Continuing volatility in the worlds financial markets has left investors looking for alternative investment assets that will provide long-term stable income and the potential for capital gains.
Tax benefits, including stamp duty savings, tax deductibility of interest and operating expenses and Value Added Tax efficiencies, make the Channel Islands an ideal environment for real estate investment structures. Jersey, in particular, has developed significant asset class experience and know-how in relation to commercial property investment structures.
The benefits of using a Channel Islands structure to hold real estate assets include the ability to manage and control the investment vehicle without suffering any local income tax or deductions for withholding. Market practice has resulted in large numbers of Jersey holding vehicles being used by international investors for UK commercial property transactions. The holding structures available in Jersey include property unit trusts, companies and limited partnerships, all of which can be established as investment funds. In addition, private trusts and various types of partnership can be used. Meridien International can advise on the structuring options available from straightforward property holding vehicles to complex investment fund structures set up for a range of international investors. We can also assist with the establishment and ongoing operation of real estate investment structures.
Advantages of Jersey
Stability and expertise are key elements in Jerseys proposition. The Island is a well-established, transparent and sensibly regulated offshore jurisdiction in the same time zone as London. The Island has substantive experience of commercial property as an asset class and in the set up and operation of real estate investment structures. In 2012, the City of London index of international competitiveness ranked Jersey as the top rated international finance centre. Jersey’s low tax status, proximity to the financial markets of Europe and a sophisticated banking and professional infrastructure have also contributed to the success of the Island as a base in which to establish long-term, real estate holding structures.
The use of Jersey investment vehicles to acquire and hold real estate offers significant benefits to US investors in terms of fiscal efficiencies and expertise. Specifically in relation to the UK, these include the ability to manage and control investment vehicles, deductions for withholding, stamp duty savings, exemption from UK capital gains tax, fiscal transparency and flexible regulation. These advantages are set out in more detail below.
Tax Efficiency
The use of a tax transparent or tax neutral Jersey investment vehicle frequently enables investors to mitigate exposure to taxation in the jurisdiction where the property is situated.
- Income Tax
- Non-resident landlord scheme
- VAT
- Stamp Duties
Jersey Taxation
JPUTs, limited partnerships and companies (in most circumstances) will be taxed in Jersey at the rate of 0% on their worldwide income and will not be subject to withholding tax on any dividend or other payment made by them.
There is no capital gains tax, corporation tax, stamp duty, VAT or inheritance tax payable in respect of the issue or realisation of units in a JPUT, shares in a Jersey company or interests in a Jersey limited partnership and no corporation tax, inheritance tax or withholding tax is applicable in Jersey to any unit holders, shareholders or partners of such vehicles.
In addition, no stamp duty is payable in Jersey on the transfer of units, shares or partnership interests.
Regulation
Jersey is a well regulated and stable jurisdiction in which to establish real estate holding structures and the flexibility in structuring and regulatory options that Jersey offers means that it continues to be well regarded by investors.
Distributions
In comparison to UK corporate investment vehicles, JPUTs and Jersey limited partnerships are extremely flexible in terms of their ability to make distributions. There are no Jersey legal or regulatory limitations in the exercise of the trustees power to distribute trust assets to unitholders or the source from which such distributions may be made (although, where there is more than one unitholder, the trust instrument will usually provide for distributions to be made in proportion to the units held). A Jersey company may make a distribution from any source (other than its nominal capital account and capital redemption reserve) subject to satisfying certain solvency tests. In particular, a distribution can be made from a share premium account (for a par value company) or a stated capital account (for a no par value company) and, in either case, from a profit and loss account, even where a company has accumulated losses. Similarly, Jersey limited partnerships are highly flexible in their ability to make distributions out of income and capital.
Management and Control
The place in which an investment holding structure is managed and controlled will be a question of fact determined by looking at by whom and from where the strategic direction of an entity is exercised. An investment structure established in Jersey needs to ensure it is managed and controlled outside the UK.
