The Proposed Tax Act: Implications for Gibraltar’s Property Market

The proposed Tax Act, introduced during the most recent budget, has sparked significant discussion regarding its impact on property prices and investor confidence. This update, based on BMI Real Estate’s property market podcasts, provides valuable insights for investors, clients, and stakeholders.  BMI Group’s Co-Founder and MD, Louis Montegriffo, a respected voice in Gibraltar’s property market, sheds light on this controversial topic, acknowledging the growing concerns from various stakeholders.

"Most recently, what's also had an impact on property prices, on confidence, is the proposed Tax Act," Montegriffo explained, noting its far-reaching implications on the local economy and property investment landscape.

Capital Gains Tax: A Concern for Investors

From the outset, the Act has been criticised for introducing what is essentially a capital gains tax. Montegriffo states, "Our view from the word go was that what essentially is a capital gains tax is not a positive in any shape or form."

While trading has been a significant aspect of the property market for many years, Montegriffo acknowledges that taxing trading activities is understandable and already implemented in various forms. However, he argues that the broader application of the Tax Act, including its retrospective nature, creates an unfair burden on investors who had no prior expectation of such policies.

Impact on Long-Term Investors

A key issue highlighted is the potential disruption to long-term investors and family offices that have viewed Gibraltar as a stable jurisdiction. Montegriffo warns of the adverse effects on those who structured their investments with the understanding that there would be no capital gains tax.

"Only now to retrospectively be told that if they were to sell a property, they would be subject to a tax of 15% if structured corporately or 20% plus if structured individually. I think that's unfair," he remarked.

Lessons from Jersey: A Better Approach?

Montegriffo draws comparisons with Jersey, where similar policies are being considered. However, the differences in approach are notable. Jersey’s proposals are neither retrospective nor rushed, with discussions aimed at implementing changes by 2027. This considered approach, Montegriffo suggests, is a better way to handle such significant shifts in policy.

Stamp Duty On Off-Plan Properties: A Fair Measure

The introduction of a 0.5% stamp duty on vendors of off-plan properties is viewed as a logical and equitable measure. "We take no issue with this at all," Montegriffo stated. He emphasised that this policy avoids penalising owner-occupiers, who typically purchase such properties towards the end of construction. By targeting vendors rather than buyers, the measure aligns with market realities.

Understanding Property Price Dynamics

Addressing concerns about rising property prices, Montegriffo highlighted the market-driven nature of these changes. "Property values increase not because anyone forces them to, but because the demand is there," he explained, pointing to the expectations of high-value clients driving demand for specific property types.

Interestingly, the recent boom in property prices was attributed primarily to owner-occupied large properties rather than trading in smaller units like studios. This nuance, Montegriffo suggests, should inform how policymakers evaluate the logic of the Tax Act.

Protecting Local Buyers and a Four-Tier Market

Gibraltar’s property market is distinguished by its four-tier system, encompassing low, middle, high, and upper-high segments. This unique structure ensures housing opportunities for all sections of society. "We’re probably one of the few economies around the world that actually does look after our own society," Montegriffo noted, referring to affordable housing schemes that benefit locals.

While acknowledging that no system is perfect, he stressed the importance of maintaining mechanisms that protect the local community from being displaced by high-value investors.

Retrospective Taxation: A Line Not to Cross

The retrospective nature of the Tax Act remains one of its most contentious aspects. Montegriffo strongly opposes such measures, stating, "To tax them retrospectively would be wrong." He urges policymakers to ensure that investors’ trust in Gibraltar is preserved, advocating for a fair and forward-looking approach to tax reform.

The proposed Tax Act presents both challenges and opportunities for Gibraltar’s property market. While some measures, such as the stamp duty on off-plan property vendors, are seen as reasonable, other aspects, particularly retrospective taxation, risk undermining investor confidence.

As Gibraltar continues to attract high-value clients and maintain its reputation as a stable jurisdiction, it is vital to strike a balance that protects both local buyers and long-term investors. Montegriffo’s insights underscore the need for thoughtful policies that preserve Gibraltar’s unique strengths while adapting to changing market conditions.