Taxation of UK rental income for Italian citizen under 7% flat rate tax agreement

Hi, I own 2 rental properties in the UK and I am planning to retire to Italy under their 7% flat rate tax scheme which is described as follows 'In 2019, a new tax treatment for pensioners got introduced, adopting art. 24-ter in the Italian income tax code. Basically, a pensioner who has not been a resident of Italy in the 5 years prior to moving here can claim a flat 7% taxation on ALL of the foreign income sources, not just the foreign pension received. The 7% flat tax applies to all foreign income sources, including: Pension Income Interest Income Dividends Rental Income Royalties Capital Gains Severance Payments' As you can see it states that all international property income is taxed at a flat 7% in Italy. As there is a double taxation treaty with Italy should I still be paying 20% tax in the UK under self assessment ? Thanks

Hi
Thank you for your question.
Article 6 of the UK/Italy double taxation agreement advises that 'income derived by a resident of a Contracting State from immovable property situated in the other Contracting State may be taxed in that other state' ie income arising from Land and Property in the UK  is taxable in the UK.
The rate of tax you pay in the UK is determined solely by UK legislation.
will be given by the Italian authorities for UK tax deducted when you report your UK property income.

Thanks, sorry I'm not totally sure I understand your reply. Let's say I earn £10,000 in property income which is above my personal allowance in the UK (i.e. I have more than £13,000 of other income). If I pay 20% UK tax that would be £2000 in tax but Italy is saying I should only pay 7%, do I claim the rest back in Italy? Thanks

Hi, any news HMRC? I spoke to an Italian accountant but am none the wiser.

Hi
From an HMRC perspective, your UK property income would continue to be taxed at the appropriate marginal rate (in your case 20%).
For details of the tax relief available from the Italian tax authorities under the new '7% flat tax' regime ( a 'substitute tax', to which the normal Double Taxation relief rules may not apply), please contact the Agenzia delle Entrate (Italian Revenue Agency).

Hi Alex Lalvani,
As the 7% rate only applies if you are resident in Italy then yes you would claim any excess back from them.
Rental income is not covered by double taxation agreements so you will continue to pay tax on this income at the UK rates irrespect of what the rate is in Italy.
Thank you. 
 

Thanks so the Italian government is incorrectly promoting this as a tax on all worldwide income including rental property abroad.

The following is an excerpt from an article published by PwC Italy: The 7% flat tax applies to all non-Italian sourced income (i.e. not only non-Italian pensions but potentially all types of non-Italian sourced income) while all income realized in Italy are subject to ordinary individual taxation rules (including the application progressive rates up to 43%). No tax credit is available in the hands of the individual opting for the flat tax regime for any tax levied in the Country of source of the income. The pensioner can select specific foreign Countries to be excluded from the flat tax regime, and the income deriving therefrom is subject to Italian ordinary taxation, with the possibility to benefit from foreign tax credit. In summary, if you are resident in Italy for tax purposes and opt for the 7% flat tax on your UK rental income you will pay that 7% in addition to any tax that you are required to pay in the UK on the rental income, and you will not receive any offsetting tax credit in Italy. Therefore, you could pay 20% tax in the UK plus 7% flat tax in Italy. If you choose not to opt for the flat tax in Italy your UK rental income will be taxed at ordinary Italian tax rates but you will then be able to claim a foreign tax credit for the tax paid in the UK.

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