This article gives a brief outline of various taxation laws in Gibraltar and is not meant to replace detailed professional advice which should be sought by all interested parties.

General

Gibraltar has suffered historically from a shortage of commercial and residential accommodation and from the space on which to build it. Successive governments have sought to alleviate this problem by carrying out extensive land reclamation projects, by building subsidised accommodation and by the provision of substantial tax breaks as a means of encouraging private sector development.

Gibraltar is unusually attractive for real estate investment because the physical limitations of the territory mean that demand for accommodation generally exceeds supply. Even during recessionary periods, local property prices tend to hold up better than in larger markets such as Spain and the United Kingdom.  So far, the current economic turndown has had only a limited effect on the local property market.

The general fiscal background is also attractive. There is no capital gains tax, no Value Added Tax, no Wealth Tax and no Inheritance or Capital Transfer tax.

Fiscal Incentives for Property Developers

A developer can apply for the granting of a license under the Development Aid Act in respect of a real estate development in Gibraltar. If the application is successful and a licence is granted then a portion (in percentage terms) of the total qualifying capital expenditure on the development will be available for tax relief. The portion which is approved for tax relief will reflect the economic and social benefits that the authorities (Development Aid Advisory Committee) believe the project will bring to Gibraltar.

The licence exempts the developer from Corporation Tax (2009/10 – 22%) in respect of any gains or profits from the development until aggregate gains less losses first exceed the approved portion of capital expenditure on the project. The profits of the development may also be distributed to the beneficial owners free of any taxes up to the amount granted under the licence.

Interest received on loans made to any person for the purposes of a development project which has obtained a Development Aid licence is also exempt from Income Tax, provided the terms and conditions of the loan have been approved by the Financial and Development Secretary.

Finally, occupiers of property relating to a project which has been granted a Development Aid licence are automatically entitled to rates relief on their property. In the case of commercial premises relief is granted on a sliding scale basis over five years starting at 100% in the first year and ending at 10% in the fifth year. In the case of residential premises the relief is granted on a sliding scale basis over ten years.

Fiscal Incentives for Home-ownership

Tax incentives are available for owner-occupiers and for individuals wishing to purchase or build accommodation in Gibraltar for their children.

Mortgage interest relief

Any interest paid by a person, or his wife living with him, on loans applied to the construction, purchase or improvement of a property which they occupy, or will occupy, for residential purposes, is deductible from the assessable income of that person or of his wife or both in the proportion of 50% each. This allowance is subject to various anti-avoidance provisions and, in particular, is only available on Gibraltar residential property.

In a similar manner any interest paid by a person or his wife living with him on loans applied to the construction, purchase or improvement of a Gibraltar residential property for occupation by a child of theirs or his or hers shall be deducted from the assessable income of that person or his wife or both in the proportion of 50% each.

Interest relief is available on a similar basis on loans to construct or purchase a garage or parking bay.

In the past mortgage interest relief has not been capped.  However, in the case of loans taken out after 1 July 2008 the tax allowance only applies to interest on the first £300,000.  Earlier loans of over £300,000 will be grandfathered with the amount over the limit which is allowable being reduced by 1/10th per annum.

First Time Buyers

An individual who is ordinarily resident in Gibraltar, or his wife living with him, who purchases or constructs a dwelling in Gibraltar for his or their residential occupation is entitled to claim a tax deduction of up to £11,500. This deduction can be claimed against the assessable income of the individual or his wife or both in the proportion of 50% each. It can be claimed only once by the individual and can be spread over several years of assessment. However it is available only in respect of payments made (including loan interest and loan repayments) towards the purchase or construction of the dwelling. Therefore, the amount which can be claimed in any year of assessment cannot exceed the aggregate amount paid in that year.

A further similar and additional deduction of up to £4,000 is available, but can only be claimed at the rate of up to £1,000 per year of assessment.

Therefore a first time homebuyer can benefit from tax deductions of up to £15,500 in addition to mortgage interest relief.

Furthermore an individual, or his wife who purchase or construct a dwelling in Gibraltar for residential occupation by a child of theirs or his or hers are entitled to a tax deduction of up to £11,500. This deduction can also be claimed against the assessable income of the individual or his wife or both in the proportion of 50% each.

Endowment policies

An individual who has made assurance on his life, or the life of his spouse, with an assurance company, is entitled to claim a deduction from his assessable income of the amount of the premium payable in the year of assessment.  However, the deduction cannot exceed 1/7th of assessable income or 7% of the capital sum assured at death.  Further, in the case of policies commencing after 3 June 2008 the allowance is limited to basic rate tax of 17%.

Fiscal incentives for Buy-to-let investments

Rental income accruing in Gibraltar is subject to tax in Gibraltar. Capital gains are not. It is normal, and usually advisable, to hold each property through a separate company. There are a number of reasons for doing this. If a property generates a loss in one year (typically because repair costs exceed rental income) the loss can be carried forward for offset against future profits if the property is owned through a company, but not if it is held personally. Though capital gains are not taxable in Gibraltar, if an individual buys and sells several properties he could be deemed to be trading in property and the gains would then be treated as taxable profits.

Currently (2009/10) companies pay Corporation Tax on their profits at the rate of 22%.  The Government has announced that a new Corporation Tax regime will be implemented on 1 January 2011.  Under this regime the Corporation Tax rate will be 10% for most business sectors.

Companies can deduct from rental income all expenses that relate to that income, including repairs and maintenance, service charges, insurance, mortgage interest etc. Any profits distributed by way of dividend are not subject to further taxation in Gibraltar if the shareholders are resident overseas. If the shareholders are Gibraltar resident then they will be subject to income tax on the dividend, but they will receive a tax credit in respect of the Corporation Tax suffered by the company on the profits which have been distributed by way of that dividend.

Income Tax Concessions which increase demand for Gibraltar residential property

High net worth individuals who wish to become tax resident in Gibraltar can apply for ‘Category 2’ status which restricts their Gibraltar tax liability to between £20,000 and £26,000 per annum. One condition which an applicant must meet in order to obtain this status is to have available for his exclusive use appropriate accommodation in Gibraltar. The accommodation which is considered appropriate is limited to that available in various up-market developments. The applicant has the option of either buying or renting the property under the ‘Category 2’ rules.

Senior executives earning over £100,000 and who wish to relocate to Gibraltar can apply for a “High Executive Possessing Specialist Skills” certificate. An individual holding such a certificate is chargeable to tax on the first £100,000 of assessable income only. However, amongst other things, a certificate holder must have available for his exclusive use appropriate accommodation in Gibraltar. As with ‘Category 2’ certificate-holders, the individual can buy or rent, but only in certain property developments.

There are other special categories (Categories 3 and 4) which require the holders to have suitable Gibraltar accommodation. However, these categories are being phased out and are no longer available for new entrants.

Other taxes and charges on property

Stamp duty

Stamp duty is payable on conveyances and transfers of property at the following rates:-

Value of property                            Duty payable
 
Up to £160,000                                  nil
£160,001 - £250,000                         1.26%
£250,001 - £350,000                         1.6%
Over £350,000                                  2.5%

Rates

General and salt water rates are payable in respect of all properties and are based on the assessed net annual value of the property. Currently general rates are charged at 60% of net annual value and salt water rates at 2%. Rates are payable in quarterly instalments and a 10% discount applies if they are paid by the due date.

Ground rent

Most property in Gibraltar is held on leasehold (generally long leases are issued for 100 or 150 years) with the freehold retained by the Government. Therefore most properties are subject to the payment of ground rent, the level of which varies from one building to another.