As UK real estate continues to be an attractive investment, a Guernsey Property Unit Trust (GPUT) offers great flexibility and a host of benefits for larger investors. Kees Jager, head of funds, Guernsey, and Amit Taylor, head of corporate services, Guernsey, tell us more.
Real estate investment in the UK continues to boom. Prices are attractive – and the post-pandemic rise of homeworking, along with an increase in demand for e-commerce (and the supporting infrastructure such as data and logistics centres) have created a strong appetite for investment and redevelopment.
This is bringing about some great opportunities, both for developers and private equity capital, and we’re seeing a massive deployment of capital aimed primarily at the UK commercial real estate sector. This includes office blocks, pre-booked student accommodation, and logistics and commercial development properties.
Meanwhile, managers who invest in logistic and distribution services are investing in assets such as warehouse space with an expectation of continued and increasing demand. And as more employers switch to hybrid working, they are looking for smaller, open-plan offices and collaborative workspace environments.
This new approach has driven investment in both new and existing developments, as investors look for returns outside the private and public equity markets. And all these factors are contributing to a real estate boom.
The increase of private capital investment into commercial property and infrastructure comes against a backdrop of slower growth in the real estate market over the past couple of years.
Now we are seeing some investors acquire an initial asset or portfolio of seed assets with the intention of investing over a five-year-plus horizon and a view to exit by selling their developments either as a package, a portfolio of real estate or individual assets.
An increasingly popular and flexible way of structuring such investments is the Guernsey Property Unit Trust (GPUT).
What are GPUTs?
GPUTs are a popular vehicle for holding UK real estate assets. Changes to capital gains tax have created a level playing field between onshore and offshore structures, which has helped renew interest in the use of GPUTs when structuring investments into UK real estate.
GPUTs also offer the attractiveness of Guernsey as a base for a real estate structure. This is an ideal jurisdiction in which to base an investment structure: it’s politically stable, geographically close to London and in the same time zone. It also has an excellent financial, legal and administrative infrastructure and a strong network of experienced advisors and service providers.
Historically, GPUTs were popular because they enabled investors to transfer assets without paying stamp duty. When the regulations changed in 2006, demand was dampened to an extent but, over the years, flows into GPUTs have remained steady.
And over the past 18 months they have become increasingly popular thanks to a number of features.
What are the features and benefits of GPUTs?
- No stamp duty is payable in Guernsey or the UK on transfers of units in a GPUT.
- No income tax or capital gains tax (CGT) is payable in Guernsey by a GPUT trustee.
- GPUTs offer the potential to be transparent for UK income tax purposes. When structured as Baker Trusts, the income accrues directly to unit holders as it arises, rather than forming part of a trust fund for later distribution by the trustees.
- It’s a legally and regulatorily compliant structure that is recognised and accepted by lending banks in the UK and elsewhere.
The flexibility of the GPUT structure and the ease of exit when it is time to divest the investment – as well as the ecosystem of advisors, legal firms and tax experts in Guernsey – combine to make it a very attractive option.
Another advantage is its speed to market. The path to incorporation is simple – and the resulting GPUT is a trust instrument, which has no legal personality and so does not appear on the beneficial owner register.
The trust instrument also sets out the powers of the trustees and the role of the unit holders.
In the case of a regulated fund, where there are multiple investors, there will need to be a regulatory application process with the Guernsey Financial Services Commission. This is a straightforward and well-established process which can be completed in a matter of weeks.
Thanks to its flexibility and ease of exit, the GPUT option is usually favoured by investors with several hundred million pounds to invest in this asset class.
For smaller investors, a Special Purpose Vehicle (SPV) might be considered as an alternative.
How Intertrust Group can help with GPUTs
Administering a GPUT is a specialist area, so you should consider a firm with multi-jurisdictional reach and expertise.
They can assist with legal and regulatory compliance, incorporation, accounting and bookkeeping and other essential administrative services for your entity.
Setting up a GPUT requires liaison with tax and legal advisers, the appointment of trustees as well as considerations around how to structure any external financing – which would typically be either from a debt fund or bank financing.
GPUTs typically have two corporate trustees, which is why it’s important to consider an administrator with sufficient size to provide the requisite number of directors and trustees required.
Expertise is needed to coordinate customer onboarding and provide guidance across multiple jurisdictions, as the GPUT normally sits within a wider investment structure which can often also involve UK and Luxembourg entities.
Intertrust Group has the experience to provide trustee and director services, tax compliance services, incorporation, accounting and bookkeeping, and administration services for GPUTs as well as the other entities in the overall structure.
Why Intertrust Group?
- Intertrust is a global leader in delivering fund and corporate services, capital market solutions, private wealth and employee benefit solutions to multinationals, fund managers, financial institutions and business entrepreneurs worldwide.
- We have 2,500 specialists working from 41 offices in 30 countries, including the world’s most important financial centres. As a result, you get a network of local expertise working with you to meet your goals.
- Intertrust Group is a publicly listed company with more than 70 years’ experience in providing world-class trust and corporate services to clients around the world.
Insights | Private Capital & Hedge Fund Services
How to mend the valuation disconnect between GPs and LPs
31 August 2023
Insights | Corporate Client Services
OECD Pillar 2: Multinationals consider next steps under new minimum tax measures in Switzerland
31 August 2023