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Budget
Budget 2016 – tax measures
By Neil Rumford, Tax Partner, EY Limited
Gibraltar’s Chief Minister, the Hon Fabian Picardo QC MP presented his
2016 Budget address on 5 July. Compared to recent years, there were relatively few tax measures announced. There were no changes to tax rates or tax bands and only very modest changes to some tax allowances. The Chief Minister announced a new scheme for business start- ups, an extension of last year’s tax amnesty
and some adjustments to import duties.
Corporate tax
The standard rate of tax remains set at 10%. A “Start-up Incentive Scheme” was announced for companies or limited partner- ships starting up between the date of the budget and 30 June 2017. Over the first three years’ trading the business will be eligible for a tax credit equal to the tax other- wise due, up to a maximum of £50,000. This is subject to conditions, including employing at least five employees in the first year, as well as anti-avoidance measures to ensure it only applies to genuinely new businesses in
Gibraltar.
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) There was no change announced in respect of this system, which combines lower rates of tax with fewer deductions, and which applies to most taxpayers. The maximum effective (overall) rate never exceeds 25%, and starts to decrease once taxable income exceeds £500,000. Some examples of the effective tax rate at different income levels are:
Allowance Based System (ABS)
The tax rates and bands for this system remain as before:
Minimal changes are to be made to some allowances; the more common allowances include:
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 changes were announced to the tax status available for “high executives possessing specialist skills” or to high net worth individuals (Category 2 Individuals). However, a working group set up to review this area is to be reconvened shortly, and their proposals are to be considered by government. These tax schemes cap the tax payable by such individuals to fixed amounts, subject to conditions, of £29,940 (HEPPS) and to between £22,000 and £27,560 (Category 2).
Social insurance
Gibraltar has a cap on social security contributions by employers and employees of £32.97 and £25.16 per week, respectively. No changes to these were made, however the Chief Minister stated that an announcement will be made in due course and any increase,
if necessary, will be made from the beginning of the 2017 calendar year.
Import and excise duties
Changes announced to import duty included:
Property-related measures
There were no changes announced to stamp duty, or to property rates.
Tax amnesty
Gibraltar’s first tax amnesty was introduced in the 2015 budget in respect of funds held abroad on which tax should have been paid in Gibraltar. Individuals were able to “wipe the slate clean” by paying 5% of the funds involved.
This initial amnesty, which had run until December 2015, has now been extended for a further six months from the date of the budget. The tax rate applying has been raised to 7.5% of the funds involved, and the amnesty now also applies to the value of assets purchased abroad (previously the amnesty only applied to funds brought back to, and deposited in, Gibraltar). www.ey.com/gi
Taxable income band First £4,000 £4,001 to £16,000 Over £16,000
Rate applied 14% 17% 39%
Changes ↑ Fizzy and other soft drinks (other than fruit juices or milk-based drinks) with sugar content of more than 5 grams per 100 ml
From
0%
To
10%
↓Spectacles, spectacle lenses and contact lenses
6%/12%
0%
↓ School satchels
6%
0%
↓ Nappies & nappy liners for babies, sanitary towels & tampons
12%
0%
↓Pre-shaving, shaving and aftershaves, personal deodorants, perfumed bath salts and other bath preparations
3%
0%
↓Electronic equipment, propellers and related spare parts for use on boats
12%
0%
↓Sails
3%
0%
Personal allowance £3,215 (was £3,200)
Spouse allowance £3,215 (was £3,200)
House purchase £12,000 allowance (no change)
Nursery school £5,025 (per child) (was £5,000)
Medical insurance Up to £5,020
Child allowance £1,105 (was £1,100)
Child studying abroad £1,255 (was £1,250)
Total taxable income £25,000 £50,000 From £105,000 to £500,000 £1,000,000
Effective tax rate 17% 22% 25%
18%
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