They were however principally serving the local community. Income tax, at a rate of 2.5%, was introduced in 1928. In the 1940s the rate was raised to 20%, where it has remained ever since. As post-war governments in the UK began to increase taxes, Jersey’s low and stable rate of tax began to attract wealthy individuals to settle in the Island.
The decision in 1961 to repeal a law dating from the 18th century that limited the rate of interest charged on loans to a maximum of 5%, made the Island more attractive to non-resident banks and their clients and is generally taken to be the date when the Island’s modern finance industry began. It was in that year that a City merchant bank, M (Hill) Samuel opened a branch in the Island, closely followed by Kleinwort Benson and Royal Trust Company of Canada (predecessor to RBC) in 1962. As more banks sought to obtain permission to open in the Island, the government soon decided – with a view to protecting Jersey’s reputation – to limit the banks licensed to open in the Island to those ranked in the top 500 globally and who were regulated in their home jurisdiction.
During the 1960s and early 1970s the services provided to non-resident private clients were principally banking and corporate services but during the late 1970s trusts became an increasingly popular vehicle for holding family assets and enabling the orderly transfer of wealth from one generation to another.
Although an increasing number of Jersey trusts were being created and the Jersey courts were recognising them, there was still some doubt as to whether a Jersey-law trust was valid given that the origins of the Island’s legal system lay in the ancient customary law of Normandy – a jurisdiction in which the trust was unknown. In order to place the matter beyond doubt, the Trusts (Jersey) Law was passed by the Island’s legislature in 1984, providing a clear and modern framework for the creation and use of trusts governed by Jersey law. The 1984 law was the result of a collaborative process between government Law draughtsmen, local trust practitioners and external academics and was a model that was subsequently followed by a number of other jurisdictions.
The 1984 Law has not remained static and is subject to regular review by a group of industry practitioners, unsurprisingly called the Trusts Law Working Group, who recommend amendments that are felt necessary to ensure that the Law continues to meet the changing needs of the industry’s clients. Amendments that have been made since the Law’s inception include permitting trusts of unlimited duration provision for powers to be reserved to settlors, the introduction of non-charitable purpose trusts, the ability for the Jersey court to set aside transactions on the grounds of mistake and provisions protecting trusts from purported variation by foreign courts. One of the key factors in enabling the finance industry to develop has been the willingness of government and regulators to work with the industry to ensure that relevant legislation and regulation is up to date and fit for purpose.
Having a modern and comprehensive trust statute is of little value if the court system is unable to deal with cases in an efficient manner. Over the years, Jersey has gained a reputation for the high calibre of the judges of the Royal Court and their expertise in dealing with trust and corporate law cases. Appointments to the Jersey Court of Appeal are in general made from the ranks of Queen’s Counsel from the bars of England, Wales and Scotland and the quality of the appointments to the court is demonstrated by the number of its members who have subsequently been appointed as English High Court judges, judges of the English Court of Appeal and the Supreme Court.
Given the size of Jersey’s trust industry, the Jersey courts deal with a significant number of trust cases and have, as a result, built up a substantial body of trust jurisprudence. Judgments of the Jersey courts are frequently cited as authority in courts of other jurisdictions.
In 2001, Jersey was one of the first jurisdictions to regulate the provision of trust company business. At the time, there were suggestions from some trust practitioners that the introduction of regulation would drive business away to jurisdictions that did not regulate trustees. Yet far from resulting in a loss of business, Jersey became an attractive jurisdiction for those who wanted the reassurance that their trustees were subject to regulation and thus had to meet high professional standards. Regulation has led to a degree of consolidation in relation to trust company businesses but the industry still has a mix of large and small to medium sized trust companies, some of which are specialised in particular niche areas, with others providing a wider range of services.
Although the focus for private client business in the early years of the industry was predominantly UK residents, the industry now serves clients from around the world who value Jersey’s political stability, ease of access and professional expertise. For many of these clients, particularly those who come from civil law jurisdictions, the concept of the trust, revered as it may be by English practitioners, is wholly unknown. Accordingly in 2009 Jersey was one of the first international finance centres to introduce legislation enabling the creation of foundations in a common law jurisdiction. The essential difference between a trust and a foundation is that a foundation is a legal entity whereas a trust is a legal relationship. Foundations can be used in much the same way as a trust and have become popular vehicles for philanthropy, no doubt because the name ‘Foundation’ is often applied to charitable bodies. The advent of the Jersey foundation not only recognised the needs of clients who were unfamiliar with the trust concept but also anticipated the increased demand for the administration of philanthropic structures in the Island.
In keeping with the increased demand for philanthropic structures, Jersey introduced a new Charities Law in 2014 that set out a statutory definition of charitable purposes which, in common with a number of other jurisdictions, had until this point been described by reference to a statute passed in the time of Elizabeth I. The 2014 Law also provided for a Jersey Charity Commissioner and provision for registration where donations are intended to be solicited from the public or the word ‘charity’ is used in the name of the entity or structure. This ensures that philanthropic structures will either be regulated by the Commissioner or, in the case of private structures, by virtue of being administered by regulated trust and company service providers. The result is a lighter touch but nevertheless effective regulation of charitable entities which contrasts with some of the more bureaucratic regulatory procedures in other jurisdictions.
A vibrant and substantial banking and investment industry has, throughout the past 60 years, provided complementary services to the private client sector in Jersey. The expertise available within the Island has facilitated investment not just in traditional asset classes but also in ESG and social impact portfolios, technology funds and, more recently, crypto-denominated funds.
Over the last 60 years, Jersey has developed as one of the premier private wealth jurisdictions. Its success is largely due to its politicians, professionals and regulators identifying forthcoming changes of approach to taxation and regulation and embracing them rather than resisting them, whilst continuing to provide the services that private clients require. Although a low and stable rate of tax continues to be attractive to private clients, the reason for using Jersey is more likely to be its expertise, built up over the past 60 years, in creating and administering structures to enable wealth to be passed to future generations coupled with its political stability. The Digital Jersey initiative, aimed at making Jersey a world leading base for digital innovation should ensure that full use is made by the private client sector of the latest technology in delivering its services.
Over the past 60 years, the demands of private clients and the environments in which they operate may have changed considerably but Jersey’s private client sector has shown itself to be well able to meet those demands for many more years to come.