Essentially, Edward son of Henry VIII and Mary daughter of James V are married. Edward becomes Consort of Scotland, Mary Consort of England, and both are King & Queen of Ireland.
Edward still dies young but he has a daughter Margaret with Mary.
I love that they name the child after her grandmother, Margaret Tudor and after his paternal great-grandmother,
How do we get to this situation?
In 1542, King Henry VIII of England took the opportunity of the regency to propose marriage between Mary and his own son, Prince Edward, hoping for a union of Scotland and England.
On 1 July 1543, when Mary was six months old, the Treaty of Greenwich was signed, which promised that at the age of ten Mary would marry Edward and move to England, where Henry could oversee her upbringing.
Just have this treaty come through, maybe with an early death of King Henry VIII, have the two living together in Carlisle Castle?
What are the line of successions?
It would stay the same for each individual nation until, Queen Margaret reaches an age where she can produce children.
Does either monarch produce an Act of Succession and would it be followed?
Princess Margaret, would be the heir for both monarchs, when Edward dies, she is Queen of England and would be heir to her mother, unless she has a son from another husband.
What is the religious situation like?
As Edward dies before he can lean Margaret toward Church of England and with her mother, Mary and aunt, Mary both being Catholic these two may try to reverse the spread of Protestantism through England and return to the Pope.