Enveloped property transaction tax – a new Jersey land tax
01 March 2022
The Taxation (Enveloped Property Transactions) (Jersey) Law 202- (the "Taxation Law") will come into force on 4 April 2022.
The Taxation Law will introduce a new Jersey land tax.
The tax will not be triggered by a direct sale of Jersey land.
The purpose of the Taxation Law is to ensure that the equivalent of Jersey stamp duty is levied on indirect dealings in Jersey land. This will be achieved by the taxation of "relevant transactions". In broad terms, a relevant transaction occurs when a person acquires a significant interest in an entity which owns Jersey land.
A purchaser of such a significant interest will therefore need to take this new tax into account when calculating the costs of the transaction.
Domestic and commercial properties
The use of the land is not relevant. The Taxation Law will catch both domestic property and commercial property.
As noted above, the Taxation Law will tax relevant transactions. A transaction is a relevant transaction if:
- It transfers to a person an interest in an entity.
- The effect of the transfer is to confer on the person a significant interest in the entity.
- The entity is the beneficial owner of enveloped property with a market value which exceeds £500,000 (if the land is used for domestic purposes) and £700,000 (if the land is used for non-domestic purposes).
- Enveloped property is land in Jersey which is owned by a person who is not an individual. The new tax does not apply where an individual owns the land in question.
- A person has a significant interest in an entity if the person owns or controls more than 50% of the interest in the entity.
- An interest in an entity includes shares in a company and a beneficial interest in any other body or partnership.
- It is immaterial whether an entity is established in Jersey or has a place of business in Jersey. The new tax will therefore catch situations where the relevant entity is incorporated or established overseas.
The new tax will apply where there is a chain of companies – for example, the tax will be levied if there is a transfer of a significant interest in a holding company and it is a subsidiary of the holding company which owns the Jersey land.
It will also apply where connected persons obtain a significant interest. In this situation, the respective interests of the connected persons are aggregated.
Finally, the new tax also applies in relation to leasehold property where the entity is the lessee under a contract lease (being a lease of Jersey land in excess of 9 years). In this case, the Taxation Law establishes a valuation mechanism in order to value the contract lease.
There are a number of excluded transactions which will not trigger the tax.
One excluded transaction relates to the creation or enforcement of a security interest. Therefore, the sale of company shares pursuant to security enforcement will not be taxed.
Other excluded transactions include:
- The transfer of shares in a company by a nominee to the beneficial owner of the company or to another nominee.
- The issue, transfer or redemption of units in a collective investment fund.
- A transfer where the transferor and transferee are connected persons.
- The transfer of shares in a company which is listed on a recognised stock exchange.
Relationship with the Taxation (Land Transactions) (Jersey) Law 2009 (the "2009 Law")
The 2009 Law introduced a tax on the transfer of shares in a company whose articles of association give the owner of those shares the right to occupy residential property in Jersey.
The Taxation Law amends the 2009 Law so that the 2009 Law will also extend to commercial property. The 2009 Law will therefore catch share transfers relating to commercial property.
Where the 2009 Law applies, the new enveloped property transaction tax will not apply.
If you would like any further information, please get in touch with your usual Bedell Cristin contact or one of the contacts listed.