SETTLOR EXCLUDED ASSET PROTECTION TRUST (SEAPT)
Purpose of a SEAPT –To gift a property which is not the Principal Place of Residence ‘PPR’ to someone else, normally a family member so that it falls outside of the estate seven years after the gift has been made to that person and would then not be taken into consideration for Inheritance Tax (IHT) of the person who gifted the property.
What are they?
Lifetime discretionary trusts where the settlor is excluded from being a beneficiary (the settlor can still be a trustee).In other words, an asset protection trust or even an asset protection trust plus
What use are they?
If the settlor is excluded from being a beneficiary of the trust, the value of the asset in the trust will fall outside the settlor’s estate for IHT purposes after 7 years
What use are they?
If the asset being settled into trust is loaded with capital gains, the transfer may qualify for holdover relief
Any historic gains are deferred (i.e. no capital gains tax is paid at the point the asset is transferred into trust)
Settlor-excluded trusts Example:
BUY TO LET SEAPT
= £250,000 No Capital Gains Tax (Hold-over relief)
£250,000 drops outside of the settlor’s estate for IHT purposes after 7 years
What about the rental income?
If you rely on it the income must be paid to a beneficiary. The beneficiary may choose to gift the income back to the settlor of their own free will.
If you don’t rely on it the income either accumulates in the trust and pays income tax @ 45%; or
The trustees mandate the income to a beneficiary, who pays income tax at their rate.
If there is any hint that there is an arrangement in place, the trust will not be tax efficient. I can provide more information on how this should work.
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