Help Sheet - Estate planning documents

Settlor Excluded Asset Protection Trust (SEAPT)

A Settlor Excluded Asset Protection Trust — a SEAPT — is a lifetime trust used to gift assets to loved ones while retaining a degree of control over how those assets are managed and protected. The key distinction from other lifetime trusts is in the name: the settlor — the person creating the trust — is excluded as a beneficiary. This exclusion is what gives the trust its IHT planning power, and it's the detail that makes the structure work.

The exclusion extends further than just the settlor themselves. A settlor's spouse or civil partner, and any minor children of the settlor, also cannot be beneficiaries of a SEAPT. This is a point that surprises many people and is worth understanding clearly before the trust is established. If the intention is to benefit a spouse or minor children, a SEAPT is not the right structure — a different trust arrangement will be needed. Adult children, grandchildren, and other family members can be named as beneficiaries without issue.

What it does and how it works

When a SEAPT is created, assets are transferred from the settlor into the trust. Because the settlor is excluded as a beneficiary — meaning they cannot benefit from the trust assets in any way — the transfer is treated as a genuine gift for IHT purposes. This starts the seven-year clock running on those assets immediately. If the settlor survives seven years from the date of the transfer, the assets fall completely outside their estate. Within the trust, the assets are managed by trustees for the benefit of the named beneficiaries — typically children or grandchildren — and protected from the risks that would apply if they'd been gifted outright.

Up to £325,000 can be placed into a SEAPT every seven years per individual without triggering immediate tax charges. Contributions above this threshold may trigger entry charges at the time of transfer, and periodic charges on each ten-year anniversary. This limit is per person, so a couple can each establish their own SEAPT and between them place up to £650,000 into trust without immediate charges — restarting every seven years.

The tax position in detail

Capital Gains Tax — hold-over relief

When assets with unrealised gains — such as a second property or an investment portfolio — are transferred into a SEAPT, Capital Gains Tax would ordinarily be triggered at the point of transfer. However, hold-over relief can be claimed, deferring the CGT until the asset is eventually sold or leaves the trust. This means the transfer itself doesn't create an immediate CGT bill, making the SEAPT particularly useful for assets that have grown significantly in value and where an outright gift would otherwise trigger a large tax liability at the point of transfer.

It's important to understand what hold-over relief does and doesn't do: it defers CGT, it doesn't eliminate it. When the asset is eventually sold or distributed, the deferred gain becomes payable at that point. The trade-off between deferring CGT now and the potential IHT saving over seven years needs to be considered carefully for each asset. There is also a CGT uplift on death — assets still in your estate at death benefit from a step-up in base cost, meaning any gain is effectively wiped out for CGT purposes. Assets that have left the estate in a SEAPT don't benefit from this uplift, which is a relevant consideration when weighing the approach against alternatives.

Income within the trust

Income generated by the trust assets is taxed within the trust at 45% — or 38.1% for dividend income. This happens at trustee level, before any distribution is made. If a beneficiary subsequently receives a distribution of that income, they are issued a tax credit reflecting the tax already paid by the trust. If their personal tax rate is lower than 45%, they can reclaim the difference through their own self-assessment tax return — but this is the beneficiary's responsibility to do themselves; it doesn't happen automatically. The settlor cannot receive income from the trust in any form.

How it differs from an APT+

The APT+ is designed primarily for the family home. Unlike a SEAPT, the settlor retains a beneficial interest in the trust — which is what allows them to continue living in the property. Because they retain that interest, the reservation of benefit rules don't bite in the same way as they would if the asset had been gifted outright. This is the fundamental structural difference between the two trusts — in a SEAPT the gift is complete and the settlor walks away entirely; in an APT+ the settlor retains a connection to the asset throughout their lifetime.

In a SEAPT, the settlor is entirely excluded. This is what gives it IHT traction — but it also means the settlor genuinely cannot benefit from the trust assets going forward. A SEAPT is more suited to assets the settlor no longer needs for their own use: investments, cash savings, a second property, or other assets they're comfortable passing on now. It's not appropriate for the main residence if the settlor intends to continue living there — that's the APT+'s territory.

"The SEAPT is for assets you're genuinely ready to let go of — not in spirit necessarily, but legally and beneficially. The exclusion of the settlor is what makes it work for IHT. That's both its strength and its constraint."

What it protects

• The beneficiaries' inheritance

  • Because the assets are held in trust rather than passing outright to the beneficiaries, they're protected from the risks that would otherwise apply — divorce, creditors, bankruptcy, or a beneficiary simply not being ready to manage the assets themselves. Trustees control when and how distributions are made, guided by a letter of wishes from the settlor.

• Vulnerable or younger beneficiaries

  • A SEAPT works particularly well where the intended beneficiaries are young, where there's a concern about their financial judgement or circumstances, or where the settlor wants the assets to be available for specific purposes — funding school fees, a housing deposit, or financial support at key moments — without handing over a lump sum that might be used unwisely or lost to third-party claims.

• Flexibility of purpose

  • The trustee's discretion means assets can be deployed in a way that reflects what's actually happening in a beneficiary's life at the time, rather than being locked into a fixed distribution. The letter of wishes allows the settlor to set out their intentions in detail — who they'd like to benefit, in what circumstances, and how — giving trustees the context they need to make good decisions.

Things to consider

The settlor genuinely cannot benefit

This is the most important practical point. A SEAPT only achieves its IHT purpose if the settlor is genuinely excluded. Any arrangement where the settlor continues to benefit — directly or indirectly — from the trust assets risks being treated as a gift with reservation of benefit, which would undermine the planning entirely. This needs to be understood clearly before proceeding.

Balancing CGT and IHT

For assets with significant unrealised gains, the decision to transfer into a SEAPT requires careful modelling. Deferring CGT through hold-over relief makes the transfer possible without an immediate bill, but the gain doesn't disappear — it crystallises later. For some assets, particularly those likely to be held for a long time, the IHT saving over seven years outweighs the eventual CGT. For others, the numbers may point in a different direction. This is not a decision to make without looking at the specific figures.

Choosing trustees

As with all discretionary trusts, the trustees carry real responsibility. They manage assets on behalf of the beneficiaries, make distribution decisions, and must act in the beneficiaries' best interests. The settlor cannot be the sole trustee of a SEAPT — independent oversight is part of what makes the structure legitimate. Choosing trustees who are capable, trustworthy, and willing to take professional advice is essential.

Periodic charges

A SEAPT is subject to periodic charges every ten years on the value of trust assets above the nil rate band, currently at a maximum rate of 6%. For larger trusts, this is a cost to factor into the longer-term picture. For trusts within the nil rate band threshold, these charges don't apply.

Who a SEAPT works well for

A Settlor Excluded Asset Protection Trust is well suited to individuals who have assets they're comfortable transferring now — savings, investments, a second property — and who want to start the seven-year IHT clock while retaining trustee control over how those assets ultimately benefit the next generation. It's particularly effective where the assets have unrealised gains and hold-over relief makes the transfer viable, and where the beneficiaries are young or where protection from third-party claims is a priority. It works best when established early, with clear intentions recorded in a letter of wishes and trustees who understand the role they're taking on.