In Brief (TL;DR)
Purchasing a property and taking out a mortgage involve different taxes: find out in this guide what they are, how to calculate them, and how to tell them apart.
In this guide, we clarify the registration, mortgage, and cadastral taxes, distinguishing between those related to the purchase and those for the loan.
We analyze in detail the differences between the registration, mortgage, and cadastral taxes for the deed of sale and the substitute tax for the mortgage agreement.
The devil is in the details. 👇 Keep reading to discover the critical steps and practical tips to avoid mistakes.
Buying a home is a fundamental step, a project that combines the Italian tradition of “il mattone” (brick and mortar) as a safe-haven asset with the complex financial dynamics of the modern market. However, before you can toast with keys in hand, it’s essential to understand a crucial aspect: taxes. The path to homeownership is marked by two key moments, each with its own tax implications: the deed of sale, or *rogito*, and the potential mortgage agreement. Ignoring or underestimating these costs can turn a dream into an obstacle course. This guide offers a clear and comprehensive overview to confidently navigate the Italian tax system related to real estate transactions.
It’s important to distinguish between the two tax paths right from the start. The deed of sale transfers the property’s ownership from the seller to the buyer and involves paying taxes such as registration tax, mortgage tax, and cadastral tax (or VAT). In parallel, the mortgage agreement is a separate contract with the bank that finances the purchase and is subject to a specific tax, the substitute tax (*imposta sostitutiva*). Knowing the differences and how they are calculated is the first step to strategically planning your investment, avoiding surprises, and optimizing expenses. An informed journey is the foundation for a smooth and conscious purchase.
Deed of Sale: Taxes on the Purchase
The moment of the notarial deed of sale (*rogito*) is the heart of the real estate transaction. The taxes to be paid at this stage vary based on two main factors: the type of seller (a private individual or a company) and the property’s intended use (primary or secondary residence). This distinction is crucial because it determines whether the sale will be subject to registration tax or VAT, a fork in the road that radically changes the amount of taxes and the base on which they are calculated. Approaching this step with the right preparation allows you to define an accurate budget and take advantage of any available tax breaks.
Buying from a Private Individual or a VAT-Exempt Company
When you buy a property from a private seller or a company selling under a VAT-exempt regime, the taxation is based on the “price-value” (*prezzo-valore*) principle. This advantageous system allows taxes to be calculated not on the agreed market price, but on the property’s cadastral value, which is generally lower. The taxes due are mainly the registration tax, mortgage tax, and cadastral tax. For those buying with the ‘primary residence’ tax benefits, the registration tax is reduced to 2% of the cadastral value, while the mortgage and cadastral taxes are a fixed fee of €50 each. For second homes, however, the registration tax rises to 9%, with the other two remaining fixed at €50.
Buying from a Construction Company with VAT
If the purchase is from a construction company within 5 years of the completion of work, or even later if the company opts to subject the sale to VAT, the tax regime changes completely. In this scenario, the registration tax is replaced by the Value Added Tax (VAT), calculated directly on the sale price. The VAT rate is 4% for a primary residence and 10% for a secondary one. For luxury properties (cadastral categories A/1, A/8, A/9), the rate increases to 22%. In addition to VAT, the registration, mortgage, and cadastral taxes become fixed fees, amounting to €200 each. The choice to buy from a developer, therefore, requires a careful cost assessment, as the tax base is the real price and not the more lenient cadastral value.
The Mortgage Agreement and Its Specific Taxation
In addition to the taxes on the property purchase, those who use a bank loan must consider the taxation related to the mortgage agreement. This contract, signed between the borrower and the bank, is a legal act separate from the deed of sale and has its own specific and simplified tax treatment. The main tax involved at this stage is the substitute tax (*imposta sostitutiva*), a levy that, as its name suggests, replaces a set of other taxes that would otherwise be due, such as registration, stamp, mortgage, and cadastral taxes on the loan. Its application makes the process leaner and more predictable from a tax perspective.
What is the Substitute Tax on a Mortgage
The substitute tax (*imposta sostitutiva*) is a tax levy applied directly by the bank on the amount of the mortgage disbursed. Its rate varies depending on the purpose of the loan. For mortgages intended for the purchase, construction, or renovation of a “primary residence,” the rate is a reduced 0.25% of the financed amount. If, however, the mortgage is for the purchase of a “second home” or for other purposes not related to the main residence (such as liquidity), the rate rises to 2%. For example, on a €150,000 mortgage for a primary residence, the tax will be €375 (0.25%), while for a second home it would amount to €3,000 (2%). The bank itself pays this tax on behalf of the client, withholding the sum at the time of disbursement. To learn more about the calculation and payment methods, it’s useful to consult a guide to calculating and paying the substitute tax.
A Practical Example to Clarify Things
To better understand the impact of taxes, let’s imagine a young couple, Marco and Giulia, buying their first home from a private individual. The sale price is €250,000, but the property’s cadastral value is €150,000. To finance the transaction, they apply for a €200,000 mortgage. Let’s see how the taxes are calculated.
For the deed of sale, the “price-value” system applies. The tax base is the cadastral value (€150,000). The registration tax will be 2% of €150,000, which is €3,000. To this, we add €50 for mortgage tax and €50 for cadastral tax, for a total of €3,100. For the mortgage agreement, the substitute tax is calculated on the financed amount (€200,000). Since it’s a primary residence, the rate is 0.25%, for a total of €500. Adding the two amounts, the total tax burden for Marco and Giulia will be €3,600, a well-defined figure they can plan for in their budget.
Beyond Taxes: Other Expenses to Consider
The budget for buying a home doesn’t end with taxes. It’s crucial to consider a series of ancillary costs that accompany both the sale and the mortgage. Among the main expenses are the notary’s fee, required for drafting both legal documents. If a real estate agency is used, the real estate agent’s commission must be factored in. Additionally, the bank will charge loan application and appraisal fees, which are necessary to evaluate the loan request and the property’s value. Finally, it is mandatory to take out an insurance policy against fire and explosion to protect the mortgaged property. Knowing all the deductible ancillary expenses helps build a complete and realistic financial plan.
Conclusions
The purchase of a property and the signing of a mortgage are two distinct acts, each with its own tax regime that deserves attention. Understanding the difference between the taxation on the deed of sale (registration tax or VAT) and that on the mortgage agreement (substitute tax) is the first step toward effective financial management. The choice between a private seller and a construction company, as well as the “primary residence” status, are variables that can significantly alter the tax burden. Being informed not only allows you to accurately calculate costs but also to take advantage of available benefits, turning a complex operation into a conscious investment. Carefully planning every tax detail means laying a solid foundation for your housing future, combining the tradition of homeownership with the innovation of smart financial management.
Frequently Asked Questions
When you buy a home, the main taxes vary depending on whether you buy from a private individual or a construction company. If you buy from a private individual, you pay registration tax (proportional to the cadastral value), and fixed-rate mortgage and cadastral taxes. If you buy from a construction company (within 5 years of work completion), you pay VAT on the sale price, while the registration, mortgage, and cadastral taxes are fixed fees. If the purchase is financed with a mortgage, a substitute tax on the loan amount is also added.
Significant tax breaks are available for the purchase of a “primary residence.” If you buy from a private individual, the registration tax is reduced to 2% of the cadastral value, while the mortgage and cadastral taxes are fixed at €50 each. If you buy from a construction company, a reduced VAT of 4% is applied to the sale price, and the registration, mortgage, and cadastral taxes amount to €200 each. In both cases, the registration tax cannot be less than €1,000.
Yes, the mortgage agreement for a home purchase is also subject to taxation. A “substitute tax” (*imposta sostitutiva*) is applied, which consolidates and replaces several other taxes like registration, stamp, and mortgage taxes on the loan. For mortgages intended for the purchase of a “primary residence,” the rate for this tax is reduced to 0.25% of the financed amount. For a second home or other purposes, the rate generally rises to 2%.
Yes, the difference is substantial and concerns the type of main tax applied. When buying from a private individual, the transaction is subject to registration tax, calculated on the property’s cadastral value. When buying from a construction company (with the sale subject to VAT), you pay VAT calculated on the actual sale price. This also leads to a variation in the fixed taxes: for a purchase from a private individual, they are €50 each (mortgage and cadastral), while with VAT from a developer, they increase to €200 each.
The taxes related to the deed of sale (registration, mortgage, and cadastral) are paid to the notary at the time of signing the deed. The notary, acting as a tax withholding agent, will then remit the funds to the Italian Revenue Agency (*Agenzia delle Entrate*). As for the substitute tax on the mortgage, this is generally withheld directly by the bank when the loan is disbursed. The bank also acts as a tax withholding agent, paying the amount on behalf of the client.
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