Unit Trusts

A Unit Trust is a legal structure where the legal ownership of trust assets is held by a Trustee on trust for
the benefit of unitholders. Unit Trusts may be established in Jersey subject to the provisions of the Trusts
(Jersey) Law 1984. Under Jersey law, a Unit Trust must be constituted by a written trust instrument. The
Unit Trust instrument sets out the terms on which the Trustee holds the Unit Trust assets.
In a Unit Trust the unit holders have an undivided beneficial interest in the assets held by the Trustee. As
with investment companies, Unit Trusts can permit investors to subscribe for and redeem units on a
continuous basis. Unit Trusts can also be set up as closed-ended vehicles for sophisticated investors.
Unit Trusts are increasingly used for commercial property funds and within larger fund structures as well
as for investment products for sophisticated investors generally.
Jersey Property Unit Trust/JPUT
A Jersey property Unit Trust or "JPUT" is a Unit Trust used to acquire and hold property assets. In recent
years, these have tended to be set up to acquire UK property.
In a JPUT the Trustees can carry out the management and administration of the Unit Trust itself or
alternatively may appoint a manager. JPUTs can be set up as Collective Investment Funds and/or Expert
Funds and may be listed. Most, however, are set up as very private Unit Trusts.
Much of the day to day activity relating to the actual UK property held by the JPUT can be carried out by a
property agent in the UK. This property agent will typically be responsible for tenant issues, rent collection
and other day-to-day operational issues.
Advantages of the JPUT
JPUTs have been very popular due to their previous exemption from the 4% UK Stamp Duty Land Tax on
set up. However, JPUTs also have many other significant benefits.
Flexibility
Unlike a Jersey company or a UK REIT, a JPUT is not subject to a statutory framework (other than the
Trusts (Jersey) Law 1984, which applies to trusts generally). Hence there is no prohibition on financial
assistance, no maintenance of capital rules and no restrictions on distributions. It is possible to make
distributions out of capital of a JPUT without the need to meet solvency or other tests. It is also possible
for the JPUT to give security supporting the indebtedness of unit holders without being subject to financial
assistance rules. This gives great flexibility in terms of the structuring and operation of a JPUT.

UK Tax Advantages
If the Trustee is located offshore and the JPUT is managed and controlled in Jersey, the Trustee will be
exempt from UK capital gains tax on the sale of the UK real estate. Distributions by the Unit Trust can
usually be paid gross to non-Jersey resident unit holders.
Units in the JPUT are non-UK situs assets for UK inheritance tax purposes. Also, units in a JPUT can be
offered to both exempt and non-exempt investors without exempt investors suffering any unnecessary tax
charge (the exempt investor can reclaim tax suffered by the Unit Trust).
JPUTs can be transparent for UK income tax purposes so long as they qualify as "Baker Trusts", i.e. they
contain provisions that ensure that the Unit Trust's income is vested directly in the unitholders as it arises
and does not form part of the trust fund.
There are no taxes, registration fees or duties payable in Jersey in respect of the establishment or
administration of a Unit Trust.
Subsequent sales of units in a JPUT can be made free of 4% UK Stamp Duty Land Tax (although the
initial transfer of Property into a JPUT is no longer exempt following the 2007 UK Budgets).
How it works
The creation of the JPUT and the acquisition of a single Property (which is the principal asset of the
JPUT) usually involves a three-step process.

1. The creation of the Unit Trust;

2. The subsequent issue of Units to the Vendor of the Property (in exchange and consideration for the
contribution of Property to the Unit Trust); and

3. The subsequent sale of Units in the JPUT to a Purchaser. Units can be sold free of 4% UK Stamp
Duty Land Tax.
Three Day Authorisation by JFSC
The Jersey Financial Services Commission will allow very privately owned Unit Trusts or JPUTs to be
incorporated through the disclosure of beneficial ownership to the Regulator's Funds Authorisation
Division.
The Jersey Financial Services Commission will prescribe a theoretical limit of fifteen investors for the Unit
Trusts, but this will be the only Control of Borrowing requirement. The Control of Borrowing Consent for
the Unit Trust is likely to state: "That without the prior approval of an officer of the Commission, (i) the
number of initial offers or any other invitations for initial subscriptions into the Unit Trust shall not exceed
fifteen and, (ii) the number of Unit holders in the Unit Trust shall not exceed fifteen."
It should be possible to gain consent for the JPUT within two or three days.
Document drafting
The main document drafting involves the following Unit Trust documents (i) the Unit Trust Deed; (ii) the
Initial Contribution and Subscription Agreement; (iii) the various draft minutes of the Trustees as trustees
of the Unit Trust dealing (inter alia) with the set-up of the Unit Trust as well as (iv) the letters of application
to the Jersey Financial Services Commission and Jersey Income Tax. These documents could be
prepared by Voisin and finalised within a week or less from instructions.
Banking arrangements
In taking security, banks firstly take the security over the initial Units in the JPUT. The Bank then usually
takes full security on the Property by means of a legal charge.

This two stage form of security, with (i) a charge on the Units owned by the underlying Purchaser and (ii) a
conventional legal charge over the Property owned by the Trustees of the Trust, is seen as equivalent to
the charges that are take over (i) a Company's shares and (ii) the Company's UK Property via a legal
charge. Possession or Title to the Unit certificates can be taken under the Security Interests (Jersey) Law,
1983 in a similar manner to possession or title of share certificates under Article 2(3) or Article 2(6) of the
Security Interests (Jersey) Law, 1983.
Jersey Unit Trusts are maintaining their popularity with UK and worldwide investors.

January 2008

This note is intended to provide a brief rather than a comprehensive guide to the subject under consideration. It
does not purport to give legal or financial advice that may be acted or relied upon. Specific professional advice
should always be taken in respect of any individual matter.

Voisin Advocates Solicitors & Notaries Public is a law firm regulated by the Law Society of Jersey

Volaw Trust & Corporate Services Limited is regulated by the Jersey Financial Services Commission