Transparency Election – 5 April Deadline Looming for Jersey Property Unit Trusts

Jersey property unit trusts ("JPUTs") have been and continue to be a very popular vehicle through which to hold UK commercial real estate.

JPUTs used in UK real estate holding structures are typically structured as "Baker trusts" making them transparent for UK income tax purposes. This has made them popular with UK tax exempt investors such as pension funds.

From April 2019, gains made by non-residents on direct and certain indirect disposals of UK commercial real estate are subject to UK capital gains tax. A number of issues with this were raised in consultation, including that previously tax exempt investors such as pension funds would be subject to the tax. 

In response, the UK government introduced the "transparency election" and the "exemption election". 

The transparency election is likely to be most relevant to JPUTs used in connection with UK real estate investment structures and if made, a direct disposal of UK real estate by the JPUT would be treated as a direct disposal by each unitholder (meaning that tax exempt unitholders would retain their tax exemption). 

The transparency election is available to Jersey resident collective investment schemes which are:

  • UK property rich; and
  • transparent for income tax purposes

The transparency election requires the unanimous consent of the unitholders in the JPUT and is irrevocable once made.

JPUTs in existence prior to 6 April 2019 must make the transparency election by 5 April 2020. If that deadline is missed, the transparency election will no longer be available to those JPUTs potentially making an exit for the investors more difficult. 

The availability of the transparency election and the consequences of making such an election are UK tax law issues and so UK law advice should be taken, however given the proximity of the deadline for pre-6 April 2019 JPUTs (of which there are many) – investors, unitholders and JPUT trustees should take action now (if they have not done so already) to determine the appropriate steps.

Walkers continue to advise on all Jersey law aspects of JPUT establishments, JPUT financings and JPUT acquisitions and disposals. We would be delighted to assist with the Jersey law aspects of the transparency election process.

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