New CGT Rules a 'Positive Outcome' for UK Real Estate Funds

November 22, 2018

Commenting on the recent publication of the UK Finance Bill (7 November), which included legislation enabling the introduction of new Capital Gains Tax (CGT) measures for non-resident investors in UK property, Mike Byrne, Chairman of the Jersey Funds Association (JFA) said:

“These measures are the result of a period of really positive consultation between the UK authorities and a range of industry stakeholders and, from a Jersey perspective, it is pleasing that the points we would make as a funds industry body have clearly been listened to.”

In particular, the original proposal made as part of the UK’s November 2017 Budget to extend the UK CGT regime to include all disposals by non-UK residents of UK property, raised a number of key concerns. These included the effect they would have on deterring foreign investment into UK property, the potential for multiple layers of taxation within investment structures, and the likelihood of tax-exempt investors suffering tax leakage on their property holdings.

However, the approved rules reflect these concerns and instead create two new elective regimes: a ‘transparency regime’, which will ensure that income-transparent UK property-rich fund vehicles will continue to be treated as transparent for gains purposes, and an ‘exemption regime’, which will enable certain structures to elect to meet additional criteria so that gains by the fund or within its structure will not be taxable, but the fund's investors will be taxed on disposal of their interest in the fund.

Mike continued: “Overall, the measures that have been introduced are a positive and pragmatic outcome. As well as maintaining the UK’s core proposal, the targeted exemptions approach should help address the concerns previously raised and, fundamentally, ensure that the UK real estate market remains an attractive one for overseas investors.

“In particular, the new rules take into account the wide range of investment vehicles which are used for investing in UK property, including the transparent vehicles available through Jersey, such as JPUTs. For this reason, we fully expect that Jersey, which has developed huge experience and expertise and created a highly sophisticated regulatory environment for cross-border real estate investment over many years, will continue to provide a compelling proposition for UK-focused real estate fund structuring. Indeed, the expertise Jersey can offer will be absolutely vital in supporting managers with the new rules and advising them around the options now open to them.”

According to figures from the Jersey Financial Services Commission, the net asset value of real estate assets held in Jersey fund structures was £39.6bn as at 30 June this year, reflecting growth of 78% over the past five years.