New income tax measures announced relating to sales of real property in Gibraltar

On 1 July in the 2024 Budget Address, the Minister with responsibility for Taxation announced that a new measure will be introduced to provide clarity regarding taxation of people deemed to be trading in property.

In this article, we set out the key features of the upcoming changes to Income Tax legislation relating to profits derived from sales of residential property in Gibraltar. 

What are the changes to the Income Tax legislation?

The Income Tax (Amendment No. 2) Bill 2024 has been published and applies as from 1 August 2024.

It states that where a person or entity owns three or more taxable properties, including off-plan properties, in aggregate over a five year tax basis, either in whole or in part, income derived from gains made on property sales will be subject to income tax in Gibraltar. 

What are the ‘taxable’ properties caught by this new measure?

Any residential property - including off-plan residential property - located in Gibraltar excluding:

• a property used exclusively as the primary residence of its beneficial owner
• a property which is subject to Part II of the Housing Act 2007 
• commercial properties
• a property that is both residential and commercial but is predominantly for commercial use
• hotels
• properties which are unfit for habitation, or in need of substantial repair, where the purpose of the purchase is for development for resale or letting
• a residential property held by the Government or a statutory agency for the purposes of said agency of the Government
• any property designated as an exempted property by the Minister with responsibility for Taxation;
• retirement homes occupied by persons aged over 65 or those unable to care for themselves independently;
• any property used as a retreat, convent, monastery or other form of religious house;
• a property owned by the estate of a deceased person.

What are the key considerations for property investors?

• It applies to persons irrespective of whether they are tax resident in Gibraltar or not.
• Property ownership includes direct or indirect ownership i.e. through a company holding the property, and includes owning the whole or any part of a property. This means that, for example, if a person holds 2 taxable properties in their personal name and 1 taxable property through a company, then they would satisfy the 3 or more taxable properties threshold.
• The threshold includes:
  • 3 or more taxable properties at any given time; or
  • An aggregate of 3 or more taxable properties over 5 consecutive basis periods. This means that, for example, if in year 1 a person holds 4 properties directly or through a company, in year 2 they sell 2 properties and pay tax on such income (this leaves them with 2 properties) and in year 3 they sell 1 property – the income from such sale will be subject to tax even though at the time of the sale the person only held 2 properties. 
• It will apply to a sale of shares in companies whose principal activity consists of ownership, holding or management of residential property in Gibraltar.
• For the purpose of anti-avoidance, the property interests of “connected persons” will be deemed to be held by the person, if that connected person’s interest in the taxable property is for the purpose of avoiding income tax. 

We remain available to assist with any queries relating to the purchase and sales of residential properties located in Gibraltar and the impact of these upcoming legislative changes on your property investment portfolio.