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09 December 2020

Jersey Property Unit Trusts (JPUTs)

Jersey Property Unit Trusts (JPUTs) are a popular, tax-efficient and widely understood vehicle for investments and fund structures that acquire and hold UK real estate.

What is a JPUT?

A JPUT is a Jersey trust whereby legal ownership of the assets (usually UK real estate) are held by one or more Jersey based trustees who hold the assets on trust for the benefit of the unitholders upon the terms of a written trust instrument. Unlike a company, a JPUT is not a separate legal entity. The main attraction is the ability to use a simple, flexible structure which, through election, can effectively be transparent for UK tax purposes
A JPUT will issue units to each unitholder in a similar way a company issues shares to its shareholders. The units are transferable, meaning that ownership of the underlying assets can be transferred by a sale of the units in the JPUT. The rights of the unitholders are set out in the trust instrument.

Establishing a JPUT and timeframes

The following is required to establish a JPUT:

  • An entity must be identified to act as trustee of the JPUT.
  • A regulatory consent (the COBO Consent) will be required from the Jersey Financial Services Commission (JFSC) to allow the JPUT to issue units.
  • The trustee will need to execute a trust instrument establishing and setting out the terms of the JPUT.
  • The JPUT will require trust property. This is usually one or two founder investors who will subscribe for units in the trust by way of cash subscription.

The JFSC will usually take a minimum of five business days to issue the COBO Consent to the JPUT. This is therefore the minimum timeframe in which to establish a JPUT. If the JPUT is established as an investment fund, there will be additional regulatory requirements, which will impact on timeframes.

As a JPUT is not a separate legal entity it does not appear on the publicly available register published by the JFSC. A JPUT’s trust instrument, register of unitholders and any consents issued by the JFSC are also not publicly available.

Who can act as trustee?

A JPUT must have a minimum one trustee.  However, if the JPUT will directly hold UK real estate it is usual to have two trustees, to address UK real estate law requirements.
The trustee can either be a pre-existing regulated Jersey trust and corporate service provider such as Hawksford, or more commonly, a special purpose vehicle will be incorporated to act as a trustee (an SPV Trustee), which can be administered by Hawksford. An SPV Trustee will typically be administered by a regulated Jersey trust and corporate service provider and can therefore rely on an exemption from regulation, and so the JPUT will need to be structured to fall within an appropriate exemption. If Hawksford acts as the Jersey corporate service provider then we would typically provide the directors, a company secretary, a registered office and other administration services for each SPV Trustee and the JPUT.

The main benefits of using an SPV Trustee are:

  • Greater flexibility on a sale of the UK real estate;
  • It may (subject to tax advice) offer the unitholders a degree of control over the trustee by allowing them to appoint directors to the board of the SPV Trustee; and
  • Less execution risks on a financing (as the SPV Trustee has no other business interests which may be put at risk).

Duties of the SPV Trustee

Jersey trustees must comply with the terms of the trust instrument, are regulated by the JFSC and are also subject to Jersey’s trust law, the Trust (Jersey) Law 1984. The trustees have an obligation to act with due diligence, as would a prudent person, to the best of their ability and skill, to observe the utmost good faith and to exercise the trustee’s powers only in the interests of the unitholders and in accordance with the terms of the trust instrument.

This combination of legal and regulatory obligations provides protection for unitholders, who are placing funds and assets with the trustee.

UK tax treatment

  • CGT and CT

    In April 2019, the UK’s CGT and CT regimes were altered to bring non-UK investors into scope on any direct or indirect gains in relation to investments in UK property. This led to several issues being raised, including previously tax-exempt investors such as pension and sovereign wealth funds now being subject to tax. However, certain exemptions were made available which have contributed to the continued popularity of JPUTs:

    • Transparency election: JPUTs may elect to be treated as transparent for any gains subject to satisfaction of certain conditions. Investors in JPUTs making a transparency election will be taxed in their own hands on any gain made in respect of investments in UK property and therefore: i) the status of exempt investors is preserved (ie for pension and sovereign wealth funds); and ii) no double-tax will result as a consequence of investment through these vehicles.

     

    • Exemption election: UK property-rich Jersey fund structures (including JPUTs) which are widely held and prepared to fulfil certain reporting requirements can elect to be treated as exempt. This means that not only the fund itself but also any underlying holding entities will be disregarded for CGT/CT purposes (in respect of UK property gains), and investors will be taxed in their own hands on any gain made on their interests in the fund.
     
  • Income tax

    If a JPUT is a 'Baker Trust' (ie the trust instrument provides that the income from the trust accrues to and belongs to unitholders as it arises, rather than forming part of the trust fund for later distribution), the JPUT should be treated as transparent for UK income tax purposes. As a result, only the unitholders (and not the JPUT) are subject to UK income tax, putting them in the same position as if they had invested directly in the property. This may be beneficial for tax exempt investors.

     

  • SDLT

    The sale of any units in a JPUT should not be subject to UK stamp duty land tax.

  • Jersey tax treatment

    The Jersey tax treatment of a JPUT is as follows:

    • No Jersey income tax or CGT is payable by the trustee (provided that no unitholder is a natural person who is Jersey tax resident).

    • No Jersey withholding tax is applied on interest payments or distributions by the trustee (provided that no unitholder is a natural person who is Jersey tax resident).

    • No stamp duty is payable on the transfer of any units.

JPUT unitholders

For UK regulatory reasons JPUTs usually have a minimum of two unitholders. It is common for the second unitholder to be a subsidiary or affiliate of the first unitholder and to hold significantly less units in the JPUT compared to the first unitholder.
The rights of the unitholder and their relationship with the trustee will be set out in the trust instrument. Unitholders can maintain a degree of control over the trustee by, including limitations on what the trustee can do under the terms of the trust instrument. The rights of unitholders may vary depending on the number of units they hold in the JPUT.

Winding up a JPUT

The trust instrument will usually set out a procedure to wind-up the JPUT. Jersey law provides that all of the unitholders acting together will generally be able to require the trustee to terminate the JPUT. On termination the assets held by the JPUT will be distributed to the unitholders by the trustee within a reasonable time.
There are no Jersey filings that need to be made and no specific statutory or regulatory timetable that needs to be complied with. There is also no formal requirements to advertise for creditors.

 

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