Worries about capital gains tax - and carers

Published on 16 July 2004

LITRG has been trying, through the Finance Bill process, to clarify what happens when foster carers and adult placement carers sell their home. Do they have to pay tax on some of their profit, on the basis that their caring activities constitute a ‘business’ for tax purposes?

When foster carers and adult placement (AP) carers look after vulnerable children or adults in their own homes, they are treated for some tax purposes as ‘self employed’, or running a business. This – it has been suggested – may expose them to a possible capital gains tax charge when they come to sell their home.

The uncertainty this creates has in the past caused some carers to consult members of LITRG. In trying to find out the official view, LITRG has corresponded with the Revenue and been told that – yes, the caring activity may mean that carers are not entitled to full private residence relief for capital gains tax. This may in turn give rise to a tax liability.

Therefore, supported by the National Association of Adult Placement Schemes (NAAPS) and the Fostering Network, we asked the Opposition Treasury spokesman Howard Flight MP to table a new clause to this year’s Finance Bill. This was designed to exclude foster and AP carers from the scope of the legislative provision that creates the potential for such a charge.

In moving the clause, Howard Flight described the situation as ‘a major deterrent to fostering’, and added:

‘It seems to me to be morally wrong that people are penalised if they are doing good in the community by fostering children or adults.’

Replying, Paymaster General Dawn Primarolo MP, somewhat reassuringly, denied that there was a problem – or, if there was, it was theoretical rather than real. She went on:

‘With fostering and adult care, the carer is taking the individual into their own home, and it is difficult to see where liability would arise...’

Yet in other parts of her speech, her language was so guarded that it almost reinforced the very uncertainty that the new clause aimed to clarify:

‘Where there is either fostering or a placement of an adult in respite care, it is not the case that all such carers face a capital gains tax charge on the sale of their home, as if they had used it partly for the purpose of providing care and accommodation for the people placed under the scheme.’

Howard Flight suggested that official guidance might help resolve the issue, and the Minister seemed not unwilling to consider that possibility. So Howard Flight has now written to her, and we await her (and the Government’s) response.

To read the debate, follow the link below.

(16-07-2004)

Contact Name: Robin Williamson (Tel: 0844 579 6700; fax: 0844 579 6701)

Relevant Link: Debate