Additional taxation on the grantors of surface rights on agricultural land has been introduced as of 1 January 2024

This publication is part of the Ashurst Milan Budget Law Series. Please be in touch with our Italian Tax Team if you would like to receive the whole collection.

Article 1, paragraph 92, of the Italian Budget Law for 2024 introduced a new income tax charge on the establishment of Right in Rems (i.e. usufruct, use, habitation, perpetual lease and surface right, together the Rights in Rem) by individuals (i.e. natural persons not acting as entrepreneurs) on agricultural land.

Such amendment may have an impact on the negotiation of surface rights over agricultural land, which is very common in the renewable energy industry.

By amending Article 67 of the Italian tax code, as of 1 January 2024 the grantor of a Right in Rem (including the surface right) is taxed for the purposes of Italian income tax on the consideration received from the beneficiary of such Right in Rem.

As a result of this amendment, the consideration provided for the establishment of a surface right on agricultural land may be fully taxed at the grantor's marginal tax rate ranging between 23% and 43%, plus municipal and regional surtaxes.

Before such amendment, the grantor of a Right in Rem was subject to taxation only on the rights created over agricultural land owned for less than 5 years. In other words, no income taxation was generally applicable on the consideration received by the landlord for the establishment of such rights as long as such landlord held the land for more than 5 years at the date of the establishment. Such exclusion from taxation has now been repealed with the consequence that income taxes always apply on any such remuneration.

As no grandfathering is currently contemplated, this amendment may even apply to those landlords who enter into a framework agreement in 2023 for the establishment of the right in 2024.

On other side, no changes have been introduced with reference to the taxation of the beneficiary.

It is also worth mentioning that this new provision introduces a different tax treatment for agricultural land between:

• the sale of the property right, which remains taxable only of occurring within the 5-year term from the purchase; and
• the establishment of Rights in Rem, including the surface right, which may become taxable even after such initial 5-year period because of the amendments introduced with the Italian Budget Law for 2024.