Wealth, Health & Inheritance Briefing

Transcription

1 Wealth, Health & Inheritance Briefing May 2017 Wealth, Health & Inheritance Briefing Can your clients leave their adult children out of their Wills? In March, the Supreme Court gave its judgment in a very long-running case concerning a daughter who had been omitted from her mother s Will after a long estrangement. Heather Ilott lost the 163,000 awarded to her from her mother s estate by the Court of Appeal, receiving in its place the High Court s previous award of 50,000. Does this successful appeal (by the charities which benefitted under Mrs Ilott s mother s Will) mean that your clients can now leave their adult children out of their Wills with impunity? Limits on freedom in Wills Under the Inheritance (Provision for Family and Dependants) Act 1975 ( the Act ), certain specified categories of individuals, including the testator s children, have the right to claim against an estate which does not make reasonable financial provision for them. Freedom of testamentary disposition has therefore been restricted by the Act (and by preceding legislation) for many decades. For some years after the Act came into force, an adult child had to show special circumstances to succeed in a claim such as, for example, an ongoing disability; but in a number of cases since 1993 adult children with no such special circumstances have claimed successfully against a parent s estate. In deciding whether a Will has made reasonable financial provision for an applicant the court has to take into account a number of factors laid down by the Act. These are wide ranging and include any matter which the court may consider relevant. As stated by the Supreme Court in their recent judgment, claims have to be resolved on a case by case basis and there is very little guidance available in the Act or elsewhere. The extent of a successful claim Under the Act a successful claimant is entitled to reasonable financial provision from the estate claimed against. The Supreme Court emphasised in its judgment that reasonable financial provision means such provision as it would be reasonable for the applicant to receive for their maintenance. The court commented that the limitation to maintenance is deliberate and demonstrates the importance attached by English law to a person s freedom to make their Will in the way that they choose. As explained by Lady Hale in her judgment, social research shows that amongst the general population there is strong emotional support for testamentary freedom, linked to ideas of individualism and human rights but that circumstances could be envisaged when it should be possible to challenge a Will. According to the Supreme Court, maintenance is provision to meet the everyday expenses of living ; it is flexible and should be assessed on the facts of each case. It is not limited to subsistence. Lady Hale made the point that it might be thought that children ought to inherit a parent s large estate consisting mainly of inherited property, even if they were not in need, but this is counter to the restriction to reasonable maintenance. Lady Hale questioned how the courts are meant to distinguish between a deserving and an undeserving applicant. The court, however, found that it was right for them to take into account the closeness of the relationship between the parent and child in assessing the extent of provision. Heather Ilott s long estrangement from her mother was therefore a pertinent factor in restricting the award to her. Continues on page 2 Welcome to the May edition of our Wealth, Health and Inheritance Briefing. In this edition, our articles cover a variety of matters of interest to you and your private clients. As the snap general election approaches our summary of the Conservative party and Labour party plans in respect of capital taxation and private client matters is required reading. We update you on the latest in the Probate court fees saga, and in this edition you will also find tax articles on when your clients should use their residence nil rate band and on tax planning for clients without children. If your clients are planning to get married and buy a property together then we explain why thinking about stamp duty land tax should be on their to do list and, finally, we look at how mistakes in trust deeds (perhaps in the completion of a standard form trust form provided by a life assurance company) can be rectified. As always, if you have any queries, comments or suggestions, please do get in touch. Anthony Fairweather Partner anthony.fairweather@clarkewillmott.com clarkewillmott.com

2 02 Wealth, Health & Inheritance Briefing May 2017 Can your clients leave their adult children out of their Wills? - continued In the view of the Supreme Court judges, the Court of Appeal had had no grounds to overturn the judgment of the lower court, which had given Heather Ilott 50,000 from a 486,000 estate, and this award was reinstated. Leaving adult children out of Wills Unlike in many European countries, your UK clients have complete freedom when making their Will to include and exclude whoever they wish. If they do not want their adult children to benefit, then the Act gives that child the opportunity to bring a claim against the estate in the same way as Mrs Ilott. If it reaches the courts, the merits of that claim will be decided on its own particular facts, but the quality of the parent/child relationship will be taken into account. Mrs Ilott, her husband and her five children lived on an income of just over 20,000 a year, and were in need of many basic necessities such as furniture and white goods; nevertheless, after years of litigation, the award in Mrs Ilott s favour was limited to just over 10% of the estate. Many testators who are contemplating leaving an adult child out of their Will will be doing so because the relationship has broken down. If that child has no need of financial help to meet the everyday expenses of living then following the Supreme Court s comments, it must be questionable whether any claim will be successful. In any event, your clients should be encouraged to record (in a side letter to their Will) the state of the relationship and exactly why a decision was made to exclude an adult child. If the relationship is a good one, but other reasons are behind the decision (perhaps one child is wealthy and another in poor health and in need of as much financial help as possible), then clients should be encouraged to explain their reasoning to their child beforehand to prevent a surprise after their death, adding to the distress of bereavement and perhaps igniting a potential claim. Matthew Parr Solicitor matthew.parr@clarkewillmott.com Focus on: General election 2017, capital taxes and private clients Following the publication of the parties manifestos we have some details about potential changes to capital taxes and other measures affecting private clients. In this Focus on article we look at what we know so far about the plans put forward by the Conservative and Labour parties. Conservative party proposals The surprise of the June election had a knock on effect on the Finance Bill with many measures dropped in order that the bill could be enacted before Parliament was dissolved. Important measures dropped for the time being include changes to the taxation of non-domiciliaries, the reduction in the dividend tax allowance planned to take effect in 2018/19 and the proposals for making tax digital. Most commentators expect these changes to be re-introduced in a second Finance Bill if the Conservative party is re-elected. The uncertainty over the proposed increase in the probate court fees is covered elsewhere in this edition. It is by no means certain that these are now off the table and they may be re-introduced at a later date, possibly implemented by means other than a statutory instrument as a parliamentary committee has challenged this as being potentially unlawful. There were media rumours before the publication of the manifesto that the long deferred Dilnott report (which recommended a cap on the lifetime amount that any individual should be required to pay towards their care) might at last be implemented, perhaps with a higher cap. The recommendations contained within the manifesto were thus somewhat of a surprise (not least to Sir Andrew Dilnott). The proposal now to be put before Parliament is that help towards the cost of care should now be available to everyone with assets of less than 100,000, compared to the current 23,250 threshold. Whilst this will benefit older people who need to move into residential care, the sting in the tail is reserved for the far greater number of older people who receive care at home. The value of their home is currently excluded from the financial assessment of their care cost contributions. Under the proposals this will no longer be the case meaning that the vast majority of home owners will have to fund their own care at home. For those without liquid assets to pay for this care, the manifesto states that older people should be able to defer payment until after their death when their home is sold, subject to the payment of interest. Sir Andrew was disappointed that the new proposals do not share the risk of someone needing expensive care in older age among the population as a whole (as happens, say, with the National Health Service). This, together with public opposition, seems to have led to Mrs May announcing that the green consultation document will include the cap as an option. We await further detail in due course from the enabling legislation if the Conservatives win the election. Other changes in the manifesto include the abandonment of the State pension triple lock from 2020 and its replacement by a double lock. Labour party proposals To date, details are sparse about the Labour party s capital tax plans but in the costing document accompanying the manifesto, Labour has pledged to reverse the reduction in capital gains tax made by the government last year. Capital gains tax is currently payable at 10% or 20% on non-property gains (a reduction on the previous rates of 18% and 28%), and the return to the higher rates would part fund the manifesto s spending proposals. In addition, the Labour party has said it will reverse the inheritance tax relief given to some individuals following the introduction of the residence nil rate band (RNRB) from April When fully in force in 2020, the RNRB will provide an additional inheritance tax allowance of 175,000 per individual when property is left to children or grandchildren or their spouses. The allowance is being phased in and in this tax year it currently stands at 100,000 per individual. At present a married couple, or couple in a registered civil partnership, complying with the RNRB rules, have total exemptions available to them of 850,000, made up of two general nil rate bands of 325,000 each and two RNRBs of 100,000 each. It was suggested in the media that the total allowance would be reduced by a Labour government to 425,000 per couple, which would suggest a halving of both the current RNRB and the general nil rate band, or the abolition of the ability of couples to transfer these allowances between them. If the latter, this would perhaps be surprising given that the transferable nil rate band was introduced by Gordon Brown s Labour government in Its abolition could also herald the return of estate planning techniques used prior to 2007 to ensure that a double allowance was available to couples. In the manifesto costing document there is no mention of this 425,000 figure, just a pledge to reverse the inheritance tax giveaway which suggests a straightforward reversal of the RNRB. This would mean a return to the pre-april 2017 position with inheritance tax being payable on a single person s estate exceeding 325,000 and on a married couple s joint estate exceeding 650,000. Labour s promise to reverse the CGT cuts and the RNRB are also echoed by the Liberal Democrat party. David Maddock Partner david.maddock@clarkewillmott.com Birmingham Bristol Cardiff London Manchester Southampton Taunton

3 03 Wealth, Health & Inheritance Briefing May 2017 Residence nil rate band: when should your clients use their relief? The inheritance tax residence nil rate band ( RNRB ) started to come into force from 6 April 2017 and in its first year of operation will provide a 100,000 allowance to individuals who leave their home to their children, grandchildren or their issue s spouses and civil partners. But when should your clients plan to use this valuable new allowance? We look at the options. Lifetime gifts Lifetime gifts of the family home are problematic for a number of reasons but clients should also be aware that in many circumstances the RNRB cannot be claimed against a failed lifetime gift. There are exceptions: if the donor has reserved a benefit from the property given away the RNRB can be claimed. It can also be claimed if the donor leaves other assets to qualifying relatives and the downsizing addition applies. For example, if Michael gives his property to his daughter but continues living there he will have reserved a benefit from the gift, so the property will form part of his taxable estate on his death and the RNRB can be claimed. If Michael moves out of the house (to a care home perhaps), and then dies, in 2017/18 leaving 100,000 worth of other assets outright to his children, then the downsizing provisions should allow the RNRB to reduce the inheritance tax (IHT) payable on Michael s estate. By comparison if George gives his house worth 700,000 to his children, moves out, and leaves negligible other assets on his death to his children, the RNRB cannot be claimed. On the first death of a couple The RNRB is to increase by 25,000 a year until it reaches its full amount of 175,000 in 2020/21. It is transferable between spouses and civil partners so if it is not used on the first death the surviving spouse can claim their own allowance and their late spouse s unused allowance. As with the transferable nil rate band, to work out how much is due to the surviving spouse s estate the percentage of the unused RNRB on the first death should be calculated and applied to the amount of the allowance in force on the second death. For example, Christopher and Mary own a property worth 800,000 and other assets of 500,000. Christopher dies in May 2017 leaving all his assets to Mary. Mary dies in Mary s estate is entitled to her own RNRB of 175,000 (provided a property, or other assets if the property has been disposed of, has been left to qualifying relatives). Mary s executors can also claim a further RNRB as Christopher s unused allowance is transferable to Mary. A full 100% of Christopher s allowance is unused so 100% of 175,000 can be claimed by Mary s executors in addition to her own allowance. The IHT payable is 120,000. By comparison, if on Christopher s death he leaves a share of the family home worth 100,000 on life interest trusts for the couple s children, the RNRB of 100,000 could be claimed by his executors. There would, however, be no allowance to transfer to Mary meaning that she could not claim an additional allowance at the higher 175,000 rate which is in force at her death. The IHT on Mary s death is 150,000, a 30,000 increase. It may be possible to offset some of this increase in IHT by claiming a valuation discount on Mary s share of the house to reflect the joint ownership between her and the trust for the children but, if there is no increase in property values, more tax will nevertheless be payable. However, if a married individual has been married and widowed before and has re-married it is advisable to use the RNRB on the first death. For example, Timothy and Clare are married. Clare was previously married to Jeremy who died. If Timothy dies before Clare without using his RNRB, his allowance will be transferred to Clare. In theory, three RNRB allowances are then available to Clare: her own, Jeremy s and Timothy s, but the legislation limits her claim to a maximum of two allowances. By comparison, if Timothy had used his RNRB on his death by leaving his share of the home, or a part of it, to suitable trusts for their children, Clare could claim her own and Jeremy s allowance on her death and the couple between them would benefit from three allowances. On the second death of a couple In the majority of cases a couple are likely to use their RNRB on the death of the second of them. Clearly in the first few years of the relief this will be tax efficient unless a couple are in the same position as Timothy and Clare above. In addition, many couples would prefer the family home to pass into the surviving spouse s sole ownership. It is essential to review the couple s Wills to ensure that they are drafted in a way that will ensure maximum entitlement to the relief. Action might also be needed following the second death to preserve the relief. If, for example, the estate is left on discretionary trusts on the second death then to make a claim for the RNRB part or the whole of the home should be appointed out to the children, or onto immediate post death interest trusts for them, within two years of the second death. Carol Cummins Consultant carol.cummins@clarkewillmott.com Follow us @CWPrivateClient

4 04 Wealth, Health & Inheritance Briefing May 2017 Inheritance tax planning for clients without children Reducing the payment of inheritance tax (IHT) is often an objective for parents who wish to ensure that their children have as much benefit as possible from their assets. This desire has now been recognised by the tax system with the introduction in April 2017 of an extra IHT allowance which will provide up to a 140,000 tax saving when fully in force. The residence nil rate band is only available to individuals who leave a property (or assets replacing a property), to their children or grandchildren; thus providing a valuable tax break to individuals with children. Clients without children should also consider arranging their affairs in the most tax efficient manner possible in order to maximise the benefit that their chosen beneficiaries take from their estate. We consider some common scenarios. Sarah: gifts to charity and making use of the reduced rate of IHT Sarah has never married and has no children. She wishes to leave her estate to her nephews and nieces, and also wishes to benefit various charities which she has supported during her lifetime. Depending on the amounts that Sarah wishes to leave to charity, she should be advised to consider giving charitable gifts in her Will amounting to at least 10% of her taxable estate. Charitable gifts of this amount would result in an IHT reduction of 4%, reducing the rate of IHT payable by Sarah s nephews and nieces. For example, if Sarah s estate is valued at 500,000, her taxable estate is 175,000. If she leaves charitable gifts of 15,000 in her Will, her nephews and nieces will pay IHT at 40% ( 64,000). By comparison, if she leaves charitable legacies of 17,500 the IHT rate on her estate is reduced to 36% which reduces the IHT bill to 56,700. An increase in charitable giving of 2500 thus leads to a tax saving for the nephews and nieces of If Sarah dies before her Will can be changed then her nephews and nieces (if they are all over 18) could consider executing a Deed of Variation within two years of her death to increase the charitable legacies to the 10% threshold. John and Maria: using nil rate band discretionary Will trusts to avoid double taxation of assets John and Maria have been a couple for many years but they have never married and do not have children. They ultimately intend that their assets should pass to a mixture of godchildren, close friends and their siblings children. They are both financially independent but wish to benefit the same people. If they leave all their assets to each other, IHT will be potentially payable on the death of the first of them as no spouse exemption is available and tax will be paid on the same assets again on the second death. For example, John s assets amount to 750,000, and Maria s to 850,000. On John s death (before Maria) 170,000 of IHT will be payable, and on Maria s death a further 442,000 will be due. By comparison, if John leaves 325,000 worth of assets on his death to a discretionary trust created by his Will of which the beneficiaries are Maria and the others that he wishes to benefit from his estate, 170,000 of IHT would still be payable on John s death but on Maria s death the IHT bill would be reduced to 312,000, a 130,000 tax saving. Maria meanwhile could benefit from the assets and income in the discretionary Will trust during her remaining lifetime. If the value of the trust assets remain within the IHT nil rate then no periodic or exit charges will be payable from the trust. If a 170,000 IHT bill would prove difficult for Maria to pay, John should also consider taking out life cover written in trust. This could provide Maria with some IHT free liquid funds to pay the tax due. Alex and Stephanie: protection for the future Alex and Stephanie are married, without children. They wish to leave their joint 1.5 million estate to their three nieces. If they have a simple Will leaving their estates to their nieces outright, then on their nieces respective deaths the assets inherited by them are potentially liable to a 40% charge to IHT, in addition to the tax paid on Alex and Stephanie s deaths. The assets will also be available to settle any divorce claims and to pay any care fees which the nieces may incur. By comparison if Alex and Stephanie s joint estate is left on discretionary trust for the nieces there would be no 40% IHT charge on the nieces deaths and the assets in the trust would have a measure of protection against third party claims. A charge to IHT would be due every ten years after the trust s creation, and on distribution of capital from the trust, but this will be at a maximum rate of 6% and will be at a known time so the tax payment can be planned for. David and Jane: planning to use the RNRB David and Jane are an unmarried couple. Jane has children from a previous relationship but David has none. They would both like to leave their estates to Jane s children. In addition to the planning points illustrated above, they should also consider the following IHT planning point. The couple s property is owned jointly. If Jane dies first, it passes to David and he leaves it under his Will to Jane s children. However, this means that RNRB is not available to the couple as Jane s children are not David s children and nor are they his step-children or his adopted children. Jane s RNRB is unused as she leaves her share of the property to David and is not transferable to David as they are unmarried. The solution is for Jane (on her death before David) to leave a share of her interest in the property of a sufficient size to use her RNRB to her children, or more likely to life interest trusts for their benefit. This has a disadvantage for David as he will share ownership of the house with Jane s children (or trusts for their benefit); but it secures an RNRB of up to 175,000 for Jane s estate. Moreover, David has achieved his objective of benefitting Jane s children with a reduction in the overall IHT bill of up to 70,000. As can be seen in the above scenarios, IHT planning is pivotal and is not just a subject to be considered by clients who have children they wish to benefit. IHT should be considered in relation to every client with an estate liable to pay it, or whose beneficiaries are likely to have taxable estates. Rupert Thompson Senior Associate rupert.thompson@clarkewillmott.com Update on the proposed probate fees increase In our last issue we reported on the considerable increases proposed to probate court fees which were due to be brought in by statutory instrument some time in May This proposed change was controversial and its lawfulness was questioned by a parliamentary committee. Nonetheless all indications were that the changes would go ahead, until the announcement that the general election would take place on 8 June forced the proposal to be withdrawn. At the time of writing it is unclear whether the increase has been scrapped for good or whether the new government will seek to implement the changes. Clients should be advised to proceed with probate applications as soon as possible in case the new fees are implemented after the election. Read our blog at

5 05 Wealth, Health & Inheritance Briefing May 2017 How to rectify mistakes in trust documentation From time to time we come across trust deeds drawn up by advisers which have an error in them. In this article we look at how these can be dealt with and consider an example which shows the action that can be taken to remedy the situation. Types of mistake and possible action Mistakes in drafting a document occur when: There are words missing that were intended to be in the document; or Words are included that were not intended to be there; or There is an ambiguity in the document. Where a mistake has been made in the drafting of a trust it is possible to correct it by a process of construction, rectification or under s48 of the Administration of Justice Act Section 48 (by which the court allows the trustees to act based on the advice of a senior advocate) can only be used where there is no significant dispute as to the outcome; construction can involve the implication of words to make sense of what is already there and rectification is generally used as a last resort where there is evidence external to the document that can be used to show that a) something has gone wrong in the drafting and b) what the correct drafting ought to have been. Example: Charlie and her pension and life assurance trust Charlie has paid all her working life into an occupational pension scheme. In 2014 a trust deed is entered into consolidating her occupational pension scheme and rules governing the scheme into one document. In 2015 Charlie decides to take out a life assurance policy. Charlie and her adviser are given a standard form trust deed document and schedule to complete from the insurers. Charlie completes the deed and schedules with her adviser and comments how much easier the task was than she had anticipated. However, after her death it comes to light that perhaps the form was not as simple and easy to complete as she had thought. Boxes have been ticked but some of the detail required is missing; some options have not been selected leaving her choices and intentions uncertain from the deed. A schedule is also missing. Charlie s executors further discover that the trust deed consolidating her occupational pension scheme and rules has a sub-section of rules missing. Possible remedies The missing rules of the consolidating deed means that it is not apparent from the deed how the annual pension increases should be calculated. However, all parties concerned are in agreement as to what the rules to be applied are; they were just omitted from the deed. As there is no dispute, and a senior advocate is willing to advise, then section 48 is the chosen course of action. In the application the trustees would be asking the court to endorse the senior advocate s opinion. In the life assurance deed pro forma there was a choice between identifying named beneficiaries (to be listed in a schedule) or having default beneficiaries (e.g. spouse or issue). Charlie had apparently chosen to identify named beneficiaries by ticking a box, but had not attached a schedule, and had not struck through the paragraph dealing with default beneficiaries. As a result it is not clear whether Charlie intended to name beneficiaries (and if she did who they were to be) or whether she was content with the default beneficiaries. If there is extrinsic evidence of what Charlie intended (for example, a note identifying who she wanted to be the named beneficiaries) then that extrinsic evidence could be relied upon to support an application for rectification to add a schedule and delete the words that ought to have been struck through. If there is no such extrinsic evidence then the court could be asked to construe the deed on the basis that the ticking of the box should be ignored (and so the default beneficiaries will benefit). Whether the court would agree to such an application is, however, an open question. If, however, rectification cannot be relied upon, and construction cannot come to the rescue, then the identity of the beneficiaries remains uncertain and, accordingly, the trust will fail. In order to try to prevent the failure of the trust, it is key to undertake investigations and searches with any of the relevant advisers (accountants, solicitors or IFAs) or the insurance company itself to see if they have any records of Charlie s intentions. It may be possible to persuade a court of the identity of who should have been the named beneficiaries by reference to other documents in which Charlie has identified beneficiaries, particularly if they were contemporaneous. Where all potential beneficiaries are obvious and clear such an application to the court will have a greater chance of being successful. However, with more complex family structures, perhaps with multiple marriages and step children, then that sort of certainty becomes much harder. Other points to consider and take further advice upon include how the costs of the rectification are to be met, whether a former adviser to Charlie may have been negligent and whether that adviser now has a conflict of interest. Claire Dennison Associate claire.dennison@clarkewillmott.com clarkewillmott.com

6 06 Wealth, Health & Inheritance Briefing May 2017 Getting married? Flowers, photographer SDLT? There are so many things to deal with in the run up to the Happy Day. The Finance Act 2016 has added another item to that already long list, which is none the less important for being prosaic: Stamp Duty Land Tax ( SDLT ). Of course, couples where neither already owns all or a share of a dwelling can ignore this and concentrate on more romantic things. But if one of the couple owns a dwelling, a little forward planning may save them both a lot of SDLT. Whether or not such a happy couple will pay the new and very expensive surcharge SDLT rates on the purchase of their new matrimonial home can depend on: whether or not they were married when either or both of them bought it; whether or not they were married when one of them sold a previous home; and where they both lived before they got married. Where you married when? Mr. P. Charming, who owns no other property, and Ms. Cindy Rella plan to get married and to buy a new home jointly. Before she met Mr. Charming, Ms. Rella inherited her late godmother s home which she has let. She intends to sell it to raise her share of the cost of their new home, but this will happen after the purchase of the new home. In the meantime, Mr. Charming alone will buy it. If they get married before he buys it, Mr. Charming will pay surcharge SDLT rates on the purchase, because his wife s ownership of her godmother s home is attributed to him for surcharge purposes, even though he s the only purchaser. But if he buys it on his own before they get married, her ownership of her late godmother s home is not attributed to him. So he only pays SDLT at normal rates. It is vital that Ms. Rella (who by now is Mrs. Charming) doesn t buy her share of the new home from Mr. Charming before she sells her godmother s old home. If she does, she will own (or have a share in) two properties on the day she buys her share of the new home. This means she will have to pay SDLT at surcharge rates on what she pays Mr. Charming. If she ensures that, by close of play on the day she buys her share of the new home, she has already disposed of her godmother s old home, she only owns one property (her share in the new home) and pays SDLT at the normal rates. Fortunately Mr. Charming s remaining interest in their new home is not attributed to her (because it is the same property, not a different one) and thus does not count as her owning another property. But what if, in the interim between him buying the new home and Mrs. Charming buying in, Mr. Charming acquired a buy-to-let investment at a very advantageous price from the Misses Uggleigh (yes, they are sisters), who had an urgent need for expensive foot surgery? Now Mr. Charming does own another property when Mrs. Charming buys her share. His ownership of that is attributed to her because they are married, so she must now pay SDLT at the surcharge rates on her purchase from him. Were you living together when? Shrek and Princess Fiona intend to get married. Shrek owns his own home and a buy-to-let investment flat. Princess Fiona owns her late father Harold s palace, which she rents out and which, despite its enormous size, qualifies as a dwelling for SDLT purposes. She lives in a flat which she rents shortterm from Donkey. In June 2017, Shrek sells his home and moves in with Princess Fiona. In September 2017, they jointly buy their new home. Shrek is entitled to replacement of main residence exemption because he sold his former main residence within the three previous years. So his ownership of the investment flat does not count. Princess Fiona cannot claim replacement of main residence relief, because she hasn t sold a previous main residence. Thus her ownership of her late father s palace results in both of them having a liability to surcharge rate SDLT. If Princess Fiona had (a) moved in with Shrek (so that his house became her main residence) and (b) married him, before he sold his home, both of them could have claimed replacement of main residence exemption based on his June 2017 sale. They would have saved themselves the difference between SDLT at normal rates and SDLT at surcharge rates. If their new home costs 450,000, the normal rate SDLT liability is 12,500. Surcharge rate liability is 26,000; more than twice as much. What is said about spouses applies equally to civil partners. Moreover if either spouse or civil partner has a child under the age of 18 who owns (or is treated for SDLT purposes as owning) a share in a dwelling, the child s status as a dwelling owner may affect the SDLT rate payable on their parent s purchase. The moral of the story is that, if you want to get married or get registered as civil partners and either or both of you or your minor children own all or a share of a holiday home, a buy-to-let property or some other dwelling, make sure you take an early sip of magic potion from the bottle labelled SDLT advice, if you want to live happily ever after. Andrew Campbell Consultant andrew.campbell@clarkewillmott.com Offices Birmingham Office 138 Edmund Street, Birmingham B3 2ES Bristol Office 1 Georges Square, Bath Street, Bristol BS1 6BA Cardiff Office 2nd Floor, Emperor House, Scott Harbour, Pierhead Street, Cardiff, CF10 4PH London Office 1 Chancery Lane, London WC2A 1LF Manchester Office 19 Spring Gardens, Manchester M2 1FB Southampton Office Burlington House, Botleigh Grange Business Park, Hedge End, Southampton SO30 2AF Taunton Office Blackbrook Gate, Blackbrook Park Avenue, Taunton TA1 2PG If you would like to receive future editions of our Wealth, Health & Inheritance Briefing please contact news@clarkewillmott.com clarkewillmott.com Clarke Willmott LLP is a limited liability partnership registered in England and Wales with registration number OC It is authorised and regulated by the Solicitors Regulation Authority (SRA number ), whose rules can be found at Its registered office is 138 Edmund Street, Birmingham, West Midlands, B3 2ES. Any reference to a partner is to a member of Clarke Willmott LLP or an employee or consultant who is a lawyer with equivalent standing and qualifications and is not a reference to a partner in a partnership. The articles in this briefing are not intended to be definitive statements of the law but instead provide general guidance.