What is a JPUT?

A JPUT is a unit trust established under the Trusts (Jersey) Law 1984 (Trusts Law).  It is a specific type of Jersey trust and is primarily used to acquire and hold interests in UK real estate.

As a trust, a JPUT is not a separate legal entity and therefore the legal ownership of assets is vested in one or more trustees who hold such assets on trust for the unitholders of the JPUT.

What are the advantages of using a JPUT?

There are many advantages to using a JPUT, the main ones being:

  1. Familiar structure – JPUTs are well known structures and their use is familiar to, and accepted by, investors, advisers, lenders and authorities in the UK and elsewhere.
  2. No auditing requirement – there is no legal obligation for a JPUT to appoint an auditor. However, it is open for the trust instrument to require this and third party debt providers generally require audited accounts as part of such financing arrangements.
  3. Ease of winding up – subject to the terms of the trust instrument, there is usually no requirement for a liquidator. Once the assets have been distributed, the JPUT will come to a natural end as per usual trust principles.
  4. Flexible arrangements – the Trusts Law is not prescriptive with the regulation of the JPUT being left to the terms of the trust instrument. Trust instruments can be tailored to meet any particular operational or managerial requirements of investors.

There are no legal restrictions on a JPUT’s ability to borrow, nor are there any gearing restrictions.  Provided the trust instrument permits it, a JPUT can grant security and security can be taken over the units in a JPUT in the same way as over shares in a Jersey company.

There are no restrictions under Jersey law as to the manner in which the JPUT may make distributions.

A JPUT can also issue different classes of units; which may allow certain investors to receive different returns on their units (similar to preference shares in a company).

Units are easily transferable in much the same way as the transfer of shares in a company.  Further, the redemption of units, or a subscription of further units, is also a straight-forward process.

  1. Control – it is possible for a JPUT to be structured to give unitholders a degree of control over the JPUT if so desired. This can be achieved in a variety of ways but the most common are (i) appointing an internal manager to the JPUT, (ii) having reserved matters which require the consent of the unitholders, or (iii) appointing director(s) to the board of the SPV trustee.
  2. Expertise – Jersey has a world-class professional infrastructure with numerous law and accountancy firms and corporate service providers, each of whom have a considerable breadth and depth of experience. Investors will find that they receive robust and expedient advice.

In addition to the above, the tax treatment in Jersey and the UK of JPUTs gives rise to a further benefit.  In particular:

  • a trustee of a JPUT will not be liable for any income tax or capital gains tax in Jersey.
  • no stamp duty is payable in Jersey or the UK on transfers of units in a JPUT (provided that the register of unitholders is kept in Jersey and the JPUT qualifies as a ‘collective investment scheme’ under UK law).
  • it is possible to structure the JPUT so that the JPUT is transparent for UK income tax purposes (see below regarding a ‘Baker Trust’).
  • a JPUT may, provided it is a ‘collective investment vehicle’ for UK tax treatment, elect to be transparent or exempt for direct or indirect capital gains made on the underlying property. The decision as to whether to be treated as transparent or exempt will depend on a number of factors but ultimately both result in only the investors being subject to capital gains tax (and if such investors are themselves exempt then no such tax will be payable).

How is a JPUT established?

A written trust instrument is required to establish a JPUT.  Such trust instrument will set out the terms on which the trustee holds the trust assets for the unitholders and will also include governance matters of the JPUT.

In order for the JPUT to be transparent for UK income tax purposes, the trust instrument should provide that the income from the trust accrues and belongs to unitholders as it arises, rather than forming part of the trust fund (known as a ‘Baker Trust’).

For the JPUT to be a ‘collective investment vehicle’ (and therefore benefit from a transparency or exemption election) under UK law there should be at least two unitholders.

The length of time required to establish a JPUT will depend on how long any commercial negotiations on the form of trust instrument take and the level of regulation (see below).  The Jersey Financial Services Commission (JFSC) can issue its consent under the Control of Borrowing (Jersey) Order 1985 (COBO) in approximately five working days if the JPUT is not a fund.

There will also need to be a transfer of property to the trustee.  Often there will be one or two initial investors who will establish the JPUT by subscribing for initial units by way of a cash subscription.  At a later date, further property (i.e., the real estate) will be contributed for the issue of additional units.

There is no public register of JPUTs in Jersey and as such, the trust instrument (and other trust documents) will not be publically available.

How is the JPUT operated and managed?

While professional, regulated trustees can serve as trustees of a JPUT, usually a special purpose vehicle (SPV) is appointed to act as trustee, because it provides unitholders with greater flexibility with regard to governance and control of the JPUT without disturbing the legal ownership of the underlying property.  There is an abundance of corporate service providers in Jersey who can administer such SPVs.

The shares of the SPV are usually held by a foundation or non-charitable purpose trust for desired commerciality.  In most jurisdictions, it is now not a requirement to have more than one trustee, however if the underlying property is located in the UK then the doctrine of overreaching needs to be considered and so it may be desirable to have two trustees appointed.  Alternatively, a sole trustee may hold the shares in two nominee companies which in turn hold the legal title to the property as bare trustees for the JPUT.

The units in a JPUT represent an undivided share of the underlying trust fund and carry the rights set out in the trust instrument.

While there is no requirement for one, a manager may be appointed to undertake the management responsibilities while the trustees undertake a custodial role.  If known at the outset that a manager will be required (and such manager is identified) then the manager may be party to the trust instrument.

In addition, a property manager may also be appointed to deal with the day-to-day management of the property, depending on the nature of the investment property.

What are the duties of trustees?

Trustees of a JPUT owe a duty to the unitholders to act with due diligence, as would a prudent person, to the best of their ability and skill, in accordance with the terms of the trust instrument; to observe the utmost good faith; and to exercise powers for the benefit of the unitholders.

Are JPUTs regulated in Jersey?

There is a large degree of flexibility in the regulation of a JPUT and the level of regulation of a JPUT will entirely depend on the jurisdiction and structure.

If a JPUT is not a fund (i.e., does not operate under the principle of risk spreading, for example by only holding a single asset) then regulation can be light and only the consent of the JFSC to the raising of money and issue of units under COBO will be required.

Where the JPUT is a fund there are a variety of regulatory options available, each with differing regulatory oversight.  For more information about Jersey funds regulation, please contact Andrew Weaver or Daniel Healy.

Conclusion

A JPUT can be an attractive vehicle of those seeking to invest in UK real estate.  They are flexible and are a tried and tested method of making such investments.

Appleby is among the leaders in corporate and finance advice in Jersey and regularly advises clients on the establishment, and on-going management, of Jersey based real estate holding structures.  We are also able to advise on any associated financing in respect of assets held in such structures.  Appleby Global Services, alongside Appleby, assists with the establishment of SPV trustees and, if required, establishment of non-charitable purpose trusts to hold the shares in such trustees.  Appleby Global Services is also able to provide governance, secretarial and administrative support to JPUTs and their trustees.

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Key Contacts

Andrew Weaver

Partner: Jersey

T +44 (0)1534 818 230
E Email Andrew

James Gaudin

Managing Partner: Jersey

T +44 (0)1534 818 337
E Email James

Mark Brady

Group Partner: Jersey

T + 44 1534 818285
E Email Mark

David Dorgan

Group Partner: Jersey

T +44 (0)1534 818 060
E Email David

Kevin McQuillan

Senior Associate: Jersey

T +44 (0)1534 818 367
E Email Kevin

Paul Worsnop

Senior Associate: Jersey

T +44 (0)1534 818 225
E Email Paul

Chris Smedley

Senior Associate: Jersey

T +44 (0)1534 818 171
E Email Chris

Gemma Whale

Senior Associate: Jersey

T +44 (0) 1534 818 166
E Email Gemma

Lebogang Maimane

Associate: Jersey

T +44 (0) 1534 818 068
E Email Lebogang

Daniel Healy

Senior Associate: Jersey

T +44 (0) 01534 818 010
E Email Daniel

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