Italian Real Estate Investment Trusts and taxation: what is Real Estate Investment Trust?
Before analysing the Italian legal framework on Real Estate Investment Trusts and their taxation, it is worth defining what is a Real Estate Investment Trust, which subjects are involved and to what aims.
A Real Estate Investment Trust is an instrument allowing to keep and protect properties, since it is structured in separated sub-funds. This means that trust assets are autonomous and stay separated from Settlor's, Trustee's, and Beneficiary's properties. Indeed, they are protected from creditor claims, since they are non leviable assets.
Real Estate Investment Trust assets can be:
- Real properties of any kind;
- Company shares and stocks;
- Current accounts, deposits and investments in general;
- -Ships, airplanes, cars;
- Financial instruments (such as mutual fond shares);
- Works of art or diamonds.
Italian Real Estate Investment Trusts and taxation: indirect taxation
In matters of Real Estate Investment Trusts and taxation, it is worth noticing that in Italy, since the earmarked fund tax is always due, Real Estate Investment Trusts are subject to succession/gift and hypocadestral taxes.
More in detail, whenever a real estate located in Italy is given in trust, the following taxes are due:
- Mortgage and cadastral taxes;
In case only bare ownership is transferred, usufruct value and right of habitation tables (established in relation to the Settlor's age) will be applied.
- Succession/gift taxes, proportionate to and determined in relation to the family or kinship relationship between Settlor and Beneficiary;
In matters of succession/gift taxes, the Italian Court of Cassation (Tax and Civil Division), with Judgement no. 13626/2018, has established that – as in any other case of constitution of a earmarked fund – in case of an actual transfer of properties or rights by means of a Trust, the latter is subject to succession/gift taxes. According to the Italian Court of Cassation, then, any transfer of properties or rights is subject to an earmarked fund tax, since through said transfer (even though free of charge) the Trustee is potentially granted economic capacity.
Succession/gift tax should be paid by Beneficiaries according to the following provisions:
- Spouse and direct relatives (children-parents and in general ascending and descending relatives): 4% with deductible, up to an inheritance of 1,000,000.00€;
- Brothers and sisters: 6% with deductible of 1,000,000.00€;
- Relatives up to the fourth degree and lineal kin;
- Collateral kin up to the third degree: 6% without deductible;
- Other persons: 8% without deductible;
- Beneficiary with serious disability: the deductible amounts to 1,500,000.00€.
Registration fee (€ 200.00);
Italian Real Estate Investment Trusts and taxation: cases subject to taxation
With the Order no. 1131 of 17January 2019, the Italian Court of Cassation has established that pursuant to Art. 2645-ter of the Italian Civil Code not only deeds of real estate destination, but also Trust deeds have to be understood as deeds aimed at constituting an earmarked fund.
Moreover, the Court of Cassation has rejected the thesis of an immediate taxation of Trusts at the moment of separating properties and deeds. Recalling the Italian Constitution (Articles 53 and 23) the Court has highlighted that succession/gift taxes have to be put in connection with an adequate contributory capacity. Therefore, taxation has to be deferred until Trust properties are distributed to their Beneficiaries, so that the taxation prerequisite is fulfilled.
The same criterion is valid for mortgage and cadastral taxes.
Italian Real Estate Investment Trusts and taxation: IMU and TASI
The real estate upon trust is subject to taxation.
Real Estate Investment Trusts are often used to protect the Settlor's primary residence. Thus they are subject to IMU (Municipal Property Tax) and TASI (Indivisible Municipal Service Tax), according to the same rules applying to legal persons and non-commercial entities.
In Real Estate Investment Trusts the Settlor transfers his/her ownership or bare ownership rights on a real estate. This latter can be given in usufruct, leased or sold, according to the provisions in the Trust deed.
A real estate can be given in trust in the following ways:
- Transfer of ownership to the Trustee;
- Transfer of bare ownership to the Trustee, whereas the Settlor retains rights of usufruct;
- Transfer of bare ownership to the Trustee, whereas the Settlor retains rights of dwelling.
Article 13, paragraph 2, of the Italian Legislative Decree 201/11 establishes that the prerequisite for being subject to IMU is to be the owner of a real estate (including properties used for residential purposes and their related outbuildings). The article anyway does not provide specific guidance for real estates upon trust. Nevertheless, it is shared opinion that Trusts are subject to IMU.
As regards TASI, instead, the tax should be divided between owner and holder. In case the estate is used as a primary residence by the Settlor, then the latter qualifies for exemption relating to the tax portion attributable to him/her, while the Trust still remains subject to taxation relating to the portion attributable to it.
In case only bare ownership of the estate is given in trust, while the Settlor still has usufruct rights, the Settlor is subject to IMU and TASI. In case the estate is used as a primary residence by the Settlor, instead, the latter is not subject to taxation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.