Jersey has long been seen as a key centre for developing real estate investment options. The island’s fund industry has evolved over the last 30 years as a major centre for global investors looking to establish tax efficient real estate funds which would enable them to move into property markets, particularly in the UK and Europe.
Using offshore investment vehicles can have many benefits for investors. Tax transparency, particularly in a well-regulated jurisdiction such as Jersey, flexible regulatory environment, and increased liquidity being several of the key points. Depending on where funds invest there can also be advantages such as, when investing into the UK, the way stamp duty is applied, along with capital gains and inheritance taxes.
While investors use Jersey as a base for investment vehicles for various asset classes, UK and continental European real estate investment is the biggest overall contributor to assets under management in the island.
There are several reasons for the growth of the real estate funds industry. As outlined above there are specific advantages to using an international finance centre for holding an investment structure. However what makes Jersey stand out is not just the tax efficiency but the expertise of the professional community in the island. Lawyers, accountants, bankers and fund administrators are all well experienced in this field and can provide the advice, skills and knowledge promoters and investors need to move their funds forward. It is no coincidence that where this expertise is located ‘under one roof’ investors are flocking to the island to utilise those skills to their benefit. With three decades experience of real estate funds Jersey’s finance industry is well placed to provide an excellent service to both promoters and investors.
Where this experience really tells is in reacting to new legislation, restrictions and regulations. Practitioners in Jersey have a proven track record in managing complex and specialised structures through regulatory change; they have prospered where other jurisdictions have struggled to come to terms with changes and updates. Recent updates and reaction to issues such as Basel III and AIFMD, plus disclosure agreements such as FATCA show that the island’s financial sector retains a nimbleness that serves it well.
What does a real estate investment look like?
Investments funds domiciled in Jersey can be structured as open or closed-ended vehicles and corporate structures such as companies, limited partnerships, unit trusts, protected cell companies and incorporated cell companies can be utilised. The Jersey Financial Services Commission oversees and regulates various different fund categories including Very Private Structures, Private Placement Funds / COBO only funds, Expert Funds, Listed funds Unclassified Funds and recognised Funds to suit the different requirements of investors and promoters.
With so much experience on the island in the form of advisors and financial services professionals promoters and investors can be reassured that they will be recommended the most appropriate structure. These might vary between straightforward company structures or a complex fund defined by institutional investors.
What are the tax efficiencies available?
In the majority of cases it is possible to transfer UK based property in a Jersey domiciled structure without paying stamp duty. By using a Jersey company to hold the real estate, an investor can arrange for shares in the company to be transferred rather than buying or selling a property outright. Stamp duty land tax does not apply to transfers of interests in structures holding UK property. Properties held via a Jersey structure are also not subject to capital gains or inheritance tax in the UK.
In addition to this benefit, holding a property within a Jersey structure means that investors can apply for the UK’s non-resident landlord scheme. This is relevant where the property is held for commercial purposes as a rental investment and takes advantage of the double tax treaty between the UK and Jersey to optimise the tax treatment of the company.
Further tax benefits can be gained by looking at income tax. A limited partnership will generally be deemed to be transparent for UK tax purposes. Therefore any income or capital gains are viewed as directly attributable to the partners. They are therefore taxable against their own tax position.
What about taxes in Jersey?
Jersey’s corporate tax environment is very favourable. Structures established and administered in the island, whether they are a company (open-ended or closed-ended), a unit trust or a limited partnership, are exempt from taxation in Jersey. Withholding tax is also not imposed on dividends or payments made by the company.
Jersey’s tax system does not include provisions for stamp duty, inheritance tax or capital gains tax, nor corporation tax nor VAT. Investment vehicles established in the island have therefore a limited tax footprint here, leaving them free to manage their overseas tax affairs in the most efficient way possible.
The combination of tax transparency, tax efficiency and a well-stocked pool of financial services practitioners make Jersey an excellent jurisdiction for the establishment of real estate investment funds. The island’s flexible regulatory regime, particularly with regard to fast-track establishment of companies is also a real benefit to investors in the real estate space and this is a key part of the island’s continuing position as a leading real estate centre.
First published by the Jersey Evening Post, September 2014