Multi-year treasury bonds (BTPs) are among the most popular investment instruments for those who want a stable and secure return.
As with any financial instrument, it is important to understand the tax treatment of capital gains from their purchase and sale.
The taxation of BTPs can be a crucial aspect in determining the attractiveness of the investment and the overall impact on returns.
The taxation of capital gains on BTPs in Italy is governed by a preferential tax regime compared to other financial instruments with areduced rate of 12.5 percent.
This makes BTPs an attractive option for investors seeking a safe and tax-advantaged form of investment.
It is of primary importance to know the rules governing both capital gains and any capital losses, as well as the applicable tax regimes (administered or managed savings) in order to better manage your portfolio and optimize your tax burden. Below we will examine in detail the tax regime for capital gains on BTPs, providing clear information on how the applicable taxes work and what considerations to keep in mind.
1. What is a BTP and what is meant by capital gain
Before delving into taxation, it is useful to give a brief summary of what BTPs are and what is meant by “capital gain” in this context.
BTPs are long-term bonds issued by the Italian Treasury with maturities ranging from 3 to 50 years.
Investors who purchase a BTP receive a fixed coupon paid at regular intervals (usually semiannually) and, at maturity, the principal invested is returned.
Capital gain is the gain an investor realizes by selling a BTP at a higher price than the purchase price.
For example, if an investor buys a BTP at 95 (i.e., pays 950 euros for a security that is worth a nominal 1,000 euros) and sells it at 100 the difference represents a realized capital gain on the sale.
2. The tax regime of government bonds: an overview
In Italy, the taxation of capital gains on financial instruments follows different rules depending on the nature of the investment and the person holding it.
BTPs, as government bonds, enjoy a lower tax regime than other financial instruments, such as stocks or corporate bonds. Reduced Tax Rate: The first element to take into account is that capital gains from the sale of government securities, including BTPs, are subject to a reduced tax rate of 12.5 percent.
This is an advantage over the ordinary taxation on capital gains from non-government financial instruments, which in Italy is 26 percent. This reduced rate is applied not only to Italian BTPs, but also to government securities issued by other countries on the so-called “white list,” i.e., which have a tax treaty with Italy to avoid double taxation and facilitate the exchange of tax information.
3. Taxation of coupons and capital gains: differences
It is important to distinguish between the taxation of coupons and capital gains, as they follow different rules. Taxation of Coupons: Coupons paid by BTPs, i.e., the periodic interest that the investor receives during the period of ownership of the security, are also taxed at the reduced rate of 12.5 percent.
This makes BTPs particularly attractive compared to other forms of bonds, which may have higher rates on interest. Capital Gains Taxation: Capital gains from the sale of the BTP before maturity are, as mentioned, subject to the 12.5 percent taxation.
If the BTP is held to maturity, no capital gains are generated, since the principal returned is equal to the face value of the bond.
4. The capital gain calculation method
To calculate the capital gain realized on the sale of a BTP, the basic formula is used: Capital Gain = Sale Price – Purchase Price Notwithstanding, the purchase price can be adjusted by taking into account any buying and selling commissions, which reduce the taxable capital gain. Practical example:
- Purchase of a BTP at 950 euros.
- Sale of the same BTP at 1,000 euros.
- The capital gain will be 50 euros.
The rate of 12.5% will be applied to this 50 euros, so the tax to be paid will be: Tax = 50 * 12.5% = 6.25 euros. In this example, the investor earned a net gain of 43.75 euros (50 euros capital gain – 6.25 euros tax).
5. Taxation of capital losses
Capital losses, that is, losses from selling a BTP at a lower price than the purchase price, can be used to offset capital gains realized on other financial instruments. This offsetting mechanism allows the tax due on capital gains to be reduced. Capital losses can be offset within the fourth year following their realization. For example, if an investor realizes a capital loss in 2024, he or she can use it to offset any capital gains until 2028.
6. Taxation for private investors and IRES individuals
The tax regime just described applies to private investors. For companies and entities subject to Corporate Income Tax (IRES), the rules may vary. In these cases, capital gains and interest from BTPs are subject to different taxation, which depends on the specific corporate income tax provisions. We advise you in this case to contact your tax advisor in order to analyze your company’s situation and understand which tax bracket may apply in your specific case.
7. The regime of administered savings and managed savings
Investors who purchase BTPs can choose between two tax regimes: the administered savings regime and the managed savings regime. Administered Savings: In this regime, the withholding agent is the financial intermediary (bank, SIM, or other entity that manages the investment), which is responsible for calculating and paying taxes on capital gains and investment income.
This regime is simple for the investor to manage, as it does not require capital gains to be declared in the tax return. Managed Savings: In this regime, the investor delegates the management of his or her assets to a professional manager (e.g., an investment fund).
Capital gains realized within the fund are subject to taxation, and the tax is taken directly from the manager.
Again, the investor does not have to include the capital gains in his or her tax return, but pays tax as the gains are realized.
