It is also interesting to note that during the consultation process it was made clear by HMRC in the UK that the NRCGT regime was not designed to encourage investors to simply structure their investments using UK entities but to establish a level playing field between UK and non-UK entities in relation to CGT.

The rules are fairly complex and UK tax advice should be sought when structuring UK real estate investments but there are two elective regimes which allow offshore entities (often Jersey SPV companies or Jersey Property Unit Trusts (JPUTs)) to either be (i) treated as transparent for NRCGT; or (ii) exempt from NRCGT but subject to on-going filing and reporting requirements.

Both of the exemptions only apply to collective investment vehicles (CIVs). The definition of CIV is broad and includes collective investments schemes as defined in the UK’s Financial Services and Markets Act 2000, alternative investment funds pursuant to AIFMD and real estate investment trusts (REITs).

The decision as to whether to be treated as transparent or exempt depends on a large number of factors and should be considered on a case by case basis with UK tax advisers. When new structures are set up the desired tax treatment and likely investor requirements should be considered at an early stage.

Transparency Election

This only applies to income transparent CIVs, the classic example of which is the JPUT. The election is irrevocable and must be consented to by all investors. There are certain time limits that apply to making the election depending on when the CIV is established. For example, for pre-5 April 2019 established CIVs the deadline is 5 April 2020.

It is anticipated that the transparency election will primarily be used by CIVs with a limited number of investors that are not expected to change over time. A JPUT set up as part of a “buy and hold” strategy is a good example of this. The UK real estate will be acquired and held in the JPUT for a period of time. There may be development and letting of the property and ultimately a sale of the property or the units in the JPUT. Upon a sale there will be no NRCGT at the JPUT level. Investors will be subject to CGT in the normal way.

Accordingly, for certain tax exempt investors in the UK or elsewhere this may be a very attractive option and allow a traditional tried and tested method of UK real estate holding to continue.

In addition, investors who are subject to CGT or NRCGT should only pay this tax once (ie on the gains they receive) as there is no tax at the JPUT level.

Exemption Election

For a CIV which (i) has diverse ownership (subject to a UK statutory interpretation); (ii) is non-close (typically not controlled by 5 or fewer investors) and has shares traded on a recognised stock exchange (including TISE); or (iii) is non-close and no more than 25% of the value returned on an anticipated liquidation would be subject to UK tax there is an exemption election available.

Working out whether the election exemption is available in the first place as well as analysing whether or not it is appropriate is a matter for UK tax advice. We expect that this exemption will be popular for real estate property funds and the Jersey Private Fund regime will likely be used for a number of these structures if there is not a desire to do more of a “retail” offering.

Under this exemption the CIV and all of its subsidiaries will be exempt from CGT in relation to direct and indirect disposals of UK real estate.

This exemption is applied for by the manager of the CIV and (unlike the transparency election) does not require investor consent. One big advantage of this exemption is it allows more complex or layered structures to benefit from the exemption. An example would be a Jersey REIT which holds assets via a series of SPVs. It ensures there is not taxation at multiple levels in these structures.

For investors who are subject to CGT or NRCGT they will pay tax on disposals of interests (eg. shares, units, partnership interests) in the CIV itself. Investors who would not be subject to CGT or NRCGT by virtue of being exempt themselves will continue to benefit from this treatment.

In return for obtaining the exemption election the CIV or its manager will need to make annual filings with UK HMRC disclosing various details in relation to the CIV and its group. This information will include disposals made, details of investors and any disposals or other capital transactions involving the CIV’s investors.

Summary

The availability of the elections allows investors to use traditional Jersey structures such as JPUTs or Jersey REITs and be treated in a similar manner to equivalent UK structures for CGT purposes.

Detailed UK tax advice should be obtained both in relation to existing structures and setting up of new structures but the rules will allow investors to continue to use Jersey entities as holding vehicles for UK real estate with all the familiar advantages and of the Jersey legal and regulatory regime which they will be used to.

Share
Twitter LinkedIn Email Save as PDF
More Publications
11 Jul 2023

Proposed Regulation of Consumer Credit in Jersey

Find out more about the Jersey Government’s suggested regulation of the consumer credit regime and...

1 Jun 2023

What is a Pre-Let Agreement?

Whether you're a landlord or tenant looking for pre-let advice, we can help. Our expert property law...

17 May 2023

More changes to Jersey's Anti-Money Laundering Regime (AML)

Our experts look at latest proposals to the legal and regulatory anti-money laundering framework in ...

10 May 2023

Establishing a single family office in Jersey

Want to know more about establishing a family office in Jersey? Find out what a family office is and...

27 Apr 2023

Change of control of regulated entities in Jersey

Find out how Appleby Jersey has advised upon a number of changes of control scenarios in different c...

20 Mar 2023

Trusts: Comparison between the Crown Dependencies

Our Private Client and Trusts specialists in Guernsey, Isle of Man and Jersey outline some of the ke...

15 Mar 2023

Changes to the Jersey Competition Law Framework

Following the launch of the Government of Jersey's consultation on proposed changes to the competiti...

14 Mar 2023

Jersey Property Unit Trusts and the Trust Regulation Service

Our Appleby team looks at HMRC's recently updated guidance on Jersey Property Unit Trusts (JPUTs) an...

23 Feb 2023

Enforcement of security under the Security Interests (Jersey) Law 2012

Find out more about why the Security Interests (Jersey) Law 2012 (2012 Law) makes Jersey popular as ...

22 Feb 2023

Listing Variable Funding Notes (VFNs) on The International Stock Exchange (TISE)

This article explores what a Variable Funding Note is and offers an introduction to what is required...