Planning on Moving to Gibraltar from the UK? You Need to Consider the Implications for British Citizens with No Material Connection to Gibraltar

Planning on moving to Gibraltar from the UK? You need to consider the implications for British citizens with no material connection to Gibraltar.

Gibraltar residency rules have been tightened up Post-Brexit, making it harder for British expats thinking of moving to Gibraltar on self-sufficiency grounds.

Gibraltar’s Budget announced changes to Gibraltar tax for individuals without a Category 2 certificate, what are the options?

As well year-round sunny weather, great food, friendly people and vibrant culture, one of the Rock’s prime attractions for British expats is the famously benign Gibraltar tax regime. This included no inheritance or succession taxes, no wealth or capital gains taxes, no VAT and no taxes on savings and investment dividends.

The post-Brexit agreement between the UK and the EU at the end of 2020 may pave the way for a treaty to be ratified whereby Gibraltar would secure access to the Schengen Area, (without the need to join the common travel area), meaning visa-free travel for any British expat moving to Gibraltar from the UK.

It’s a state of affairs that has long made retirement in Gibraltar a highly attractive prospect for wealthy UK expats, with many choosing to move here.

However, major announcements in Gibraltar’s annual budget mean that any UK nationals living in Gibraltar or moving to Gibraltar should consult a financial advisor about their financial affairs and tax planning. Here’s what you need to know.

Gibraltar Residency via Self Sufficiency

There are various routes to Gibraltar residency, dependent on whether you have earned income or passive income.

As there is no tax to pay on many types of passive income in Gibraltar (aside from 2.5% on specific pension schemes such as a Gibraltar QROPS or QNUPS), UK expat retirees often choose to apply for Gibraltar residency on self-sufficiency grounds.

Applications for Gibraltar residency on self-sufficiency grounds are processed under Gibraltar’s Immigration, Asylum and Refugee Act. Under its auspices, UK citizens who have no material connection with Gibraltar are treated as EU nationals. Those wishing to take up residency must do so as a ‘qualified person’. Practically, what this means is that British citizens can only apply for Gibraltar residency on self-sufficiency grounds via two routes.

The first is for British citizens of retirement age who intend to make Gibraltar their permanent home and can transfer their UK medical rights to Gibraltar.

The second option for self-sufficiency residency is if you enter Gibraltar on an employed or self-employed basis.

Many UK expats who meet the above requirements successfully obtain Gibraltar residency. However, it’s essential you seek advice from a qualified Gibraltar relocation expert who will be able to guide you through the process, particularly as criteria for self-sufficiency residency could change in the future.

Category 2 status in Gibraltar

Another route to Gibraltar residency is a Category 2 certificate, a Gibraltar tax status designed for high-net-worth individuals and their families.

Holders of a Category 2 certificate are taxed only on the first £118,000 of assessable worldwide income, and anything in excess is not subject to Gibraltar income tax. While there is a minimum annual tax payment of £37,000, your maximum tax payable is just £44,470. Category 2 status is lifelong, subject to you meeting the eligibility requirements on an ongoing basis and can include a spouse/civil partner and dependent children.

This is an appealing option for high-net-worth expats moving to Gibraltar in receipt of a significant amount of untaxed income from global business interests who want to minimise their tax liability as much as possible. As there are no legal requirements as to the length of stay each year in Gibraltar, a category 2 certificate could also suit expats who still plan to travel frequently or spend time in the UK.

If you do decide to pursue a Category 2 certificate, requirements include evidence/proof of the following: a minimum net worth of £2 million; ownership or rental of appropriate accommodation for you and your family’s exclusive use (approved by Gibraltar’s Finance Centre Director); and private medical cover for you and your family.

In addition, you must prove that you have not had Gibraltar residency for the five years preceding the application. You must also not engage in a trade, business or employment that competes with a local Gibraltar business. Category 2 individuals also have to pay tax one year in advance.

While a Category 2 certificate is certainly a valid pathway to Gibraltar residency, its stringent requirements mean it is unlikely to be suitable for many UK expats, who will find attaining residency on self-sufficiency grounds the more tenable option.

Gibraltar Tax Residency

You should be mindful of the rules that will deem you ‘ordinarily resident’ in Gibraltar and thus liable to pay Gibraltar income tax. This will happen if you spend at least 183 days a year in Gibraltar or more than 300 days over three consecutive years.

You should also take advice to ensure you don’t accidentally trigger tax residency in other jurisdictions.

If you plan to make regular trips back to the UK then the 2013 UK Statutory Residency Test will let you select the date when you exit the UK (and become non-resident) and will determine how much time you can spend in the UK without triggering UK tax residency again.

If you intend to spend time in Spain (for example at a holiday home or travelling), seek advice from a financial advisor on any potential double taxation issues. Gibraltar and Spain’s recent international tax treaty, which came into force in March 2021, sets out criteria for establishing Spanish tax residency. This includes at least 183 overnight stays in Spain during a calendar year; if you spouse/partner and dependents habitually reside in Spain (so called centre of economic and vital interests); your permanent home is in Spain; or two-thirds of your assets are located in Spain.

Even if any of the above criteria do not apply, you can still be considered a Spanish tax resident unless you prove you spend more than 183 days in a year in Gibraltar and have a permanent home there. In addition, a Category 2 certificate does not constitute proof of Gibraltar tax residency and thus will not provide immunity.

Gibraltar budget announcement

The status quo for self-sufficient expats changed in June 2022 when the chief minister of Gibraltar, Fabian Picardo, announced in the annual budget that any non-Gibraltar national with Gibraltar residency who did not have a Category 2 or HEPSS certificate, and who was not in true third-party employment would henceforth be taxed on their full savings income, including pensions, interest, dividends and other passive sources of income.

It was a measure designed, the chief minister stated at the time, to address the problem of certain self-sufficient residents not paying Gibraltar tax.

However, bear in mind that thus far no actions have yet been taken. A general election is likely looming for Gibraltar later this year, and the government may have included these changes to ensure it is perceived by voters as spreading the tax burden fairly. Gibraltar’s budget is currently in deficit (and will continue to be this year) and Picardo’s announcement included an array of increased taxes and costs for workers and local businesses – an unpopular move when many are suffering the effects of Covid and the current cost-of-living crisis.

Depending on the outcome of the general election, there’s a chance the situation may change again, whether due to the current government changing its agenda once it is secure in another term, or a new administration taking over entirely.

While it remains to be seen whether these changes for UK expats with Gibraltar residency on self-sufficiency grounds will actually take place, they will nevertheless need to urgently review their Gibraltar tax and financial planning in light of possible developments.

The solution for expats seeking retirement in Gibraltar

The Budget contained an accompanying announcement that any non-Gibraltar nationals affected by the new taxes on passive income would be able to retrospectively apply for Category 2 status as long as they meet eligibility requirements and pay any outstanding tax in Gibraltar.

However, requirements for a Category 2 certificate are extensive and will not be suitable for all British expats. In addition, though requirements have been toughened, achieving Gibraltar residency on self-sufficiency grounds is still very much a viable option if you pursue via the transfer of UK medical rights as a pensioner or through employment or self-employment.

If you do pursue a Category 2 certificate, be aware that a Category 2 status does not protect you from UK lHT liability. Though Gibraltar has no inheritance tax, issues of domicile are complex and difficult to change, so it is entirely possible you could be liable to pay IHT in the UK unless you take the appropriate tax planning advice from a financial advisor.

You should also be aware, as mentioned earlier, that a Category 2 certificate doesn’t shield you from tax residency in another country – a factor to consider for those individuals who want to spend long periods over the border in Spain.

Seek expert advice on Gibraltar tax

If you are affected by the recent changes to Gibraltar’s tax regime then it is essential that you make a plan to minimise your tax burden and protect your wealth.

The best way to do this is by seeking expert financial advice from a local wealth management or financial advisory firm with experience in servicing UK expats in Gibraltar. In particular, look for a firm knowledgeable in the needs of wealthy individuals, entrepreneurs and senior executives with cross-border financial assets and business interests.

They will be best placed to advise you on issues concerning Gibraltar tax, residency, tax planning and so on. This will include close guidance and support when applying for either self-sufficiency or a Category 2 certificate, as well as bespoke tax-planning solutions for those UK expats already living in Gibraltar with self-sufficiency status who are not eligible for a Category 2 certificate.

Don’t delay. Consult a relocating to Gibraltar expert now who will be able to guide you in your wealth, tax and retirement planning needs, and ensure you avoid making any costly mistakes.