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Gibraltar Cuts Income Tax

by Jason Gorringe,, London

02 July 2007

Acknowledging Gibraltar's relatively high headline rates of income tax, Chief Minister Peter Caruana has announced a dual income tax system and changes to the high-net-worth individual (HNWI) scheme, designed to make the tax system more attractive to expat workers employed in the jurisdiction's finance industry.

"Our tax system has very high ‘headline’ rates of taxation, but these are reduced to lower ‘effective’ rates by a generous system of tax allowances, the main ones of which are mortgage interest relief, life insurance premium relief, child allowances etc. This is all very well, but taxpayers who cannot benefit from these allowances because they are single, have no mortgage, no children or no life insurance are left to pay the very high ‘headline’ rates" Caruana told parliament in his budget speech last week.

"This is harsh on affected local residents, as well as being a disincentive for location in Gibraltar for companies that need to recruit specialist skills from abroad," he observed.

To remedy this, Caruana announced that from 1 July 2007, every taxpayer will be able to choose for each tax year between two systems to pay tax, and to choose the one that results in the lower tax payment, either of which can be paid through the PAYE system.

The first system is the existing Allowance Based System under current tax rates, which were reduced in this year's budget. The alternative system is a new Gross Income Based system, in which the taxpayer will receive no allowances, but will pay tax on gross income at the following rates: 20% on the first GBP25,000; 30% on the next GBP75,000; 40% above GBP100,000.

Caruana said that the new Gross Income Based alternative will "very significantly" reduce the tax payments of around 6,500 local taxpayers, and will substantially redress the balance of taxation between those who enjoy certain allowances and those who do not. As a result, no taxpayer with income below GBP25,000 per annum will pay more than 20% income tax; no taxpayer with income below GBP50,000 will pay more than 25% income tax; no taxpayer with income below GBP100,000 will pay more than 27.5% income tax; and no taxpayer with income below GBP125,000 per annum will pay more than 30% income tax.

Access to the Gross Income Based alternative will be subject to rules to prevent married couples and others living together from benefiting from both alternatives.

Caruana also announced some amendments to the jurisdiction's' high-net-worth individual (HNWI) scheme. For HNWIs this scheme will remain largely intact, except that with effect from 1 July 2007 the minimum tax payable is increased from GBP14,000 per annum to GBP18,000 per annum and the taxable income level is increased from GBP50,000 to GBP60,000.

The existing Category 3 status is abolished for new entrants. Existing Category 3 holders will be able to retain that status until expiry of their current certificate or for two years until 30 June 2009, whichever is the longer. However, the amount of tax payable rises with effect from 1 July 2007 from GBP10,000 to GBP15,000 per annum.

A new category called ‘High Executive Possessing Specialist Skills’ (HEPSS) will be established for:

  • Existing Category three holders who earn more the GBP100,000 per annum;
  • New applicants who possess skills not available in Gibraltar and, in the Government’s opinion, necessary to promote and sustain economic activity of particular economic value to Gibraltar, who will occupy a high executive or senior management position, and who will earn more than GBP100,000 per annum of income in Gibraltar.

Tax will be payable only on the first GBP100,000 per annum of income under the dual choice tax system. New applicants may not have been resident in Gibraltar for any part of the period of three years immediately preceding the application.

Category 4 Status is abolished for new entrants with effect from 1 July 2007. Existing holders may retain the status until the end of the current certificate or 30 June 2009, whichever is the longer. However, minimum tax payable will increase with effect from 1 July 2007 from GBP5,000 per annum to GBP7,500 per annum.

Caruana also announced rate cuts in the ordinary income tax system. The top rate of tax is reduced from 42% to 40%. The reduction in the top rate will thus have been reduced from 50% to 40% over the last 10 years.

The standard tax rate band (on which tax is paid at 30%) will be widened by GBP3,000 from the present GBP4,000 to GBP13,000 to GBP4,000 to GBP16,000. This measure will benefit 7,000 taxpayers, who will see the tax rate on the first GBP3,000 of taxable income after GBP13,000 reduced by 12% from 42% to 30% or by GBP120 per GBP1,000.

As a result of changes to the low income tax credit system, no tax will be payable by anyone with income below GBP7,000 per annum. Caruana also announced that the principle of tax cuts targeted to the lower paid, currently limited to people who earn less than GBP8,000, will be extended to people who earn up to GBP19,500 per annum.

A comprehensive report in our Intelligence Report series giving background tax and residence information on many of the key offshore jurisdictions is available in the Lowtax Library at and a description of the report can be seen at

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