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Budget
Budget 2015 – Tax Measures
By Neil Rumford, Tax Partner, EY Limited
↓ Hearing aids, walking aids, wheelchairs, glasses & frames for prescription spectacles,
Gibraltar’s budget measures for 2015/16 were announced on 22nd June. Continuing
the theme set over the last three years, there were slight decreases in tax rates, some increases in allowances and further tweaking of
import duties and excise duties.
Corporate tax
Whilst the standard rate of tax remains set at 10%, some minor changes were announced, including the introduction of 100% capital allowances for new businesses (including self-employed and partnerships) in their first year of trading. The audit threshold to determine whether accounts filed with the Income Tax Office are required to be audited or not is to be increased from £1m to £1.25m.
Personal tax
The alternative systems, the Gross Income Based System and the more traditional Allowance Based System, remain. Whichever results in less tax is the system that applies to a taxpayer.
Gross Income Based System (GIBS)
This system, with lower tax rates combined with fewer deductions, applies to most taxpayers. The maximum effective (overall) rate never exceeds 25%, and in fact decreases once taxable income exceeds £500,000. On taxable income above £700,000, the rate applied is now 5% - previously this rate applied to income over £1m. Some examples of the effective tax rate at different income levels are:
Allowance based system (ABS)
The tax rates for this system were reduced by 1% for each band:
contact lenses & dentures ↓ Toys ↓ Suitcases ↓ Marine engines and spares ↓ Hybrid vehicles
various 0% 6% 3% 6% 0% 6% 0%
Taxable income band First £4,000 £4,001 to £16,000 Over £16,000
Rate applied 14% (previously 15%) 17% (previously 18%) 39% (previously 40%)
(with trade licence) ↓ Hybrid vehicles (private imports)
Increases in allowances include:
Personal allowance £3,200 (was £3,100) Spouse allowance £3,200 (was £3,100) House purchase allowance
£12,000 (was £11,500) Nursery school (per child) £5,000 (was £4,000) Parent of disabled person £9,000 (was £6,000)
Blind person’s allowance £5,000 (was £4,000) Single parent allowance £5,264 (was £4,000) Medical insurance – up to £5,000 (was £4,000)
A major factor in deciding if the ABS applies to a taxpayer is whether they own their home in Gibraltar. As well as the house purchase allowance above, there is an additional £4,000 purchase allowance (to be spread over four years). Mortgage interest deductions are given for mortgages of up to £350,000 (and even higher for pre 1 July 2008 loans).
HEPPS & HNWIs
No specific changes to the special tax status for High Executives Possessing Specialist Skills and High Net Worth Individuals (Category 2) were announced. However, the outcome of the review of the Category 2 product announced in last year’s budget is expected to be available soon.
Social insurance
The total cap of £3,023 per annum for employers’ and employees’ contributions combined remains. Where an employee has more than one employment, the requirement for each employer to make contributions has been removed.
Import and excise duties
Some further adjustments to duty were announced: Changes From To ↓ Flooring, carpets, construction
materials (trade imports) 12% 6%
↓ White goods rated A and above (trade imports) 6% 3%
2% 0% From 12.5% to 17% 5%
↑ White goods rated B ↑ Two stroke motorcycles
6% 12% 30% 50% 50p per litre 35p per litre
£1.00 per litre
Property-related measures
Total taxable income £25,000 £50,000 From £105,000 to £500,000 £1,000,000 18% (previously 19%)
For first and second-time buyers, the exemption from Stamp Duty has been increased to the first £260,000 (previously £250,000) of the cost of the property.
A one-off deduction “with the percentage to be verified” for individuals, companies or businesses was announced for the investment made in improving the Energy Performance Certificate rating of their premises. Whether this includes residential property is as yet uncertain.
A rates holiday was introduced for purchasers of new “Affordable Homes” – with no rates in the first year, and a 10% increase each year until 100% of the full amount is payable.
A pre-notification procedure was introduced where services such as the installation of kitchens, bathrooms and other fitted furniture are provided by suppliers based outside Gibraltar. This will mean imposing a withholding tax to ensure tax is paid by such suppliers.
Tax amnesty
Gibraltar’s first tax amnesty was introduced in respect of funds held abroad on which tax should have been paid in Gibraltar. Individuals will be able to “wipe the slate clean” by paying 5% of the total amount remitted to Gibraltar under the amnesty. The amnesty is to last for six months from 21st June 2015.
www.ey.com/gi
Effective tax rate 17% 22% 25%
Limited deductions are given under this system – some of these were increased slightly:
l Expenditure towards the purchase of a new home in Gibraltar for first-time buyers – up to £6,500 (previously £6,000) l Mortgage interest payments for main Gibraltar residence – deduction of up to £1,500 (previously £1,000)
l Medical insurance - £3,000 (up from £2,500)
↑ Wines ↑ Beers ↑ Spirits
39p per litre 32p per litre 80p per litre
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