The demand for Gibraltar rental property continues to increase and the UK’s decision to leave the EU in June 2016 and subsequent uncertainty does not, currently, appear to be affecting this.This high demand and limited supply leads to attractive rental yields, which may be one of the many reasons why owners decide to rent out Gibraltar property.
Added to this, in July 2016, the Government announced a new budget measure incentivising new Gibraltar property investment and rental. This measure applies to any property constructed in the thirty months from 1 July 2016 and rented for residential purposes. It provides owners with a tax credit equal to the tax payable on the rental profits earned for the first twenty four months, if that period occurs in the first five years after the completion of construction of the property. The tax credit can be offset against the tax payable to extinguish any liability to tax. An encouraging economic measure in uncertain times.
So what is the tax position on rental profits earned on a property not qualifying for the above and on above property once its “tax-free” two year period has ended?
Under Gibraltar tax law, rental profits derived from property in Gibraltar, whether owned by a Gibraltar resident or non-resident are chargeable to Income Tax. Therefore there are Gibraltar tax reporting obligations which owners should be aware of.
Typically where an owner holds property as an investment, for the medium to long term, whilst the rental profits are liable to Gibraltar Income Tax, there should be no Gibraltar tax due on any gain made on eventual sale, in the absence of Gibraltar Capital Gains Tax.
However, if the owner is resident outside of Gibraltar, the tax position on the rental profits and anygain on sale should also be considered in their country of residency. Often the rental profits and gain will be taxable there with, potentially, a foreign tax credit available to claim for any Gibraltar tax paid.