(as published on the Gibraltar Chronicle)

Yes, it’s that time of year again. This time round it’s an election year, so there was an expectation that some appetising goodies would be on offer, and the Chief Minister duly obliged.

Personal taxation

After the groundbreaking changes announced in 2010, which impact mostly on companies, this year’s budget focused mainly on the personal taxpayer.  The decrease in tax rates for individuals, whilst perhaps more restrained than some expected, is still significant and is clearly part of a long-term strategy to reduce the personal tax burden and the gap with corporation tax.

The two alternative systems of taxation continue – with a choice between the more traditional allowances-based system and the gross income system. The Tax Office should apply whichever system is more beneficial to the taxpayer – but that depends on them having the right information.  So it’s worth checking which system works best for you, and making sure that the Tax Office applies it.  You can make the comparisons online on the Government of Gibraltar website and also download an application form if you wish to change.

Taxpayers using the allowances-based system will receive a new tax credit amounting to the higher of £300 or 2% of tax payable.  There were no changes made to tax rates, allowances or other tax relief. 

The gross income system has been simplified, and tax rates have been reduced.  The top rate has been reduced from 29% to 28%, and the lowest rate from 8% to 6%.  However, changes to the bandings used for different tax rates will result in an additional decrease in tax payable for many.  

The Government is clearly keen to move taxpayers from the allowances-based system to the gross income basis, with the Chief Minister anticipating that, after the changes, around 86% of all personal taxpayers will find it beneficial to be taxed on the gross income basis.

All taxpayers will pay tax at an effective rate of less than 25%, with the maximum effective rate of 24.99% being reached on income of £300k p.a.  Above this level the effective rate of tax progressively falls to 19% at the £1m level with any income above £1m taxed at 5%.

Social insurance

There is no change to social insurance contributions, although it was indicated that these would be increased next year.

Corporate tax

As expected, following the new 10% rate already in force from the start of this year, no changes were announced to corporate tax.

The Chief Minister acknowledged that certain areas of the new Income Tax Act are being reviewed, including entertaining and marketing expenses and the allocation of expenses between taxable and non-taxable income.  

With continued decreases in tax at all income levels, Gibraltar is certainly bucking the trend seen elsewhere in Europe. Whilst the business community waits to see how the new system will work in practice, the Government is eagerly awaiting the first payments on account by companies which are due by 31 August.  These are seen as a strong indication of future tax revenue, and of the sustainability of tax cuts implemented up to now – and possibly in the future.