Jersey's dominant role in the structuring of property funds for UK promoters is widely associated with the tax advantages it offered at one time, but in fact the island's expertise in the sector was already in place when legislative changes in the UK highlighted the opportunities it offered fund promoters and investors. Since then the jurisdiction has never looked back.
Jersey has established an impressive infrastructure for the establishment and administration of UK-focused property funds. When the stamp duty land tax limited partnership and then unit trust exemptions became available, the island was the natural repository for the majority of that business because of its experienced law firms, administrators, accountants and auditors.
However, the inflow of structures designed to mitigate the stamp duty land tax burden clearly reinforced Jersey's position in the property investment sector. Even now that the tax exemptions have been removed, the island's expertise in servicing property-owning structures and funds has been cemented in the minds of UK property investors, fund promoters and advisers.
Today the sheer volume of business that comes through the island highlights its ability to handle a wide range of property fund business, and indicates that its capabilities are completely independent of any particular tax advantage. Significantly, Jersey-based administrators are now establishing offices in other jurisdictions such as Guernsey and Luxembourg but carrying out back-office servicing work for funds domiciled there in Jersey.
This may be prompted by investment issues. For example, Luxembourg has been a preferred domicile for pan-European real estate holding structures, because certain European states in which any pan-European fund is likely to invest impose a tax disadvantage on property investment from tax-efficient domiciles. However, the fact that promoters nevertheless look to Jersey for back-office administration is indicative of the market's perception that the island enjoys a quality and expertise advantage over rival jurisdictions.
There is also a perceptible broadening of the market served by Jersey's property investment sector. For example, the island is an attractive domicile for funds investing in the Nordic region, which do not face any tax disadvantage, but Jersey funds are increasingly looking beyond Europe into Asia and more exotic jurisdictions. Appleby has recently advised on funds investing in Ukraine, other Eastern European countries, India, Vietnam and Korea. Jersey vehicles are also being established to exploit the weaknesses in the US property market.
There are also changes in the structures used by fund promoters. Traditionally most Jersey property funds were established as unit trusts, because for UK investors in domestic property, a trust structure allows income to flow all the way through to the investor. However, more corporate vehicles are now being established, partly because they are more suitable for investing in emerging markets such as Ukraine, Russia or India through intermediate jurisdictions such as Cyprus or Mauritius. Limited partnerships modelled on private equity funds are also on the rise.
The fact that Appleby has an office in Mauritius, as well as in other leading fund jurisdictions such as Bermuda, Cayman and the British Virgin Islands, allows the firm to offer its clients a broad range of options in structuring their property funds wherever is most suitable for the promoter and investors. For example, for an India-focused real estate fund clients look for a Jersey fund structure with an underlying investment vehicle in Mauritius.
Andrew Weaver is a partner in the corporate and commercial practice group with Appleby in Jersey