Italy Lures British Pensioners with New 7% Tax Incentive

British pensioners seeking a more affordable and enjoyable retirement may find an attractive opportunity in southern Italy. The Italian government has introduced a 7% flat tax on foreign pensions for retirees relocating to specific smaller towns and villages. This initiative, designed to revitalize rural areas, offers significant tax savings for those willing to embrace a new life in Italy’s picturesque countryside.

Under the scheme, eligible pensioners can benefit from lower taxes on their overseas income for up to 10 years. To qualify, retirees must move to municipalities with populations under 20,000 in southern regions, including Sicily, Calabria, Sardinia, Campania, Basilicata, Abruzzo, Molise, and Apulia. Additionally, certain areas in central Italy, such as Abruzzo, Marche, Umbria, and Lazio, are also included in this incentive.

The 7% tax scheme was initially established by the Italian Budget Law in 2019 as a five-year program, but it has recently been extended to a decade. This offer is available to both Italian and foreign nationals, provided they have not been tax residents in Italy for the past five years and are receiving a foreign pension. The scheme allows foreign-source income, including pensions, to be taxed at a flat rate of only 7%, significantly lower than Italy’s usual progressive tax rates, which can reach up to 43% for higher incomes.

The primary goal of this tax initiative is to counteract population decline in rural towns by encouraging new residents and stimulating local economies. Pensioners opting into the program must pay the flat tax annually in a single installment, which covers most types of foreign income. However, it’s essential for participants to understand that this regime does not reduce taxes owed in their home countries, and they should consider the implications of double taxation treaties.

Originally, the flat tax was set at €100,000 (approximately £87,000) per year. Starting in 2025, new regulations will double this amount to €200,000 (around £174,000) for new applicants. Those who began paying the flat tax in 2024 will be allowed to continue at the previous rate of €100,000 until their tax agreement concludes.

This initiative represents a significant opportunity for British pensioners looking for a change in lifestyle, promising not only financial benefits but also the chance to immerse themselves in Italy’s rich culture and scenic landscapes. As interest in relocation continues to grow, southern Italy is poised to become a popular destination for those seeking an affordable and fulfilling retirement experience.