The Five-Year Rule

Selling a house in Italy without paying tax on the gain: how the five years are counted, and who they are not enough for.

Sell a house in Italy after owning it for more than five years and you pay no tax on the gain. None, whatever the profit, and with no difference between residents and non-residents [1].



That is Article 67, paragraph 1, letter b) of the Italian Income Tax Code (TUIR), which taxes the sale of a property only if it was bought or built no more than five years earlier. A house bought in 2020 for €300,000 and sold in 2026 for €450,000: the €150,000 difference stays whole in the seller's hands, at least as far as the Italian tax authorities are concerned.

You count from deed to deed. Purchase deed of 15 June 2021: a sale on 15 June 2026 is still inside the five years and is taxed; a sale on 16 June 2026 is outside and exempt. The law says "no more than five years", so the day of the fifth anniversary still counts.

If the gain is taxable, you can ask the notary to apply the 26 per cent substitute tax instead of ordinary income tax (IRPEF): the notary withholds it at the deed and pays it over [3]. On the €150,000 in the example, with a sale on 15 June, that is €39,000.

The gain, moreover, is not simply the difference between the two prices. From the sale price you deduct the purchase price and the related costs: registration tax or VAT paid on the purchase, the notary's fee, the estate agent's commission, works documented by invoices [2]. Someone who replaced the roof and kept the invoices pays on a lower figure; someone who paid the builder in cash has nothing to deduct.

There are three exceptions. Building land is always taxed, even after fifty years of ownership [1]. Properties renovated with the Superbonus have a look-back period extended to ten years by the 2024 budget law, and for the first five years after the works are completed the costs subsidised at 110 per cent through an invoice discount or a credit transfer cannot even be deducted from the price [4]. And someone who buys and sells with a degree of regularity is no longer a private individual making an occasional gain: it is a business, with a different tax treatment altogether.

Two situations work the other way. A property received by inheritance is exempt from day one, and for a property received as a gift the five years run from the date the donor bought it [1].

So far, Italian law. A foreign seller, however, has a second tax authority to think about, and it sits at home. If they are not resident in Italy, their State of residence normally taxes gains wherever they arise, and the double taxation convention gives them at most a credit for the tax paid in Italy [5]. Here the Italian tax is zero, so the credit is zero.

The United Kingdom, for instance, taxes its residents on the sale of a house in Sardinia at up to 24 per cent. Germany, for properties not occupied by the owner, applies the ten-year holding period of section 23 of the Einkommensteuergesetz: sell after six years and you pay nothing in Italy and everything in Germany, at your own marginal rate [6].

For the non-resident, the Italian exemption only changes who receives the tax.

For someone who is tax resident in Italy, on the other hand, the taxation ends here. The house is in Italy and the seller is in Italy: the State of origin has no basis to tax, neither as the State where the property sits nor as the State of residence, and the €150,000 stays intact.

Two groups are the exception. US citizens, whom the United States taxes wherever they live. And Britons who return to the United Kingdom within five tax years of leaving: the temporary non-residence rule brings back into UK tax the gains made abroad on assets owned before departure [6].

The sequence we see in our office is almost always the same. A couple buys a villa in Sardinia in 2021 as a second home, decides to move in 2026 and has meanwhile realised they want a different house, bigger or closer to the sea. The natural idea is to sell the first and buy the second in the year of the move. It is the wrong order. In 2026 the couple is resident in Italy under Italian law, which looks at the greater part of the year and knows no split year [7]. But in all likelihood they are still resident in their State of origin too, where until March they kept the house, the bank accounts and the doctor. Only the conventions with Germany and Switzerland split the year at the date of the move; the others leave it whole [8]. Selling in 2027, the first full year of Italian residence, is worth the wait.

The mistake is not visible at the deed. The Italian notary, quite correctly, applies nothing: for Italy the sale is exempt and there is not even a line to fill in on the tax return. The price lands in a bank account, often still open in the State of origin. Banks report balances and credits through the automatic exchange of financial information, and tax administrations pass each other data on property and the income it produces [9].

The letter arrives two or three years later, when the money has already been spent on the new house.

The risk, for the resident, lies in whether the residence is real. Someone who sells in the right year but has not truly moved the centre of their life, and keeps spending five months a year in their country of origin, is exposed to a challenge from that State over the whole period. If the residence falls, the exemption falls with it, and the gain goes home together with the taxpayer.

Before you sign the preliminary contract for the sale, it is always worth checking three dates on a sheet of paper: the date of the purchase deed, the planned date of the sale deed, and the date on which residence was transferred to Italy. If no more than five years pass between the first two, you ask the notary for the 26 per cent. If the third falls in the same year as the second, you move the second.

Sources

[1] Article 67, paragraph 1, letter b), Presidential Decree no. 917 of 22 December 1986 (Italian Income Tax Code, TUIR): gains on the sale of property bought or built no more than five years earlier; exclusion of inherited property and of the main residence; building land always taxable; for gifted property the period runs from the donor's purchase.

[2] Article 68, paragraph 1, TUIR: the gain is the difference between the sale price and the purchase price or construction cost plus every other related cost.

[3] Article 1, paragraph 496, Law no. 266 of 23 December 2005: substitute tax on request to the notary, rate raised to 26 per cent by Article 1, paragraph 695, Law no. 160 of 27 December 2019.

[4] Article 67, paragraph 1, letter b-bis), and Article 68, paragraph 1, third and fourth sentences, TUIR, introduced by Article 1, paragraph 64, Law no. 213 of 30 December 2023 (properties renovated under the Superbonus, Article 119 Decree-Law 34/2020: ten-year period, limits on deductible costs).

[5] Article 23, paragraph 1, letter f), TUIR (Italian-source gains of non-residents); Article 13(1) and the article on the elimination of double taxation of the Italy-United Kingdom convention (Law no. 329 of 5 November 1990) and of the Italy-Germany convention (Law no. 459 of 24 November 1992).

[6] Foreign law, to be confirmed by local correspondents: Taxation of Chargeable Gains Act 1992 (United Kingdom), residential property rates and temporary non-residence rule; section 23 Einkommensteuergesetz (Germany), ten-year period; Internal Revenue Code (United States), taxation of citizens wherever resident.

[7] Article 2, paragraph 2, TUIR, as replaced by Article 1 of Legislative Decree no. 209 of 27 December 2023: residence for the greater part of the tax year, with no splitting of the year.

[8] Article 4(2) of the conventions cited (tie-breaker rules); Protocol to the Italy-Germany convention, point 3, and Article 4(4) of the Italy-Switzerland convention (Law no. 943 of 23 December 1978), on splitting the year of the move.

[9] Directive 2011/16/EU (DAC), Article 8, mandatory automatic exchange on income from immovable property, and Directive 2014/107/EU on financial accounts; OECD Common Reporting Standard for non-EU countries.

Agostino Galizia, chartered accountant and statutory auditor in Cagliari, Sardinia. Ordine dei Dottori Commercialisti ed Esperti Contabili di Cagliari (Cagliari Institute of Chartered Accountants) no. 1330/A; Registro dei Revisori Legali (Italian register of statutory auditors) no. 80487. Galizia & Pinna Associati S.r.l. STP.

If you want to check your own position, the firm offers a sale timing review and residence check: a two-page document, at a fee agreed before the engagement, that reconstructs the relevant dates, calculates the gain with the documented deductible costs, identifies the year in which the sale is exempt in Italy and cannot be recaptured in your State of origin, and lists the evidence to keep in case your residence is challenged.

This article is for information only and does not replace an assessment of your specific case.