Gibraltar residents do not pay tax on investment income. This means that if I have a million pounds (I haven’t!) in the bank earning 2% per annum, then I get to keep my £20,000 interest in full. This is a compelling reason for many wealthy individuals to take up Gibraltar residency, and Gibraltar does its best to attract such individuals.

But what good does that do for Gibraltar if that million pounds sits on a bank’s balance sheet shoring up the bank’s capital ratio and not finding its way back into the Gibraltar economy?

Alternatively, these funds could be invested in a variety of assets, from property to gold, for example. Gold doesn’t pay any interest, and any gain would be a capital gain, which is not taxed in Gibraltar. So an investment in gold, or other capital growth focussed asset does not benefit Gibraltar either.

So the tax system, which is fantastic at attracting wealth to Gibraltar, appears to inadvertently reward passive investment, which would not appear to have too much of an upside to “Gibraltar PLC”.

Income from owning property, is however, taxed. Rental income, less mortgage interest, less direct costs of renting the property (agency fees, maintenance and the like) results in a rental profit which is taxed at a rate dependent upon who owns the property. Individual owners will pay tax on these profits at their marginal rate of tax, up to 40%. Rental profits fall outside the Category 2 tax protection as well, which means that tax is payable whoever you are.

Companies owning property will pay the company rate of 10% on the rental profits. That is attractive. However, moving the profits from the company back to the individual that owns the company will result in additional tax payable on the distribution of profits. This can be minimised via clever use of trusts and pensions if one is minded to, and can afford the professional advice and additional annual running costs of the structure.

The point is, no one can escape paying tax on rental profits, so possibly inadvertently; Gibraltar’s tax system encourages passive investment when compared to property investment.

The benefits of property investment to Gibraltar PLC are many. That same million pounds which is sitting in a bank earning the deposit holder £20,000 but doing not much for Gibraltar could be spent on some buy to let apartments or commercial property in Gibraltar. On purchase, the government collects £33,250 in stamp duty, which goes straight into government coffers for use that would benefit Gibraltar PLC. Immediate gain.

Once the property is owned, the buyer may seek to refurbish or decorate it (or the tenants might) prior to furnishing it (which again the tenants might). This will lead to further expenditure locally, creating or maintaining employment which means the payment of income tax and social insurance by those employed to provide that service.

Then of course agents might manage the property, which means more expenditure on local firms employing people.

On the flip side, property investors being encouraged to invest in property helps to maintain property values, keep liquidity in the property market, and keep a stock of very tenantable apartments and commercial property for would be tenants. Indeed, there are many Gibraltar properties that would welcome some investment to return them to their further grandeur and in fact tax relief is available for approved expenditure incurred on improvements to the façade. Trouble is, much of the money to do this is possibly sitting in a local deposit account or in gold bars! No tax on those investments.

I have to declare a conflict of interest and an absolute bias. Gibraltar property investment is the main focus of my business. However, I do think there is a solid argument for easing the tax burden on property rental profits in order to help entice probably millions of pounds away from accounts doing not much to help Gibraltar PLC, into local property investment, which has many benefits to us all.