The Gibraltar government has published a Bill on the taxation of profits derived from disposals of interest in residential (whether leasehold or freehold) property, which will apply from 1 August 2024.1 Property has been defined as any plot, building, apartment, or other real property in Gibraltar used or intended to be used for residential purposes.
Why this matters
The Minister for Taxation when announcing this measure stated that its purpose is to provide clarity and certainty in respect of the acquisition and disposal of residential property in Gibraltar. Persons trading in property, who may previously have considered that the proceeds arising from disposals should be treated as capital gains and so not subject to tax, will now be assessed on an income basis if the conditions are met.
Companies with international assignment policies pertaining to Gibraltar-inbound/-outbound assignees may wish to consider whether adjustments are necessary to policies, in light of this change, if they intend to include disposals of interest in residential (whether leasehold or freehold) property within the scope of tax covered by their policies and handled by their tax service providers.
The Measure
Where a person or entity owns or holds, directly or indirectly, including through a property-holding entity:
(i) three or more “taxable properties” (whether in whole or in part); or
(ii) an aggregate of three or more taxable properties (whether in whole or in part) over five consecutive basis periods, then the “amount arising” from the disposal of any such property by the person or entity will be treated as income of the person or entity.
Key Points
- A “taxable property” is any residential property, including off-plan, located in Gibraltar, other than an exempt property (see below).
- Indirect disposals are included so that an amount arising on the disposal of shares, directly or indirectly, in a property-holding entity by the person (or any nominee holding the shares on behalf of the person) will be considered income of that person.
- A property-holding entity is defined as an entity whose principal activity in the last basis period consists of the ownership, holding, or management of real property in Gibraltar.
- The “amount arising” is not defined and there are no specific provisions as to the deductions that can be offset against sale proceeds, but it is understood that the general principle would apply so that costs incurred wholly and exclusively for the purposes of the production of the income will be allowed, subject to the provisions in Schedule 3 of the Income Tax Act 2010 (ITA 2010) for ascertaining profits and gains.
- The amount arising will be taxed at different rates depending on the circumstances, e.g., generally 15 percent if held by a company, the marginal rate if held by an ordinarily resident individual, and up to 39 percent for nonresident individuals.
- Losses arising on disposals, although not mentioned specifically in the Bill, should be able to be carried forward against future gains on disposals (subject to the usual restrictions in the ITA 2010).
- Anti-avoidance provisions are included regarding the determination of a person’s interest in a taxable property: a person may be treated as being entitled to all the interest of all “connected persons,” as defined in the ITA 2010, but not when the connected person has a bona fide interest and his/her ownership is not for the purpose of avoiding tax. Also, the Commissioner of Income Tax has the power to treat any conveyancing transaction as a disposal if he is of the opinion that it has as its main purpose, or one of its main purposes, the avoidance of tax.
Exemptions
Please note that the below is not an exhaustive list and other exemptions are included in the Bill.
- A person’s principal primary residence within Gibraltar which is utilised as the only or main residence of a person at any given time including at the time of disposal.
- A property which is a commercial property and where a property has mixed residential and commercial use, the property is predominantly of commercial use.
- Properties unfit for habitation or in need of substantial repair (if the properties are purchased for the purpose of development, to permit resale or letting, and this has been approved by the Commissioner of Income Tax).
- Disposals by the estate of a deceased person, but there is no exemption for transfers between married couples.
- A disposal due to the exercise of a power of sale pursuant to a mortgage or any order of a court ordering a sale.
- Any property designated as an exempted property by the minister with responsibility for taxation.
KPMG Insights
We await further explanatory notes, definition, and guidance from the Income Tax Office on the provisions contained in the Bill, such as amount arising, consecutive basis period, losses, and principal activity.
If taxpayers have questions about this change in Gibraltar tax policy – when it is enacted – and how it could impact them, depending on decisions they may make in the future (or have recently made), they should consult with their qualified tax professional or a member of the tax team with KPMG in Gibraltar (see the Contacts section).
Additional Resources
Footnotes
1 For the text of the Bill (in .pdf format), see: https://www.gibraltarlaws.gov.gi/uploads/bills/bills2024/2024B23.pdf .
Disclaimer
The information contained in this newsletter was submitted by the KPMG International member firm in Gibraltar.
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