Ever since the 2016 Brexit policy decision, the demand for a rental property in Gibraltar continues to grow. 2020 is proving that Brexit is not slowing up the demand for rental properties. Coupled with high demand from a young and fluid itinerant workforce, and limited supply, rentals equal an attractive income prospect.
Hence many property owners in Gibraltar decide to offer their property for rental rather than sale. Gibraltar Government encourages and incentivises property owners to become landlords with attractive tax benefits in the form of tax credits equal to the tax payable on profits from rentals during the first 24 months.
Tax Credits apply to newly constructed properties from 2016 provided they rent out for residential purposes. For older properties, owned or purchased for long term investment, any income accessible from the rental is subject to the usually taxed income, and a visit to the income tax office in Gibraltar is necessary.
In the absence of any capital gains tax, if the owner decides to sell the property, any income from the sale remains tax-free. Of course, it is essential to note that this applies to Gibraltar landlords, residing in Gibraltar. If you are a landlord living outside Gibraltar, your country of residency will be interested to know about any assessable profits taxed from rental properties.
Are property owners liable for income tax in Gibraltar?
All property owners receiving rental income from their Gibraltar property remain liable for income tax in Gibraltar. The procedure involves completing an S4 registration form and submitting this at the Income Tax Office. Gibraltar has special laws in cases of jointly owned property, then both owners must submit an annual tax return declaring their respective share of the profits from the rental using the useful income tax calculator.
The formula to work out how the tax office calculates rental profits is easier if you understand how the income tax calculator deducts expenses from rents received. If you have more than one property, you can add together the total sum and treat this as one to calculate profits (and losses).
It is crucial to realise that deductions need to reflect the actual money spent on the property rather than capital expenditure (buying and selling property). Hence money spent on paint, repairs, and maintenance, i.e. necessary spending to keep the property sound and free from defects.
Gibraltar’s Income Tax Act regulates every aspect of taxation for individuals and companies in Gibraltar and, similar to company tax regulations, taxation for landlords remains based on residency status.
One of the biggest draws for businesses in Gibraltar is the favourable tax regime. For example, zero Gibraltar capital gains tax, zero inheritance tax, and zero wealth tax. Add to this zero VAT, zero gift tax, zero withholding tax and zero tax on interest or gains earned on monetary investments.
When it comes to tax on income, this tax applies on income accrued or derived from Gibraltar.
When it comes to understanding Income tax in Gibraltar, rates vary according to the individual’s income. For example, an individual on a low salary will benefit from tax concessions; currently, the threshold is £11,450. The two tiers of income tax stand at gross income-based and an allowance based taxation system.
Gross income rates vary according to income ranging from 6% up to the first £10,000 to the maximum of 24.99% while the allowance based approach provides the individual with the option to claim allowances and deductions on items paid out, including mortgage interest relief, child allowances, medical insurance and pension tax relief.
Buy to let properties in Gibraltar
The buy to let in Gibraltar is a sure-fire method to get on the Gibraltar property market or expand your property investment portfolio. Regardless whether you take out a mortgage or fund your buy to let, tax advice and information remains crucial as all income from a rental property is subject to local Gibraltar tax.
If you live outside Gibraltar but rent out your property, you can class yourself as a non resident landlord. Taxable income from rentals for all landlords remains calculated according to the landlords “rental income application form.” If you are a landlord living outside Gibraltar, ensure you have a full understanding of how to calculate your potential taxed income from rentals bearing in mind that the tax year in Gibraltar ends on 30th June.
A great starting point is to visit the tax office in Gibraltar to complete the necessary paperwork. Once registered with the tax office every tax year (ending 30th November) landlords submit a tax return along with their income and expenditure report, including detailed bank statements. The same rules apply if you are an overseas landlord. Taxable income applies in Gibraltar, and you must ensure your home country is aware of this income as tax laws may apply to income earned abroad.
Due to the number of Gibraltar landlords owning property overseas, outside Gibraltar, one thing to note is that the Gibraltar tax regime does not tax overseas rentals. Residents of Gibraltar with overseas properties will escape Gibraltar taxation on profits and avoid any Capital Gains Tax from Gibraltar tax agents.
Again, when a property is outside Gibraltar, the tax regime of that country may look at the rental profits, inheritance tax and capital gains tax differently and expect to see a landlord self-assessment to comply with that particular country’s tax laws. But as far as Gibraltar residents owning properties overseas, say the UK, tax in Gibraltar will not apply to any income from those property rental incomes and, in the case of Gibraltar no requirement for a non resident landlord tax return.
In the case of a non resident landlord company, tax returns require submission to the Gibraltar tax office for assessment annually and no later than nine months following the end of the company’s accounting period. For example, if a company’s accounting timeframe ends on 31st May, you should submit the return no later than the end of February. Failure to comply with the Income Tax Act may well result in financial penalties.
Company landlords should ensure full understanding of the structure of the tax system in Gibraltar with regards to their estate. The rules are complex and receiving the services of sound tax advice in the privacy of a reputable tax advisor’s office will ensure landlords optimise their tax position fully, meet their legal obligations and gain crucial information.
How much is income tax in Gibraltar?
To summarise, when we get asked the question “how much is income tax in Gibraltar?” we explain that income tax varies according to circumstances. For individuals who wonder “how much income tax do you pay in Gibraltar?”, there is access to two systems of personal income tax rates, that of a “gross income” based system, and that of an “allowances” based system.
Available Tax concessions for low-income salaries, while corporate taxes apply to companies with operations in Gibraltar; for example, gambling companies in Gibraltar fall under the specialist “gaming tax.” Still, businesses benefit from zero VAT, the only European territory without such a tax on goods. Businesses also benefit from capital allowances for machinery, fixtures and fittings, computer equipment etc., all deductible on a reducing balance basis.
Therefore there is no one single answer to the question “what is income tax in Gibraltar?” It depends on the activities carried out, income bands, concessions, exemptions, deductibles, duration in Gibraltar, whether an individual is a resident, tax at the border in the form of customs duty, whether a company pays dividends, plus so much more. Please contact the team at Habikons if you require any more information regarding tax facts in Gibraltar.