The first step is probably to know exactly what is it that we are looking for with regards to size in square metres, number of bedrooms and type of property needed. Do we want to be in the new developments in the lower side of the Rock? Or are we looking for a prime position on marina front? Or are we the classic type and wish to live in the town area in one of those beautifully restored buildings? Difficult choice no doubt, but this is the most important factor to be able to focus properly on the purchase.
The key factor that can arguably be the most important to determine the final purchase is called location. Always the most important when it comes to property investment; location, location, location! Unless you know Gibraltar really well and inside out, you must be in the best of hands from the beginning. A good professional must not only find you the best suitable property within your set budget but also guide you through the different steps to reach your goal successfully. This is of great relevance as Gibraltar has a small and healthy property market where supply is somehow limited and often smaller than demand. Hence, you should try and get it right from stage one since a mistake in choice could result in complicated second choices with limited supply.
Another key role is our final budget. Once we know exactly how much we are willing and can afford to spend, it will be a lot easier for our estate agent or business consultant to find us the right property.
Once these steps are completed, you should know whether you are ready to purchase the property with your own resources or if you need some form of mortgage finance. If the latter applies, I suggest you look carefully into property finance in Gibraltar (check July’s article in The Gibraltar Magazine) to decide the amount of the loan and different types available. Your estate agent, business consultant or lawyer should be of invaluable help and could happily make a personal introduction to the chosen building society or bank.
Once we are ready with finances, how do we proceed?
Normally, in Gibraltar, the buyer is expected to pay 2% deposit to the estate agent or property developer. It is important to know that all modern developments in Gibraltar are built on government land which grants a lease of 150 years to the development company which is, de facto, the Headlease that grants an Underlease to the final buyer. Freehold properties do exist as well, perhaps to a limited extend and in older type of buildings.
Gibraltar is no different from other jurisdictions in the sense that it is very wise to appoint a solicitor to represent you through all the legal sides of the purchase. The correct designation of your estate agent or business consultant plays an important role here as they both know who the right lawyer for your specific transaction is. There are excellent law firms in Gibraltar so this should be a straightforward task. Expect to pay a minimum fee of about £1,000 for legal fees with a maximum of about 0,5% of the sale price. This amount could be lower or higher, depending on the law firm chosen.
It is important to bear in mind that in Gibraltar the legal principle of “Caveat Emptor” (let the buyer beware) applies. For your own safety and protection, a surveyor should be hired, regardless of whether you need finance or not, to give you the full picture of the condition of the property and it is essential if you are buying an older property. This is part of the mortgage requirements needed by any bank should you intend to apply for a mortgage loan.
Other expenses to account for are stamp duty on the purchase price and on the mortgage amount to be borrowed. It is important for buyers to know that there is no stamp duty to be paid by first and second time buyers on the first £260,000 of the final price. The Gibraltar Stamp Duties Act 2005 relates only to transactions of property located in Gibraltar and they are the following:
0% to be paid where:
- The property value does not exceed £200,000 or
- The property value is lower than £260,000 and the buyer is a first or second time buyer or
- Where the property is being transferred between spouses or, following the dissolution of a marriage, between former spouses.
2% on the first £250,000 and 5.5% on the balance, where the property value exceeds £200,000 but does not exceed £350,000 and
3% on the first £350,000 and 3,5% on the balance where the property value exceeds £350,000.
Then we must account for another stamp duty if the property is financed with a mortgage loan. The amount would be 0,13% where the amount borrowed does not exceed £200,000 and 0,20% for amounts in excess of £200,000.
Land Titles Register
A fixed figure of £125 must be paid per deed for recording the transaction in the Land Titles Register.
Again, if we have a mortgage, 0,2% of the loan amount would apply as well.
Tax relief is a very relevant point to have in mind and in a nutshell, these would be as follows:
Tax Relief on Mortgage Interest
Tax Relief on qualifying Life Insurance Premiums
Tax relief for first time buyers
It is of major relevance to check the above three points plus other relevant points with your business or financial consultant.
As mentioned in former articles, there is no capital gains tax in Gibraltar so any profit, no matter the size, made from the sale of a property is 100% free from any taxation given the fact that it is not done as a business activity.
Running costs are also another factor to consider and most of leasehold Gibraltar property pay service charges to the management company, GPR and ground rent. These amounts should be known by you before you decide to go ahead with the purchase.
In general terms, all the above expenses and tax implications are very reasonable and simple to follow. The Gibraltar system is very user-friendly and the taxes probably lower than in other European jurisdictions. These facts plus the balmy Mediterranean weather we enjoy in this southern part of Europe make Gibraltar an interesting choice to buy property.