My solicitor is urging me to take my divorce dispute to arbitration rather than through the courts. This makes me worry. Will a decision reached in arbitration have anywhere near the same weight as a court judgment? She is saying it will, pretty much — and that in addition I will get resolution much more quickly than through the backlogged courts. And it will be cheaper as well. It sounds too good to be true. Is it?
Fiona Sasan, partner at Morton Fraser law firm, says your lawyer is referring to Family Law arbitration which offers couples in dispute an alternative to litigating their dispute within the UK court system. Litigation is costly and that cost can far outweigh the potential benefit to be gained, often leaving some couples without the ability to have their dispute adjudicated cost-effectively.
The pandemic has only served to heighten the costs incurred when courts cannot accommodate a hearing on the date assigned. In Scotland, for instance, the Sheriff Court works to its own availability and that can often lead to long waits and cancelled hearings. That is not so in the Court of Session — Scotland’s supreme civil court — where things operate on a much more predictable basis, but you pay vast sums for court time. This can amount to several hundred pounds above your solicitor’s daily rate.
Family Law arbitration offers parties the opportunity to select their judge. They can choose from some of the most respected family advocates or barristers, who will sit in judgment of the evidence and submissions from your solicitor.
Arbitration recreates the court environment and there are rules embodied in the law which regulate the procedure to be followed. You and your partner select the location and preferred procedure and a judgment will be issued within 28 days of any submissions or evidence.
Once a judgment is issued, it is enforceable as if it were issued by the public courts; it takes on the same weight as if you had litigated the matter. The costs are clearer because your arbitrator will be able to provide a prediction of fees and who can be specifically tasked with making a decision either on the hearing of evidence on oath or by affidavits.
There is considerably more control over cost and it’s particularly well defined for issues such as disputes over relocation of children, treatment of a specific asset, payments or capital awards. The decision of an arbitrator is binding on the parties, though it is appealable to the court system as if it had been determined in court by a sheriff or judge.
Why has arbitration not taken off as one might have expected? Primarily because in order to proceed down this route, parties must agree to appoint an arbitrator and solicitors have to be willing to submit their clients to that process. These prerequisites can prove insurmountable hurdles for many.
Your solicitor is not required to be trained to undertake arbitration. They are required only to operate by the procedural rules. The only person required to hold a qualification as a Family Law arbitrator is the arbitrator themselves. This is a facility open to all clients who are in dispute and one which should be used more frequently. The profession is actively seeking the support of the government in promoting this as alternative to court litigation.
What are the tax consequences of buying a property for grandchildren?
I am purchasing a property under a bare trust for my grandchildren. The trust rules are clear that the 3 per cent stamp duty surcharge applies if buying for one’s adult children and they own another property. However, it says nothing about grandchildren. Is it exempt if the purchase is for the grandchildren? Also, are there tax or financial advantages to buying for a grandchild rather than a child?
Adam Kay, tax partner at accountancy firm Saffery Champness, says there are special rules in UK tax law which treat parents and minor children as if they are a single entity. For example, if a mother makes a gift to her minor daughter, and the daughter earns income as a result of the gift, that income is taxed on the mother until the daughter reaches 18 years of age.
In your question you mention stamp duty land tax (SDLT), which applies in England and Northern Ireland. The 3 per cent “higher rate for additional dwellings” (HRAD), a surcharge applying to people acquiring a second property, states that when property is bought on bare trust for a minor child, and the child’s parents own property, this can mean that the child’s trustee has to pay the 3 per cent surcharge.
For SDLT purposes, a bare trust is treated as “transparent”. In other words, the beneficiary is regarded as if they were the purchaser (rather than the trustee). Therefore, the identity of the trustee, whether parent or grandparent, or anyone else, is irrelevant. What matters is the identity of the beneficiary — the grandchild.
So when you buy a property as bare trustee for your grandchild we run into the previous problem: that the grandchild and his or her parents are considered to be a single entity for SDLT, and if those parents own other property anywhere in the world with value over £40,000, the 3 per cent HRAD surcharge will apply.
Unfortunately, it gets worse, because “first-time buyer relief”, which provides an SDLT exemption for people getting a foot on the property ladder, does not apply to minor children whose parents own property. Not only will this not apply to your purchase, but your grandchild will not be able to make use of it in the future as they will no longer be a first-time buyer.
If tax is the only or main consideration, as it may be given the potential SDLT cost, you might therefore wish to wait until your grandchild reaches age 18. At that time, they will no longer be associated with their parents for SDLT, and the SDLT reliefs which normally apply to young people seeking to buy property may well then apply.
In terms of other tax advantages of buying for grandchildren, the classic is that wealth is essentially skipping a generation. This potentially avoids a charge to inheritance tax on the death of your children. As with all such estate planning, however, it should be considered carefully and the affordability of your own lifestyle, and that of your children, should be taken into account.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
Our next question
My partner and I plan to move in together and I am pregnant with our first child. We don’t expect to marry, but should we be drawing up any kind of legal agreement to protect our finances? I have heard of cohabitation agreements, but are these worth the paper they’re written on?
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