Despite the removal of the seeding relief exemption from UK SDLT in March 2006, JPUTs have remained popular with individuals, fund promoters and investment groups worldwide for the purchase and holding of UK property.

With the increased interest in UK commercial property and London residential property, following the rallying call that we have finally reached the bottom of the market, there has been an upsurge of enquiries relating to the establishment of JPUTs. In addition, with the proposed income tax increase for UK based top earners, such persons are now seeking new ways of generating wealth in a tax efficient manner.

What is a JPUT?

A JPUT is a specialised trust with the trustee holding the assets on trust for the unit holders (the investors). The trust instrument sets out the terms of the trust and particularly the rights of the unit holders in relation to both capital and income.

What are the benefits and why have they remained popular?

1. Tax advantages

(a) Jersey

Provided that the JPUT has no Jersey resident unit holders, it will not be subject to any tax in Jersey. There are no taxes, registration fees or duties payable in Jersey in respect of the establishment or administration of a JPUT.

(b) UK

  • Income - if the JPUT is structured as a "Baker Trust" it will be transparent for UK income tax purposes. The benefit is any income of the JPUT will be directly attributable to the unit holders (pro rata) and they will be able to set off any expenses of the JPUT against such income. Distributions by the unit trust can usually be paid gross to non-Jersey resident unit holders.
  • CGT - where the JPUT is managed and controlled in Jersey and the trustee is based offshore, the trustee will be exempt from UK capital gains tax on the sale of UK real estate.
  • IHT - another tax planning advantage is that units in the JPUT are considered to be non-UK situs assets for UK inheritance tax purposes.
  • SDLT - the sale of the units can be made free of any UK Stamp Duty Land Tax.

2. Loans/Financing/Security

A unit, for the purposes of the Security Interests (Jersey) Law 1983, is equivalent to a share in a company and as such, if required, can be subject to a security interest arrangement for the purposes of securing a loan.

3. Flexiblity

JPUTs are extremely flexible and tend to be less restrictive than its cousins in other jurisdictions (such as UK REITs). A few examples are:

  • No restriction on the percentage interest of a unit holder or the number or type of classes of units.
  • No limit on gearing.
  • It is possible to make distributions out of capital of a JPUT without the need to meet solvency or other tests.
  • No portfolio restrictions - the portfolio can consist of a single property or many properties.
  • Can be open ended or closed ended and may easily be listed on the LSE or the CISX.
  • Procedure for winding up of a JPUT is straightforward and relatively quick.

4. Tried and tested

JPUTs are regularly structured as collective investment funds. UK advisers and clients are familiar with and understand the structure and are therefore happy to replicate for new investments. Since administrators in Jersey have being working with the structure for years now they have established expertise in this field.

From a regulatory point of view, this is determined by the number and type of investors. For the more private structure, it is possible to obtain regulatory consent within 3 days.

Other uses?

JPUTs are also being used for family business and succession planning arrangements.

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.