Stamp duty. Capital gains tax. Value-added tax. Nightmare.
If you've tried to invest in UK Real Estate you know the struggle...
With so many tax laws and regulations, it's no secret that the UK isn't always the best place to do business.
Most tax regimes don't exactly attract investors; instead, they often provide yet another obstacle to investing in property.
Consequently, investors are often looking for ways to legally manoeuvre around these restrictions so that they can maximise the value of their properties.
One of the most popular ways to do this - for a host of reasons - is by setting up a Jersey Property Unit Trust (JPUT).
A JPUT is often used to buy and hold real estate in the United Kingdom, and around the world.
Unlike a company, a Jersey trust is not a legal entity and its assets are managed and held by trustees.
A JPUT requires a person or entity to act as a trustee. The trustee can be the direct holder of the real estate assets or, alternatively, it can hold via nominees or indirectly through other entities which it owns (they call this “arms length asset protection”).
JPUT's are required to have a minimum of two unit-holders (investors into a fund), the second unit-holder is commonly the subsidiary or an affiliate of the first unit-holder.
Unit-holders own units in the JPUT in the same way that shareholders own shares in the company.
The trustee will be the legal owner of the JPUT's assets, whereas the unit-holders will be the beneficial owners.
This is different from a company, where the investors have no direct ownership interest in the company's assets.
JPUTs can be funded in a variety of ways, including with cash (when an investor "buys" units with money), real estate or other assets, or loans. The trust agreement must be drafted according to any unique criteria.
What are the advantages of a Jersey Property Trust?
Familiarity: JPUTs are widely recognised and approved by investors, lenders, advisers, regulators, and tax officials in the United Kingdom and internationally.
Flexibility: In Jersey, there are few restrictions on the terms of a JPUT's governance arrangements (such as trustee powers, reserved matters, and distribution entitlements and arrangements); they can be tailored to meet business goals.
Ease of establishment: A JPUT is simple to set up, requiring only a trust instrument, an initial trust fund (typically a small sum of money), one or more trustees, and appropriate permission or regulatory approval.
Ease of asset transfer: It's easy to get money or assets into or out of a JPUT
Confidentiality: JPUTs aren't required to file publically-available information on the Jersey Companies Register as they aren't a legal entity. Therefore the trust instrument (the key constitutional document of a JPUT), the register of unit-holders, and the consent issued by the JFSC, aren't publically available documents.
Tax-efficiency: No income or capital gains tax is payable in Jersey by a JPUT trustee. No stamp duty is charged in Jersey or the United Kingdom on transfers of units to a JPUT. Read more about the tax benefits below.
Taxation in Jersey - How to reduce Your Property Tax: Learn how with our easy guide to the Jersey Property Trust Below
NOTE: When the unit-holders of a JPUT are not Jersey residents, the trustee of the trust doesn't pay tax on the assets.
Here are some more advantages:
The standard income tax rate in Jersey is 20% for Jersey residents (0% for everyone else).
Stamp duty is not paid on share transfers if the share register is kept outside the UK.
The source is exempt from dividend tax.
Capital gains are not taxed.
The value-added tax in the United Kingdom does not apply in Jersey.
Given its structure, a JPUT offers significant asset protection for anyone looking to minimise tax and store some wealth for a rainy day
Find out about UK tax treatment of JPUTs here.
How do you establish a JPUT?
There are a few steps you need to follow in order to establish a JPUT.
The following is required:
An entity must be chosen to act as trustee of the JPUT
JPUT will need regulatory approval from the Jersey Financial Services Commission (JFSC) before issuing units. The trustee must sign a trust document establishing and detailing the terms of the JPUT.
The JPUT will necessitate the use of the trusted property. Typically, one or two 'founder' investors will form the JPUT by paying for initial units in the trust (e.g., £100 for 100 units issued at £1.00 each).
The trustee will need to conduct a board meeting to approve, among other things, its nomination as trustee, the execution of the trust instrument, and the initial distribution of JPUT units.
The Jersey Financial Services Commission will typically take at least five business days to approve an application for the establishment of a JPUT.
Therefore it will take at least five business days to set up a JPUT.
There are different regulatory requirements for JPUTs depending on their size and complexity.
Non-Fund JPUTs: A single asset with one or two investors. The Control of Borrowing (Jersey) Order 1958 only demands simple permission to raise funds and issue units, known as COBO Consent. It will take around five days to receive COBO consent.
JPF (Jersey Private Fund): For joint ventures and several investors (<50), mainly if JPUT owns multiple assets. Due to a quick approval system and a light regulatory approach, JPFs have proven to be quite popular since their launch in 2017.
Collective Investment Fund (CIF): A JPUT may be regulated as a CIF if it is a fund with multiple assets and investors (typically, as an Expert fund). In this case, the JPUT will need to apply for a fund certificate.
How much does it cost to set up a trust?
It's surprisingly affordable to establish a JPUT, making this solution relatively accessible ie. not only wealthy people.
An attorney will typically charge approximately £1,500 to set one up.
This is a small price to pay when you consider how much money you will save by using a JPUT.
If you can't think of anyone you know personally who might be a good trustee, you can choose to hire a professional to oversee your trust. However, before you choose this alternative, you should examine how much the costs for a service like this will affect the overall value of the trust.
Although it is possible to prepare the legal documents yourself, it's very risky.
Disclaimer:
Please keep in mind that the purpose of this blog is to provide an overview of the topics covered. This is not legal advice and should not be treated as such. You should of ALWAYS seek independent advice, and never invest money you are not prepared to loose.
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