Do we qualify for divorce mediation vouchers?

I am in the middle of an expensive divorce. My former partner and I are keen to try mediation to resolve the finance aspects and have read that the government has extended the scheme for mediation vouchers. Is this for anyone, or is it means tested?

Joanne Edwards, partner and mediator and head of the family department at Forsters law firm, says in a move to reduce the number of divorcing couples going through the court system, the mediation voucher scheme came into effect in March 2021 and offered couples in England and Wales a voucher of £500 towards the costs. The scheme was welcomed and has been largely successful, with two-thirds of cases reaching full or partial settlement; and 50 per cent of participants saying that they wouldn’t have attempted mediation without funding.

It has recently been announced that additional funding has been made available and the scheme extended to March 2023. The new funding of £5.4mn more than doubles the investment so far in the scheme, which will provide for the distribution of 10,200 further vouchers to divorcing couples.

Prior to the voucher scheme, funding assistance for mediation was only available for those who met the financial requirements through the Legal Aid scheme. However, the mediation voucher scheme is not means-tested and is instead available to all.

However, not all cases are eligible. Under the scheme, mediation to resolve financial aspects is only available where you are also involved in a dispute or application relating to a child. If the matter concerns finances alone and there are no applications regarding children, you will not be eligible.

Lots of mediators are signed up to the scheme across England and Wales. Your chosen mediator will discuss the voucher scheme with you at your Mediation Information Assessment Meeting (MIAM), a short meeting with a qualified mediator which you will be required to attend before making certain court applications. At the MIAM, the mediator will assess whether the issues raised are suitable for mediation and meet the eligibility requirements for the voucher scheme.

Mediation is a really valuable process. Couples work towards their own agreements so mediated settlements are more likely to last than those imposed by the court. However, mediation is not suitable for every couple; and the most successful mediation processes tend to be those where the couple have access to targeted, timely legal advice too. Some couples need longer to resolve things in mediation than the vouchers will cover. Even if you have to supplement the costs from your own resources, mediation is far cheaper than protracted court proceedings, in financial, emotional and time costs. 

Can I prevent inheritance tax being paid on my estate?

I am 71 and a widower. I am concerned about my estate attracting inheritance tax. I have already paid tax throughout my lifetime. I want to transfer my house into mine — and my late wife’s — children’s names to remove it from my estate; it is my main asset. Can this prevent inheritance tax being payable?

Emily Robertson, a wills and probate specialist at Burgess Mee, a law firm, says the inheritance tax regime in England and Wales comprises a series of nil-rate bands. An individual will have a nil rate band of £325,000 provided they have not made lifetime transfers which will reduce it. 

Since you are a widower, if your late wife left her estate to you, you may be able to claim her nil-rate band. Therefore, you may have up to £650,000 worth of nil-rate bands. 

In addition to the nil-rate band, if your house remains within your estate, you may be able to claim the residence nil-rate band. The maximum value of the residence nil rate band is £175,000 and is applicable to a main residence left to lineal descendants. However, it is reduced if your estate exceeds £2mn. The residence nil-rate band is also transferable. Therefore, you may have £1mn worth of relief before tax becomes payable. 

However, if you gift your house to your children during your lifetime, you may be placing yourself at a disadvantage for inheritance tax planning. As mentioned, the residence nil-rate band is only applicable if you own a main residence at the date of your death. If you transfer your house into your children’s names, you may be considered to no longer own a main residence and may lose the residence nil-rate band. 

Furthermore, transferring the property into your children’s names may not remove it from your estate for inheritance tax purposes. “Gifts with reservation of benefit” are designed to prevent false gifts to save inheritance tax. If on transferring the property to your children, you reserved the right to live there for the rest of your life this would constitute a reservation of benefits.

For the house to be removed from your estate you must not enjoy the use of the property. This means you must not permanently reside in the property and not enjoy any significant benefit from it. In fact, you may lose the residence nil-rate band and still pay inheritance tax on the property value. 

It is possible to transfer your property to your children and pay an open market rent to your children and remain in the house. However, if you are relying on the residence nil-rate band this may also leave you out of pocket. 

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.