UK commercial real estate market continues to be a draw for
Chinese investment, with rental growth in this market, especially
in London office space, remaining attractive. Jersey sits front and
foremost as the jurisdiction in which to establish acquisition
The increase in Chinese investment overseas has partly been
driven by the recent fall in property prices in China, expected by
many observers to continue, and the Chinese government's easing
of restrictions relating to moving money overseas. For Chinese
investors looking to acquire UK real estate, trophy assets, of
which there is an abundance in London, continue to be highly
In addition to its investment options, London has other
competitive advantages as a place to do business for Chinese
investors. The Big Four in Chinese banking, namely Bank of
China, ICBC, China Construction Bank and Agricultural Bank of
China, each have large, well established operations in London and,
from a Jersey perspective, have experience of lending to offshore
real estate holding structures. London also provides access for
Chinese investors to other financial markets.
Stability and expertise are key elements in Jersey's
proposition. Jersey's low tax regime, proximity to the
financial markets of Europe and a sophisticated banking and
professional infrastructure have contributed to its success as a
base in which to establish long-term, real estate holding
structures. These structures benefit from Jersey's status
as a well-established, transparent and appropriately regulated
offshore jurisdiction. Also, whilst Jersey sits in the same
time zone as London, many of the offshore law firms, including
Ogier, recognise the value of the Asian Pacific market and now have
offices in Hong Kong and mainland China. This allows for face
to face contact, which is a key factor in establishing strong
relationships with clients.
There are a number of other advantages for those using Jersey
vehicles. These include the ability to sell interests in the
real estate holding structure, as opposed to a direct conveyance of
the underlying property, free of stamp duty or stamp duty land tax
charges (SDLT). A well-structured acquisition can reap
rewards several years down the line on an exit, with SDLT savings
being a great attraction to potential bidders.
The types of Jersey vehicles we see used for property holding
structures are Jersey property unit trusts (JPUTs), limited
partnerships and companies. A key attraction to using a JPUT
to hold UK commercial property is that a JPUT can generally be
structured as a "Baker Trust", meaning that income of the
JPUT will be directly attributable to the unitholders and taxed on
the basis of their own tax status. Unitholders will also have
the ability to set off interest and real estate operational
expenses of a JPUT against rental income. In a similar
manner, Jersey limited partnerships will generally be treated as
transparent for UK income tax purposes, resulting in partnership
income being treated as arising directly in the hands of the
limited partners who will be taxed in accordance with their own tax
Another advantage for a Jersey holding structure is that it can
register under the non-resident landlord scheme whereby rents may
be received gross of UK tax. Furthermore, Jersey holding
structures can register for VAT purposes to allow recovery of VAT
on the purchase of UK real estate.
With China set to continue its economic expansion and Chinese
investors looking for safe but stable returns with the potential
for capital growth, the appetite for real estate assets in
countries like the UK looks set to increase. As the UK real
estate market remains an extremely attractive prospect and Jersey
vehicles continue to be popular for holding such assets, we expect
that Chinese investors' current use of Jersey property holding
structures is only just beginning.
This article first appeared in Jersey Finance's Links
with China publication
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).