The property must have been assigned for a sum of money, price, or compensation, that is to say by sale (compravendita), exchange (permuta), capital increase, or company contributions (conferimenti societari);  
  2. The sale must have taken place within five years from the time of purchase or construction;
  3. In the case of urban real estate units, haven’t been used as the principal residence of the transferor or his family members.

When the capital gain isn’t due?

The Regional Tax Court of Lazio with the decision n. 171/2019 determines regarding the issue of taxation of the capital gain deriving from the sale of a property and establishes, very interestingly, that in the sale of a property owned for less than 5 years with reservation of ownership, no taxable capital gains are realized, when the payment of the last installment and therefore the transfer of ownership takes place after five years.

In the aforementioned case, the case started with the verification by the Italian Revenue Agency (under art. 67 of Presidential Decree No. 917 of 1986) related to a different, undeclared income, equal to the capital gain realized from the sale of two properties co-owned by a married couple.

The plaintiffs submitted evidence that the buildings have been transferred with a deed containing retention of title with payment of the last installment over 5 years from the purchase of the same buildings, for which no taxable capital gain had been realized.

Having ascertained the sale with reserved domain whose transferring effect of the property differed from the payment of the last installment following five years of possession, the Provincial Tax Commission of Rome accepted the recourse.

Therefore, the financial office appealed against the sentence of the provincial judges asking for reform.

But still, the Regional Tax Commission of Lazio (the Appeal Court for this case) has confirmed the sentence of the provincial judges, noting that in the case of sale with reservation of ownership, the property is transferred at the time of payment of the last installment of the price and in this case happened after the 5 years time frame.

We remind that, in the past, the same Italian Revenue Agency with the resolution n. 28/E, of 30 January 2009, in the reply to interpello n. 904-16/2012 of 8 May 2012, confirmed that in the event of sale with retention of title, the translational effect of the property cannot be verified before the payment of the last installment, identifying the moment of starting from the 5 years required by article 67, paragraph 1, lett.  b), of the Consolidated Income Tax Law, for the taxation of any capital gains, realized, upon the occurrence of the translation effect, since the stipulation of the deed of sale is irrelevant for this purpose.

If you need tax assistance for your real estate buying or selling deals, or you want to buy a property in Sardinia, or elsewhere in Italy, contact us without obligation, we will assist you in making your investment possible, reducing the risks associated with an important and delicate operation like this, both with our legal and fiscal assistance.

If you still haven’t found the property you want to buy, contact us to get preliminary support!