Taxation plays a crucial role in the country's economic landscape. Despite being close geographically and having close ties, the United Kingdom (UK) and Gibraltar exhibit significant differences in their taxation systems. These considerable tax differences not only impact the resident's lives but also influence business decisions. Understanding the nuances of taxation in these countries is pivotal for individuals and corporations alike, whether they are planning to undertake investments, relocate or understand the financial policies that make an impact.
Gibraltar and the United Kingdom (UK) offer vastly different tax landscapes. There is a significantly lower tax burden in Gibraltar, with personal income tax and corporate income tax but no capital gains tax, no inheritance tax or no value-added tax, than that compared to the United Kingdom (UK), which has a more complex and
high-rate taxation structure, where all these taxes apply. There are some taxes like Stamp Duty, which is levied on both nations.
These vast differences in the taxation system create unique opportunities and challenges, giving them the chance to make favourable business decisions like residency, location and many more. Delving into the taxation policies of these neighbouring countries reveals not only how governments wield fiscal tools to attract investments and talent but also how individuals can navigate these systems to optimise their financial outcomes.
Major Highlights
Income Tax
Tax Methods: In Gibraltar, taxpayers can choose between the Allowance-Based System (ABS) and the Gross Income-Based System (GIBS) for calculating tax, whereas in the UK, there is no such choice.
Tax Rates: In the UK, income tax rates can reach up to 45%, while in Gibraltar, the maximum rates are 41% under the Allowance Based System (ABS) and 30% under the Gross Income Based System (GIBS).
Tax Year: In the UK, the tax year runs from April 6 to April 5 of the following year, whereas in Gibraltar, it runs from July 1 to June 30.
Tax Return: In Gibraltar, taxpayers must disclose their income using the IT1 form to the Income Tax Office. In contrast, in the UK, they must submit the SA100 form to HMRC along with any necessary supplementary pages.
Deadlines: Deadlines to submit tax returns in the UK and Gibraltar are January 31 and November 30, respectively, following the end of the tax year.
Corporation Tax
Tax Rates: The corporation tax rate in the UK varies between 19% and 25%, with the availability of marginal relief, whereas in Gibraltar, it is 15% or 20%, depending on the nature of the company.
Accounts and Returns Requirements: In Gibraltar, companies disclose income to the Income Tax Office via the CT1 form, while in the UK, they submit the CT600 form to HMRC along with any required supplementary pages; both countries require companies to file accounts with their respective Companies House.
Deadlines: Companies in the UK must submit their annual accounts within nine months from the end of the accounting period, while in Gibraltar, the same is submitted within 12 months after the end of the accounting period.
The corporation tax return in the UK is submitted within 12 months from the end of the accounting period, while in Gibraltar, it is submitted within nine months after the end of the accounting period.
Other Taxes
Capital Gains Tax (CGT): There is no Capital Gains Tax in Gibraltar, whereas the companies in the UK pay capital gains tax at the Corporation tax rate.
Value Added Tax (VAT): In Gibraltar, there is no VAT, whereas in the UK, VAT rates range from 0% to 20%.
Stamp Duty Land Tax (SDLT): For property transfer in Gibraltar, stamp duty tax rates range from 0% to 5.5%, while the same in the UK ranges from 0% to 15% for residents and 2% to 17% for non-residents.
Income Tax
In Gibraltar, the tax on individual earnings is referred to as Personal Income Tax, whereas in the UK, it is known as Income Tax.
Residency Status
Gibraltar: Individuals will be considered to be ordinarily residents of Gibraltar for taxation when they are present for at least 183 days in the year of assessment or over 300 days in aggregate over three consecutive years of assessment.
United Kingdom: Resident status of the individuals in the UK for taxation is determined by whether or not the individual meets the automatic residency test or has sufficient ties based on the number of days stayed in the UK.
Rates and Methods of Tax
Understanding tax rules for property income in the UK and Gibraltar can be complex due to differing rates and methods. In the UK, tax is calculated using a single method, making it straightforward. However, in Gibraltar, you can choose between different taxation methods to pay the lower tax rate. We're here to help you navigate these differences.
Gibraltar
In Gibraltar, two key terms related to income are "Assessable Income" and "Taxable Income."
Assessable Income: This is the total income of the taxpayer without any allowances, except for non-chargeable income.
Taxable Income: This is the income after deducting allowances from assessable income.
Individuals must declare their taxable income (such as property rental income, employment income, trading income, etc.) through their tax return (IT1 form). However, exempt income (like interest income and dividend income) does not need to be included in the tax return.
If the taxable income exceeds the tax-free personal allowance of £3,455, individuals will be taxed on the excess based on the chosen system. The systems available for choosing are:
Allowances Based System (ABS)
Under the Allowances Based System, the individual will be taxed on their taxable income (assessable income like property income less allowances like property purchase allowance) at the following applicable rates:
Taxable Income | Rate (if Gross Assessable Income is £100,000 or less) | Rate (if Gross Assessable Income is more than £100,000) |
|---|---|---|
First £4,000 | 15% | 16% |
Next £12,000 | 18% | 19% |
Remaining | 40% | 41% |
Allowances under ABS
An individual whose total allowance deductions during a year of assessment are less than £4,343 can claim a special allowance. This allowance equals the difference between £4,343 and the total of all other deductions. Therefore, taxpayers generally receive a minimum allowance of £4,343 under the Allowance Based System (ABS).
Notwithstanding the above tax rates and taxable income, if an individual has an annual assessable income of £11,450 or less, they are not subject to tax. Also, an individual who has an annual assessable income that falls within £11,451 and £19,500 will be entitled to claim a low-income earners allowance, also called taper relief, as follows:
Between £11,451 and £17,500: £1,300
Between £17,501 and £18,500: £920
Between £18,501 and £19,500: £500
This taper relief can increase this minimum relief of £4,343.
Under the ABS, since individuals are taxed on their assessable income less allowable allowances, it is essential to know allowances that the individual can claim; some of the allowances that can be claimed under ABS are:
Type | Allowance |
|---|---|
Personal Allowance | £3,455 per annum |
Spouse or civil partner allowance | £3,455 per annum |
Low Earnings Allowance | As Above |
Age Allowance (Men: 65 or over, Women: 60 or over)
|
|
Child Allowance (First child only) | £1,190 per annum |
Child Educated Abroad (per child) | £1,375 per annum |
Life Insurance Premium | Maximum of 1/7th of assessable income or 7% of the capital sum assured at death |
There are further significant allowances and reliefs related to the purchase of the residential properties, and they are:
House Purchase Allowance (Residential Property) (One-off allowance) | £13,000 per annum |
Additional Home (Residential Property) Purchase Allowance | £1,000 per annum |
Mortgage Interest relief (To finance the Gibraltar residential property occupied by the taxpayer) | 100% on loans of up to £350,000 |
Gross Income Based System
Under this system, the applicable income bands and tax rates for the tax year will depend on the individual's assessable income level which includes their property rental income, employment income and more.
Gross Assessable Income: Less than £25,000,
Assessable Income | Rate of Tax |
|---|---|
First £10,000 | 7% |
Next £7,000 | 21% |
Remaining | 29% |
Gross Assessable Income: Above £25,000 but less than £100,000
Assessable Income | Rate of Tax |
|---|---|
First £17,000 | 17% |
Next £8,000 | 20% |
Next £15,000 | 26% |
Remaining | 29% |
Gross Assessable Income: Above £100,000
Assessable Income | Rate of Tax |
|---|---|
First £17,000 | 17% |
Next £8,000 | 20% |
Next £15,000 | 26% |
Next £65,000 | 30% |
Remaining | 27% |
Deduction under GIBS
Under the GIBS, individuals cannot claim any allowances; however, they can claim for the following deductions:
- Mortgage interest payments in respect if their principle residence property up to a maximum of £1,500 per annum.
- Home Purchase Allowance (First Residential Property) up to a maximum of £7,500 (on or after July 2019)
- Contributions to an approved pension scheme up to a maximum of £1,500 per annum.
- Contributions to an approved medical insurance up to £3,000 per annum.
Note for income in Gibraltar:
- Dividends are taxable to individuals who receive them from Gibraltar companies.
- There is no tax on interest income in Gibraltar.
- Please don't be confused about terminologies like deductions and allowances. Generally, the deduction is the amount deducted from gross income to get assessable income. However, allowances are amounts deducted from assessable income to calculate the taxable amount.
UK
Unlike Gibraltar, the UK has a single method of calculating tax. In the UK, various types of income such as property rental income, employment income, trading income, pension income, savings income, and dividend income are combined. These incomes are then reduced by their respective allowable deductions and the personal allowance, which is £12,570. The resulting taxable amount is taxed at the following rates:
Taxable Income | Bracket | Applicable Tax Rate |
|---|---|---|
£0 to £37,700 | Basic Rate | 20% |
£37,701 to £125,140 | Higher Rate | 40% |
Above £125,140 | Additional rate | 45% |
Like Gibraltar, there are many allowances to the taxpayers in the UK, such as:
Personal Allowance (PA) | £12,570 |
Dividend Allowance | £500 |
Marriage Allowance (Transfer of PA) | £1,260 |
Property Allowance | £1,000 |
Trading Allowance | £1,000 |
Mortgage Interest Relief | 20% of interest paid |
Rent a Room Relief | £7,500 |
Tax Returns and Deadlines
UK
The tax year in the UK runs from April 6 to April 5. For each tax year, UK taxpayers must submit tax returns, including their taxable income, using the SA100 form. If they have property income, they also need to fill out the supplementary SA105 form. Taxpayers are required to make a complete return of their income for the tax year, including any supplementary pages like the Property Income SA105, and submit the return along with any due tax payment to HMRC by January 31 following the end of the tax year.
Gibraltar
The tax year in Gibraltar runs from July 1 to June 30. For each tax year, taxpayers are required to complete the returns, also called the IT1 form and calculate their tax liability for the year. The return (IT1 form), together with the estimated liability, needs to be accompanied by payment of the tax due.The due date for filing and submitting the tax return is November 30, following the end of the tax year. Individuals liable to tax or having assessable income for a year of assessment must make a complete return of their income for that year by November 30, immediately after the end of that year of assessment.
If the taxpayer fails to submit the return or make the payment by the deadlines, they will be imposed with the following penalties:
Penalties: Late filing of return and late payment of tax
UK
1. Penalties for failure to submit individual tax returns by deadline will be imposed as follows:
Date the return is filed
After the due date & up to three months late
Three months late & up to six months late
Six months late & up to twelve months late
More than Twelve months late
Penalty imposed
Fixed penalty of £100
Penalty of £10 per day (up to 90 days) in addition to £100.
Higher of:
-5% of tax due
-£300
In addition to the above penalties
Higher of:
-5% of tax due
-£300
In addition to the above penalties
2. Penalties for failure to make the payment of tax due by deadline will be imposed as follows:
Date payment is made
After the deadline - 30 days late
After 30 days and up to 6 months late
Six months late and up to 12 months late
More than 12 months late
Penalty imposed
No penalty
5% of tax due
5% of tax outstanding at that date
5% of tax outstanding at that date
Gibraltar
Like in the UK, there are penalties for late filing of returns as well as for late payment of tax, and they are imposed on the following basis:
SURCHARGES FOR LATE PAYMENT | |
|---|---|
Length of delay | Penalty |
One day late | 10% of tax due. |
90 days late | An additional 20% on the balance (i.e. tax plus surcharge) is due. |
PENALTIES FOR LATE SUBMISSION OF TAX RETURN | |
|---|---|
Length of delay | Penalty |
One day late | £50 |
Three months late | An additional £300. |
Six months late | An additional £500. |
Corporation Tax or Corporate Income Tax
As with the individual taxes, there are significant differences in the taxation of companies in the UK and Gibraltar.
Residency Status
Gibraltar: A company will be considered resident in Gibraltar if the management and control of its business are exercised from Gibraltar or from outside Gibraltar by persons who are ordinarily tax residents in Gibraltar.
United Kingdom: A company will be considered resident in the UK if it is incorporated in the UK or incorporated elsewhere but is centrally managed and controlled in the UK.
Notes:
- There is no tax charge on the receipt of dividends from any other company by a Gibraltar company.
- Companies with a banking or money lending licence and earning interest as a trading receipt will have that interest treated as income chargeable to tax.
- Income from royalties received or receivable by a Gibraltar company is taxable at the standard CIT rate.
UK: Companies in the UK are taxed based on their total taxable profits at the following rates:
Band | Taxable Income | Tax Rate |
|---|---|---|
Small Profit Rate | up to £50,000 | 19% |
Main Rate | Above £250,000 | 25% |
However, if the profit is between £50,000 and £250,000, the UK resident company can claim the marginal relief to reduce the main rate of 25%.
Capital Allowances
Capital allowances are provided to give a business tax relief for capital expenditure on qualifying assets in both the UK and Gibraltar.
UK: Sole traders and companies can claim capital allowances on qualifying expenditures. There is an Annual Investment Allowance (AIA) of £1,000,000 available for the qualifying expenditures. They can also claim First Year Allowance (FYA) but only on electric vehicles. Other qualifying expenditures can then claim an allowance of 18% or 6%, depending on the type of expenditure. Residential properties are not eligible for capital allowances. In the UK, taxpayers can also claim the capital allowance, also known as Structure and Buildings Allowance (SBA), for qualifying structures at 3% per annum on a straight-line basis.
Gibraltar: The first £30,000 qualifying expenditure on plant and machinery (including fixtures and fittings) and the first £50,000 qualifying expenditure on computer equipment is fully deductible in the first year as a 'first year allowance'. Capital Allowance other than FYA is available at 15% per annum on a reducing balance basis. Capital Allowances for industrial buildings are 4% per annum on a straight-line basis.
Tax Returns and Deadlines
UK:
Companies have two primary obligations that they need to fulfil to comply with the legal requirements: one is filing annual accounts with Companies House, and the other is submitting a Corporation Tax Return (CT600) to HMRC each year. The property rental income in the UK must be entered in the relevant section of the form. The expenses related to the rental property can also be claimed. The deadline to fulfil these requirements is:
- Companies must file the accounts with Companies House within nine months after the end of the accounting period.
- Corporation Tax Return (CT600 form) must be filed within 12 months from the end of the accounting period. However, the corporation tax due to HMRC must be paid within nine months after the end of the accounting period.
Gibraltar:
Like in the UK, every company registered in Gibraltar or having assessable income in Gibraltar is also required to fulfil two obligations: one being the annual accounts filing to Companies House and the other being the submission of the CT1 form to the Income Tax Office. The property rental income in Gibraltar must be entered in the relevant section of the form, with the expenses claimed. The deadline to fulfil these obligations is:
- Companies must make a complete return of their income like property rental income and more and its liability to tax and submit it to the Income Tax Office with any payment owed by not later than nine months following the end of the company's accounting period.
- Companies must file their annual accounts to Companies House within 12 months after the end of the accounting period.
Also, if the company does not have an accounting period of June 30, they will need to file the P8 reconciliation. The documents to be filed at the Companies registry vary according to the classification of the company and the size of the company.
Penalties: Late filing of return and late payment of tax
UK
Companies incur separate penalties for late filing of the accounts and late corporation tax return filing. The penalties for late filing of corporation tax returns are as follows:
Time after your deadline | Penalty |
|---|---|
One day | £100 |
Three months | Another £100 |
Six months | 10% of the unpaid tax |
Twelve months | Another 10% of any unpaid tax |
However, there is no additional penalty for late tax payments.
Penalties for late annual accounts filing:
Less than one month late | £150 |
One to three months late | £375 |
Three to six months late | £750 |
More than six months late | £1,500 |
Gibraltar
If a complete Tax Return is not submitted within nine months after the end of the month in which the accounting period ends, penalties will be imposed as under:
PENALTIES FOR LATE SUBMISSION OF CORPORATE TAX RETURNS | |
|---|---|
Length of delay | Penalty |
Failure to comply | £50 |
If failure to comply continues three months after 1st penalty | An additional £300 |
If failure to comply continues three months after 2nd penalty | An additional £500 |
If payments are not received on time, surcharges will be imposed:
SURCHARGES FOR LATE PAYMENT | |
|---|---|
Length of delay | Surcharge |
Nine months after the company's financial period | 10% of outstanding corporate liability |
90 days after the 10% surcharge | An additional 20% on the balance (i.e. tax plus surcharge) is due. |
Other Taxes
Stamp Duty Land Tax (SDLT)
Gibraltar
Stamp Duty on Gibraltar is payable on the transfer or sale of any Gibraltar real estate like land and property or shares in the company owning Gibraltar land and property at the following rates:
Consideration | Value of Consideration (%) |
|---|---|
Up to £200,000 | 0% |
£200,000 – £350,000 | 2% on first £250,000 |
Over £350,000 | 3% on first £350,000 |
Stamp Duty in Gibraltar is also payable on mortgage secured on Gibraltar property at the following rates:
Mortgage Amount | Value of Mortgage (%) |
|---|---|
£200,000 or less | 0.13% |
Over £200,000 | 0.20% |
UK
In the UK, purchasing land or property involves Stamp Duty Land Tax (SDLT), with rates varying based on whether the purchaser is an individual or a company, if they are a first-time buyer and their residency status. For residential properties, the SDLT rates are structured as follows:
Purchase Price | SDLT Rate for a Single Property | Additional Rate |
|---|---|---|
Up to £250,000 | 0% | 5% |
£250,001 to £925,000 | 5% | 10% |
£925,001 to £1.5 Million | 10% | 15% |
Over £1.5 Million | 12% | 17% |
Where the purchaser of the residential property is a non-UK resident for tax purposes, there is a surcharge of 2% on top of the above rates.
For commercial and mixed properties, the SDLT rates can be summarised as follows:
Purchase Price | SDLT Rate |
|---|---|
Up to £150,000 | 0% |
£150,001 to £250,000 | 2% |
Over £250,000 | 5% |
Capital Gains Tax (CGT)
Capital Gains are not subject to capital gains tax in Gibraltar.
However, in the UK, individuals are subject to varying capital gains tax rates based on their tax bracket and the nature of the asset disposed of. The applicable rates are as follows:
Tax Bracket | Residential Property | Non-Residential Property |
|---|---|---|
Basic Rate Tax Payer | 18% | 10% |
Higher or Additional Rate Tax Payer | 24% | 20% |
Companies will include their capital gains on the property as a part of their total taxable profit and pay the corporation tax on the gain.
Inheritance Tax (IHT)
There is no inheritance tax in Gibraltar, whereas in the UK, there is a standard IHT rate of 40%, which is levied on the estate value which includes, private residence property, shares, cash and many more, over the threshold provided. Also, if the gift of the property or any other gift is made prior to death, it will also be charged based on the gift type and gift value, and rates will be based on the survival of the donor after the gift, ranging from 0% to 40%. If the deceased individual has a main residence property and it is being transferred to the direct descendant, IHT can certainly be reduced as the property will qualify for Residence Nil Rate Band (RNRB) on top of Nil Rate Band (NRB).
Value Added Tax (VAT)
The Value Added Tax (VAT) provisions in these countries vary significantly.
In Gibraltar, there is no value-added tax.
Meanwhile, in the UK, VAT rates range from 0% on zero-rated supplies to a standard rate of 20% on other supplies. However, hotel accommodation and specific building works are taxed at a reduced rate of 5%.
Social or National Insurance Contribution (NIC)
Gibraltar
Social Insurance Contributions are payments made by self-employed individuals, employees, employers and many more that go towards contributory benefits such as maternity benefits, old age pensions, death grants, survivor's benefits, unemployment benefits and health care benefits.
Self-employed persons, employees or employers need to make social insurance contributions based on their gross earnings as follows:
For | Applicable Code | Gross Earnings | Annually | |
|---|---|---|---|---|
Minimum | Maximum | |||
Employee | ER | 10% | £676 | £1,924 |
Employer | ER | 10% | £1,508 | £2,652 |
Self-Employed | SE | 20% | £1,508 | £2,652 |
UK
The payment of social insurance contributions, also known as national insurance contributions in the UK, is much more complicated than it is in Gibraltar due to its income band and different tax rates.
The NICs payable in the UK are based on the threshold as follows:
NIC paid | Threshold Amount | Rate | |
|---|---|---|---|
Class 1 Employee | £12,570 £50,271 | £50,270 above | 10% 10% |
Class 1 Employer | £9,100 | above | 13.80% |
Class 2 | £6,725 | above | £3.15 weekly |
Class 4 | £12,570 £50,271 | £50,270 above | 6% 2% |
Register of Overseas Entity in the UK
In August 2022, Companies House in the UK introduced the Register of Overseas Entities under the Economic Crime (Transparency and Enforcement) Act 2022. Companies House holds the Register of Overseas Entities and requires Overseas Entities that own land or property in the UK to declare their beneficial owners or managing officers.
Hence, the entities established in Gibraltar and owning property in the UK need to disclose the entity and their beneficial owners or managing officers.
An entity established in Gibraltar is within the scope of the Register if it holds a qualifying estate.
A 'Qualifying Estate' is a freehold estate or leasehold estate for a term of more than seven years and that was acquired:
- On or after January 1 1999, in England and Wales,
- On or after December 8 2014, in Scotland and
- On or after August 1 2022, in Northern Ireland.
Entities established in Gibraltar that wish to buy, sell, or transfer property or land in the UK must now register with Companies House and disclose their beneficial owners or managing officers. Where no beneficial Owners can be identified, details of Managing Officers are required.
Double Taxation Agreement (DTA)
A double taxation agreement (DTA) was signed between the two governments on October 15 2019, to address concerns about double taxation for individuals and companies operating in both the UK and Gibraltar. This agreement encompasses aspects like residency status determination, the taxation of specific types of income, and measures to prevent double taxation. You can find the detailed summary of the treaty on our website.
The table summarises the provisions of the treaty in force as they relate to income beneficially owned by UK residents.
Subject | Treaty Rate | Article |
|---|---|---|
Portfolio dividends | 0% | 10 |
Dividends on direct investments | 0% | 10 |
Property income dividends | 15% | 10 |
Interest | Generally, it is taxed as per the agreement unless domestic law's exemptions of the territory interfere | 11 |
Royalties | Generally, it is taxed as per the agreement unless domestic law's exemptions of the territory interfere | 12 |
Government pensions | Exempt from tax in the UK unless the individual is ordinarily resident in the UK or unless paid in respect of services rendered as a member of the Royal Gibraltar Regiment | 18 |
Other pensions | Taxable only in the UK | 17 |
Conclusion
Understanding the distinct taxation systems of Gibraltar and the United Kingdom is crucial for individuals and businesses aiming to optimise their financial strategies. Gibraltar's lower tax burden, absence of VAT, and simplified compliance processes make it an attractive destination for companies and high-net-worth individuals. The flexibility in choosing between different taxation systems, along with the absence of capital gains and inheritance taxes, further enhances Gibraltar's appeal for wealth management and investment planning.
Conversely, the UK's comprehensive and high-rate taxation structure, including income tax, capital gains tax, and inheritance tax, requires thorough financial planning and compliance. Despite the complexity, the UK's tax regime ensures equity and funds extensive public services. Understanding these differences allows individuals and businesses to make informed decisions, leveraging the strengths of each system to maximise opportunities and achieve financial goals.
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