Owning UK commercial real estate can be lucrative for family offices seeking to diversify their assets, but it’s also complicated. Between shifting tax rules, public filings and multi-jurisdictional compliance, even the most seasoned investors can feel out of their depth.
That’s what makes the Isle of Man Property Unit Trust (IPUT) such a compelling structure. With built-in tax efficiency and investor-friendly flexibility, IPUTs are quickly becoming a go-to structure for individuals and family offices looking to simplify UK commercial real estate investment without sacrificing control.
In this article, Isle of Man client services director Therese Ryan answers the most common questions investors have about IPUTs, JPUTs and the different ways family offices can increase their tax efficiency, flexibility and confidentiality when investing in UK commercial real estate.
Who can benefit from an IPUT?
An Isle of Man Property Unit Trust (IPUT) is a trust-based structure designed to hold UK commercial real estate. Unlike a corporate vehicle, an IPUT gives investors a direct and transparent interest in the trust’s underlying property and offers confidentiality, control, tax transparency and cost efficiency, making it a compelling option for the modern family office or cross-border investors seeking to invest in UK real estate.
Why would investors choose an IPUT over a corporate structure?
IPUTs have become a go-to structure for UK property investment for several reasons, including:
- Familiar legal framework: IPUTs are established under trust law principles, which are closely aligned with those in England and Wales, making them easy for UK-based legal teams to implement and understand
- Tax transparency: Income is passed through to unitholders, allowing them to offset any expenses incurred by the IPUT against income. Unitholders can also avail of a transparency election to be taxed directly on disposals of the underlying assets for capital gains tax purposes
- Streamlined set-up: If the IPUT qualifies as an Exempt Scheme, no approval is required from the Isle of Man Financial Services Authority (FSA), making IPUTs easy to establish
- Privacy: IPUTs are not legal entities, and there is no public requirement to register the trust deed or list of unitholders in the Isle of Man, preserving confidentiality
- Efficient VAT treatment: VAT registration is typically completed within five working days, and the IPUT can be grouped with companies in other jurisdictions for VAT purposes
- Flexible governance: No fixed statutory rules govern how unitholders interact or how the IPUT must be structured, providing significant flexibility in drafting the trust deed
- Stamp duty savings: Property can be transferred by selling units in the IPUT rather than the property itself. Stamp duty is not charged on unit transfers in the Isle of Man
- Unrestricted distributions: There is no requirement to distribute only from realised profits or to meet solvency tests. Distributions of income or capital can therefore be made more freely, depending on the trust deed
For family offices managing succession planning or investors managing cross-border real estate portfolios, these features make IPUTs a more attractive option than many corporate structures.
IPUTs vs. JPUTs: What’s the difference?
Both IPUTs and Jersey Property Unit Trusts (JPUTs) are used to hold UK property. They are virtually identical in form, function and efficiency, and the decision often comes down to a family office’s preferred jurisdiction. Both the Isle of Man and Jersey offer rapid set-up time, confidentiality, and low ongoing compliance costs.
How are IPUTs taxed?
Isle of Man tax treatment for IPUTs
An IPUT set up as a Baker Trust doesn’t pay Isle of Man income tax on the income it earns. Unitholders who live outside IOM typically don’t owe Manx income tax either, as long as the IPUT doesn’t hold any IOM property.
The Isle of Man doesn’t have inheritance tax, wealth tax, gift tax, death tax, withholding tax or capital gains tax, making it an attractive jurisdiction for international investors.
UK tax treatment for IPUTs
An IPUT structured as a Baker Trust will typically be treated as transparent for UK income tax purposes. Income arising to the IPUT will be treated as belonging to the unitholders, who in turn will be liable to UK income tax in accordance with their specific UK tax status. An IPUT provides a distinct benefit for exempt investors such as UK pension funds.
UK capital gains tax
Since April 2019, most non-UK resident property vehicles (including IPUTs) have been subject to UK Corporation Tax on gains from UK property unless one of the following elections are made.
- Transparency election: This allows the IPUT to be treated like a partnership for capital gains purposes. The IPUT itself isn’t subject to tax on any gains arising within the structure. Instead, the unitholders are taxed directly on disposals of the underlying assets of the IPUT in accordance with their UK tax status
- Exemption election: An IPUT may elect to be treated as exempt from Corporation Tax on chargeable gains accruing on all direct and indirect disposals of land, although certain qualifying conditions apply. The unitholders will remain taxable on any gains on their individual disposal of their interest in the collective investment vehicle in accordance with their UK tax status
How is an IPUT formed?
Setting up an IPUT is a relatively straightforward process:
- Execution of an Isle of Man law governed trust deed by a trustee. In the case of an IPUT established to directly hold UK real estate, two trustees are required to ensure any issues arising from overreaching (in accordance with the Law of Property Act 1925) may be avoided
- The vesting of trust property upon its establishment, whereby assets held by the prospective unitholders are transferred to the trust vehicle in exchange for units or a nominal cash sum. Where the IPUT is to be used as an acquisition vehicle, there is a requirement for the IPUT to be established prior to the property acquisition taking place
- A minimum of two unitholders and a maximum of 49 unitholders to ensure that the IPUT remains an exempt scheme
Each unit represents a share of the trust’s assets, and unitholder names are recorded in a private register.
What are Exempt Schemes?
Exempt Schemes (as defined in Schedule 3 to the Collective Investment Schemes Act 2008) are schemes that:
- Are private arrangements
- Can have up to 50 investors, and
- The constitutional documents expressly prohibit the making of an invitation to the public to subscribe in any part of the world
Exempt-type schemes are schemes established outside the IOM that are equivalent to the IOM Exempt Scheme.
This makes IPUTs as Exempt Schemes ideal for family offices and private investment groups.
Can an IPUT be used for indirect property ownership?
Yes, and this is one of its most powerful features. Instead of selling the underlying property, investors can transfer or inherit units in the trust. This approach simplifies generational wealth planning, makes exits or internal transfers less burdensome, and can reduce UK stamp duty.
What are the risks or limitations of IPUTs?
Control rights must be carefully structured to avoid triggering unintended tax consequences, particularly where unitholders want to be more involved in decision-making. It’s also essential to properly file and maintain any UK tax elections to ensure the structure remains compliant and tax efficient. Offshore investors, in particular, should seek professional cross-jurisdictional tax advice to understand how the IPUT interacts with their local tax obligations and avoid exposure in multiple jurisdictions.
Is an IPUT right for you?
Curious whether an IPUT is right for your investment strategy? Contact our Isle of Man team today.
