Jersey Propco structures: still a strong foundation

A year later, the second round of such reforms took effect whereby rental income received by non-UK resident landlords became subject to corporation tax rather than income tax.

These reforms were introduced as part of the UK government’s wider efforts to tackle tax avoidance, evasion and non-compliance and are designed to ‘level the playing field’ in terms of taxation of gains between non-UK resident and UK-resident investors in UK real estate.

Notwithstanding such reforms, investors are free to structure their investments in UK real estate through offshore structures without any adverse UK tax implications and they are not required to use UK vehicles to hold such investments.

So why then should investors look to use Jersey structures?

With a more level playing field in terms of taxation, there are still a number of compelling reasons to invest in UK real estate through Jersey structures.

First, there are a number of possible vehicles which investors could utilise in structures which offer a lot of versatility.

Limited partnerships and property unit trusts (or JPUTs as they are more commonly known) provide options for tax transparent structures, while limited companies benefit from Jersey’s very flexible company law; as highlighted in the various ways profits can be returned to investors and that a Jersey company can make a distribution from a wide range of sources and not merely from distributable profits.

For those investors who have estate planning in mind, Jersey has a well-developed trusts practice and is a world leader in this area.

Jersey is in the process of establishing a new LLC vehicle which will be an attractive ‒ and familiar ‒ investment vehicle for many investors, particularly those based in North America.

Jersey companies are also commonly used in real estate investment trusts (or REITs) which are exempt from capital gains tax realised on property investments (which include capital gains made on the indirect sale of real estate by the sale of a property owning subsidiary) and suitable for real estate investment companies or private ‘club’ deals where there are at least six investors.

There really is something for everyone, no matter the disposition or tax analysis.

Secondly, Jersey has an excellent reputation as a well-regulated and transparent international finance centre.  It has robust anti-money laundering laws and has entered into over 30 Tax Information Exchange Agreements (TIEAs) based on the OECD model.

In addition, Jersey has a world-class professional infrastructure with the numerous law and accountancy firms and corporate service providers. Investors will find that they receive robust and expedient advice based on a high degree of expertise and deep and broad experience.

The Jersey Financial Services Commission (JFSC) also provides quick incorporation services and it is possible (upon receipt of all properly completed documentation) for a company to be incorporated in two hours.

Thirdly, ultimate beneficial ownership of structures is not currently publicly available. Such information is currently disclosed to the JFSC and shared pursuant to the Common Reporting Standard or TIEAs. In accordance with developing international standards, work is also underway to bring in a register of beneficial ownership consistent with the European Union’s approach to transparency of beneficial ownership data; with such register targeted at being in force around 2023.

Further, trust instruments, limited partnership agreements and LLC agreements are not (or will not as the case may be) publicly available, so investors can manage their affairs privately.

Fourthly, while the tax treatment from a UK perspective may have been levelled, neutral tax treatment in Jersey is attractive. No Jersey stamp duty is paid on the transfer of shares in a Jersey company, the units in a property unit trust or the interests in a limited partnership. There is no capital gains tax or inheritance tax chargeable in Jersey.  Jersey based international real estate holding structures also benefit from a 0% income tax rate in Jersey.

Finally, obtaining finance to acquire property (or refinance acquisition costs) should not be an issue. Most major UK, US and EU financial institutions (including both clearing banks and alternate debt lenders (such as funds)), have knowledge of Jersey structures, meaning that the involvement of Jersey entities would not be a hurdle to overcome to obtain credit sanction for financing.

The Security Interests (Jersey) Law 2012 (SIL) creates a modern, effective security regime permitting security interests to be created over present and future intangible moveable property in Jersey. Security can be easily taken, by way of a Jersey law security interest agreement, over (amongst other things):

• bank accounts maintained in Jersey
• shares in a Jersey incorporated company
• units in a Jersey property unit trust
• interests in a Jersey limited partnership.

SIL also makes available wide-ranging enforcement powers which provide lenders with a number of options upon any default in the financing arrangements.

Have UK government reforms brought a noticeable drop in use of offshore structures?

In short, no. Rather, since the UK government permitted collective investment vehicles (CIV) to make either a transparency election or an exemption election (and thereby meaning that the investors in such CIVs will not be subject to possible double taxation in a structure), we have seen a steady use of Jersey holding structures and continue to see a number of new enquiries. We have also experienced a number of structures migrating to Jersey to benefit from the jurisdiction’s reputation and expertise.

As we have outlined, there are clearly a considerable number of benefits to investors in utilising Jersey real estate holding structures, with a great deal of flexibility and variety, to form a structure to suit any investor.