Luca moved to London over ten years ago. He built a career, bought a flat in Shoreditch, and only returned to Italy for holidays. Back in Rome, however, he still owned a small apartment that he had inherited from his father.
In 2024, Luca decided to sell it. The market was strong, and he wanted to free up funds for a new project in the UK. The sale went smoothly — notarial deed, funds transferred, Italian capital gains calculation checked. His Italian accountant confirmed there was no Italian tax due because the property had been inherited.
Luca thought that was the end of the story.
Then came the surprise.
The UK Tax angle
As a UK tax resident, Luca was required to report the gain in the UK — even if Italy did not tax it. Under UK rules, foreign property disposals are within the scope of Capital Gains Tax (CGT), unless the property qualifies for special relief (such as the private residence exemption).
His gain was calculated using the Euro-to-GBP exchange rates at acquisition and disposal. After deducting the annual CGT allowance (£3,000 in 2024/25) and applying the residential property rates (18% or 24% depending on his income), Luca faced a significant tax bill in the UK.
Lessons learned
Luca’s case illustrates a common misunderstanding:
- Inheritance rules differ – Italy may exempt an inherited property disposal, but the UK does not automatically follow.
- Currency conversions matter – fluctuations between Euro and GBP can increase or decrease the taxable gain.
- Reliefs are limited – Private Residence Relief cannot apply if the property was never your main UK residence.
- The treaty does not eliminate UK tax – it only prevents double taxation, and in Luca’s case, Italy taxed nothing.
The solution
With careful planning, Luca could have prepared better:
- Forecasting the UK tax before the sale.
- Considering timing (selling in a year with lower UK income).
- Using available allowances and structuring transfers efficiently.
At Vectigalis Tax, we guide clients through exactly these situations — ensuring that a sale in Italy does not create unexpected UK liabilities.
If you are a UK resident thinking of selling a property in Italy, don’t assume the Italian exemption is the end of the story. The UK will want to review the transaction.
Contact us at angelo@vectigalistax.co.uk to clarify your position before signing the deed.