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Budget
Gibraltar’s Brexit Budget 2018
By Neil Rumford, Tax Partner, EY Limited
Signalling a note of caution, Gibraltar’s Chief Minister, Fabian Picardo had stated a couple of weeks before the budget: “You can expect a Brexit budget”. Despite this, his budget address offered some impressive figures, from an ever-increasing Gross Domestic Product estimate, to buoyant tourism statistics. There was also a passing mention of Distributed Ledger Technology and Blockchain, which has created much interest in financial circles locally – Gibraltar being the first jurisdiction in the world to have introduced specific regulation in this area. His enthusiasm for this seems to be shared by many involved in this rapidly evolving industry.
Corporate tax
No changes were made to corporate tax, which applies a standard rate of 10% to taxable profits, other than a slight change to how tax losses are treated. Previously losses could not be moved from one company to another; now companies may be able to move losses within a group, where this is part of a restructure of the group.
Personal tax
Following the trend over the last few years, personal tax revenue was boosted by an increasing tax base – with 28,029 registered employees in October 2017 compared to 27,073 a year before. Based on Government statistics, 46% of these are recorded as being “frontier workers”, i.e., living in Spain. This compares to a total population on the Rock of around 34,000.
Gibraltar operates two alternative tax systems for individuals – the Gross Income Based System (GIBS) and the more traditional Allowance Based System (ABS). The system that applies to a taxpayer is the
one that results in the lowest tax payable. It is of course worth remembering that there is no tax on capital gains or savings income, and there is no wealth tax or inheritance tax.
With GIBS, the overall tax rate never exceeds 25%, and in fact starts to decrease as taxable income increases to over £500,000. No change was made in respect of GIBS in the budget, with the following rates applying for taxable income above £25,000:
For taxable income of up to £25,000, the first £7,000 is taxed at 6%, the next £7,000 at 20% and any remaining balance is taxed at 28%.
The ABS applies higher tax rates, but provides more in the way of allowances.
The Chief Minister announced
inflationary increases in most allowances under ABS. These include:
Deductions are also given under ABS
for the interest on mortgages of up to £350,000 for the purchase of a taxpayer’s principle residence in Gibraltar. HEPSS & HNWIs
No changes were announced to the tax status available for High Executives Possessing Specialist Skills or to High Net Worth Individuals (Category 2 ). 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
Social insurance is a percentage of earnings, but subject to a minimum and maximum amount. The minimum and maximum amounts were increased by 10%. The amounts still remain relatively low – for example, the amount for employers and employee contributions combined is capped at £3,661 per annum.
The electric agenda
A 12p per litre increase in diesel duty and 6p increase in petrol duty was announced. The “cash-back” incentive for the purchase of a new hybrid vehicle was cut from £1,000 to £250 – but the cash-back on fully electric vehicles was increased to £2,500. Cash-back incentives were introduced for electric motorbikes (£150) and for certain electrically assisted bicycles (£200).
In addition, a taxpayer installing a vehicle charging mechanism in a garage or parking space that they own will be able to deduct the first £2,000 of the cost of this against their taxable income.
Duty
Import duty on cigarettes was increased by £1 to £14 per carton. Duty on disposable paper products such as straws, plates, cups, bags and sacks was eliminated; conversely the duty on the equivalent plastic products was increased to 200%. There were increases in duty for some alcoholic drinks, though duty on beer and non- sparkling wine remained untouched. In an apparent nod to the current trade war, duty on American
whiskey and bourbon was doubled to £2 per litre.
www.ey.com/gi
Total taxable income
Tax rate
First £17,000
17%
£17,000 to £25,000
19%
£25,001 to £40,000
25%
£40,001 to £105,000
28%
£105,001 to £500,000
25%
£500,001 to £700,000
18%
Balance
5%
Taxable income band
Rate applied
First £4,000
14%
£4,001 to £16,000
17%
Over £16,000
39%
2018/19
2017/18
Personal allowance
£3,385
£3,300
Spouse allowance
£3,385
£3,300
House purchase deduction
£12,000
£12,000
Nursery school (per child)
£5,290
£5,160
Medical insurance
£5,285
£5,155
Child allowance (first child)
£1,165
£1,135
Child studying abroad
£1,325
£1,290
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Gibraltar International
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