Non-resident investors of Gibraltar property have this dilemma. Should they purchase Gibraltar property in their own name or should they set up a Gibraltar company to hold the property.
Mike Nicholls, chartered accountant and managing director of Chestertons discusses the pros and cons of whether to use a GibCo or not.
Tax on the profits of renting a Gibraltar property are payable annually to the Gibraltar Income Tax Office. A non-resident does not benefit from any tax allowances on Gibraltar income in Gibraltar. A non-resident will pay tax on net rental proceeds (rent less allowable costs for example mortgage interest, property management fees) at the rate of 30% on the first £16,000 and 40% thereafter. The tax on the net rental proceeds if the property is held in a Gibraltar company is 10%. However, if the company pays a dividend to the individual, then the incremental tax between the company rate and the personal rate is paid by the individual. Hence there may be an advantage to holding the asset in the name of a company if there is no immediate need to withdraw all net process from the company.
Whether a company or an individual, the property owner must file an annual tax return to the Gibraltar Income Tax Office.
The property owner should also consider what tax, if any, is likely to be paid in his / her country of residence. In this respect a Gibraltar company may prove beneficial as it is likely to be recognised as a legitimate structure and not a tax avoidance vehicle.
The stamp duty rates, which are between 2% (minimum) and 3.5% (maximum), are the same regardless of which purchasing structure is used. Should the property holding company’s shares be sold at a later date, stamp duty is paid on the effective transfer of the beneficial ownership of the company held property. Hence there is no ability to avoid stamp duty using a company structure.
A Gibraltar company must file an annual return and at the minimum, a balance sheet, at Companies House. It is usual to appoint a local regulated company manager to undertake these tasks.
It is easier for a property to be held in a trust, a pension or by a company manager if the property is held in a Gibraltar company. In this respect, the trust or pension simply holds the shares and the company is administered in the normal way and the property is rented out in the normal way. Furthermore, any liability arising from the property ownership belongs to its owner, hence there may be an advantage if this is simply a company and not an individual as the risk of personal liability is much reduced.
It is possible to hold a residential property in a company which can then be used by the owner for residential purposes at a later date. This is achieved by the company renting the property to the individual at an arm’s length rent.
In our experience, property investors generally use a Gibraltar company to hold a portfolio of residential and commercial properties if purchased for purely investment purposes. This is sometimes not the case when the property value is low, perhaps less than £500,000, as the compliance costs may outweigh the tax and asset protection advantages.
If you would like to discuss any of the topics raised above, please do not hesitate to contact us. Should you be considering property as an investment in Gibraltar then please talk to us as we have considerable experience of identifying, and managing, suitable Gibraltar property for investors.
Contributed by Mike Nicholls
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