Most Read: Contributor Cayman Islands, January 2020
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Making investments in United Kingdom property through offshore investment structures can offer significant benefits to investors. Amongst such benefits are the "light touch" regulatory environment in Jersey, potential stamp duty savings and tax transparency, an ability to obtain greater liquidity (for example, by listing on the Channel Islands Stock Exchange) and to spread the risk of the investment, as well as potentially advantageous treatment under the UK's income, capital gains, inheritance and value added tax regimes. Using a Jersey investment structure can also benefit investors by providing the ability to manage the property investment vehicle without suffering any local income tax or deductions for withholding.


A unit trust is not a separate legal entity as such, but a trust arrangement whereby legal ownership of the fund's assets is vested in a trustee who holds, or trustees who hold, the assets of the fund on trust for the benefit of the unit-holders. For most practical purposes, a unit trust scheme will operate and be regulated in the same manner as a corporate investment fund.

The unit trust will generally be constituted by means of a trust instrument made between the trustees or between the trustees and an independent manager. In the former case, the trustees are generally responsible for promoting, managing and administering the unit trust scheme, or for appointing a manager or other adviser to do so. In the latter case, the manager will generally promote, manage and administer the scheme, and the trustees will generally supervise compliance by the manager with its obligations under the trust instrument. Subscription proceeds will be paid to the trustees which will act as custodian of the investment assets of the fund.

The trust instrument will generally contain provisions regulating the issue, redemption and valuation of units, the appointment and removal of the trustees and the manager or any delegates, the duties, remuneration and borrowing powers of the trustees, investment restrictions and for the winding-up of the trust.


Increased competitive pressures on arrangers resulted in Jersey investment structures being used more frequently in the recent past in commercial property transactions, particularly in connection with Stamp Duty Land Tax ("SDLT") planning.

Prior to 22 March 2006, a significant number of UK property transactions (particularly commercial property sales) were structured as property transfers to newly established Jersey property unit trusts ("JPUTs") in such a way (by contribution of a property, or a portfolio of properties, to the JPUT in return for the issue to the contributor of units in the JPUT) that they qualified for "seeding" relief from SDLT (under section 64A of the UK's Finance Act 2003).

On its establishment, the JPUT required the appropriate consents under the local control of borrowing legislation regulating the raising of money and issue of, inter alia, units in the JPUT.

If the vehicle was a private investment vehicle, obtaining such consents was normally a formality but information on the beneficial owners was, and will need to be, provided, on a strictly confidential basis, to the Jersey Financial Services Commission (the "Commission").

If the vehicle was to be an investment fund that was offered to a number of investors, then, in determining whether the requisite consents will be granted, the Commission will have taken into account the stature and investment management expertise of the promoter and the levels of protection afforded to investors.

The substance of any offering document would also have required the approval of the Commission and they may also have wished to review other principal documentation.


Although the UK Treasury removed the section 64A seeding relief with effect from 22 March 2006, where UK property is currently held through a JPUT, as an alternative to arranging for a conveyance of the property, we understand that units in the JPUT may be transferred to a third party purchaser without incurring any charge to SDLT. In contrast, on a direct sale of the property by conveyance, we understand that SDLT would be chargeable at rates of up to 4% (plus VAT). The savings to a purchaser will normally be reflected in the sale price.

We understand, further, that using a Jersey unit trust as against an English unit trust provides additional benefit in avoiding the necessity to pay Stamp Duty Reserve Tax at the rate of 0.5%. Hence, by initially transferring property into a JPUT, then selling the units in the JPUT, we understand that significant stamp duty savings can be made on transfers of UK property.

We are not aware of any current proposals to remove the exemption for transfers of units in unit trusts.

In addition, an offshore fund of this nature may be capable of being more widely marketed, to institutional investors for example, and may be listed on an offshore exchange (for example, the Channel Islands Stock Exchange which is a recognised stock exchange for HM Customs & Revenue purposes) to facilitate this.


Investment into UK real estate via JPUTs is generally by private (whether by equity or debt funding) acquisition of the whole of the issued units of a JPUT. Units in a JPUT are usually priced at net asset value, and the acquisition price usually takes account of any SDLT savings.

For commercial and risk management purposes, buying units in a JPUT is similar to buying shares in a private property company. Instead of trading the underlying property, the units in the JPUT are themselves sold to the new investor. In practical terms, the trustees (and the manager, if there is one) will approve the transfer of the units to the investor, in accordance with the JPUT trust instrument, on receipt of a validly executed transfer instrument (and any other documentation required under the terms of the JPUT trust instrument) and on satisfaction of due diligence by the trustees (for anti-money-laundering purposes) on the new investor.

Incoming investors are well-advised to undertake all of the usual property due diligence (whether by production of certificates of title or otherwise), as well as carrying out due diligence on the unit trust itself and its establishment (although this is generally a lesser burden than that required before purchasing shares in a private company).


Banks lending to JPUTs to fund property acquisition, or to unit-holders to fund the acquisition of the units, will typically request a security package that consists of a Jersey law security interest over the units in the JPUT themselves, and a direct UK charge, or direct charges, over the UK property underlying the JPUT.

Unit trust instruments generally contain provisions which permit the trustees of a JPUT to provide third party security in support of a unit-holder's borrowing, provided certain conditions are met.

Very occasionally, banks will request additional security, and may request general security over the JPUT's assets (usually by way of English law debenture over the JPUT's assets situate in the UK) and/or security over the JPUT's revenue stream (ie rental income) which, if not covered by a debenture, can generally be dealt with by way of charge granted by the trustees over the JPUT's rent account.

Care will also be taken by the bank's Jersey advisers to ensure that the JPUT has all the regulatory consents required, has been properly established and that the JPUT trust instrument contains provisions protecting the bank's position as secured party.


Now that the UK government has published its proposals for the introduction of Real Estate Investment Trusts ("REITs") we have been able, for the benefit of our clients, to compile a comparison of what we understand comprise the key features of each structure.




Tax on REIT or JPUT

Qualifying rental income and gains on disposals of investment properties will be exempt from UK corporation tax

Transparent for income tax purposes, so no income tax payable by the JPUT

Treated as corporate body so, if managed and controlled offshore, it may be possible to defer or avoid Capital Gains Tax

Tax on non-rental activities

Income from non-property rental activities (including development activity) subject to 30% corporation tax

Transparent for income tax purposes, so income tax not payable by the JPUT on activities that would otherwise not qualify for relief under the proposed REIT regime

Tax on distributions

Distributions of income and capital (including distributions to overseas investors) are subject to withholding tax at the UK basic rate of 20%

No withholdings on distributions (so overseas property investors, who are generally exempt from UK tax on capital gains, may continue to favour JPUTs)

Listing Requirements

Must be listed on a recognised stock exchange (note that this currently precludes a listing on AIM, but not a listing on the Channel Islands Stock Exchange)

No requirement for a listing on any stock exchange

Ownership Restrictions

If a shareholder of a UK REIT controls 10% or more of the share capital / voting rights, there will be an additional tax charge

No restriction on the percentage shareholding of any individual shareholder

Ownership Interests

May only have one class of ordinary shares and fixed rate preference shares

No restriction on the number or type of classes of units (it is possible to create an ordinary

class of units and a "carried interest" class of units)

Business Type

75% of the income and asset value of the REIT must relate to

No limits on percentage of business which


property rental business

comprises property rental business

Distribution of Profits

Must distribute 90% of its net taxable profits before corporation tax filing date

No requirement to distribute profits within any particular period


Ratio of rental profits to before interest and capital allowances to interest on loans must be more than 1.25 to 1

No limit on gearing

Portfolio Restrictions

Property rental business must include at least three properties

No single property can represent more than 40% of the total value of the property in the property rental business

No restrictions the portfolio can be made up of a single or multiple properties

Type of Vehicle

Body Corporate

Unit Trust (therefore the relatively strict statutory provisions relating to companies is not applicable)

Tax residency

Must be UK tax resident

No requirement for UK tax residency

Open / Closed Ended

Must not be an open-ended investment company

Can be open-ended

Conversion Charge

Must pay a conversion charge of 2% of the market value of its investment properties on election to convert to a REIT

No equivalent charge

Seeding Relief

No relieving provisions to allow the transfer of properties in exchange for shares in a REIT to take place free of SDLT and other tax charges

Seeding relief, which permitted the transfer of properties in exchange for units in a JPUT to take place free of SDLT and other tax charges, has been abolished


Estimates vary, but the more conservative put the total value of commercial property that has migrated into JPUTs at somewhere in the region of £30 billion, creating a significant pool of UK commercial property held offshore in which to invest. The main advantages being that:

  1. in contrast to onshore property funds and REITs, JPUTs can be established and operated as tax neutral vehicles;

  2. income generated can be distributed gross to offshore and UK-onshore investors under "Baker trust" rules;

  3. the property unit trust "wrapper" creates a tax-transparent tradeable property security; and

  4. zero capital gains tax, VAT or Stamp Duty Reserve Tax substantially reduces a JPUT's operating costs, and enhances yield for the investor.

This memorandum is intended to provide an outline of the use of unit trusts in Jersey, in particular for UK real estate investment. This Briefing is not intended to be comprehensive in its scope, and we strongly recommended that clients seek legal advice on any particular matters.


Heather Bestwick, Partner

Cayman Islands

Wayne Panton, Partner


David Whittome, Partner

British Virgin Islands

Jack Boldarin, Partne

Hong Kong

Hugh O'Loughlin, Partner


Rod Palmer, Partner

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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