The clause is straightforward and welcome. It addresses the situation of a private dwelling house in which an adult placement carer is living. At present, an individual who owns a dwelling house that has been his or her residence for some time is entitled to private residence relief from capital gains tax when they dispose of the property. That means that if it has been categorised for capital gains tax purposes as their only—or their main—home, they will not have to pay capital gains tax when they sell it. There are certain limitations to that. If the house has been occupied as the sole or main residence for only part of the period of ownership, it is possible that the profit on disposal would be partly taxed. If part of the property has been used for other purposes during all or part of the period of ownership, any gain on the whole house will be apportioned accordingly. For example, if it was assessed that someone had used 50% of a property as their only or main dwelling house, they would not have to pay capital gains tax on 50% of the profits, but if the other half of the property had been used for another purpose—for example if it had been sub-let—they might have to.
That raises a problem for adult placement carers, who provide accommodation and support to adults in need of care who are placed in their properties. That is obviously something important that we want to encourage, because people in that situation might well prefer to be placed in someone’s private residence, rather than in a larger facility that is shared with others. Such people might have become unable to continue living in their own homes. However, it is possible that the arrangement could give rise to a capital gains charge because part of the property could be deemed to have been used for semi-commercial purposes.
Will my hon. Friend clarify something for me? I know of constituents who have had adults placed in their care as a legacy of fostering a child with difficulties or disabilities. Those examples certainly reinforce her point that we want to encourage such practice, but that is not a commercial-style arrangement. Is that the kind of direction that ought to be considered?
I hope that the Minister will clarify that in his response. I understand is that the clause applies to placements made through the adult placement service, which is regulated and therefore could not be subject to abuse—that is something that we welcome. It relates to placements that are made formally through official channels.
The situation to which my hon. Friend the Member for Wirral South refers raises some complicated concerns, because such an arrangement is almost like a semi-family situation. The property could be deemed to be being used as someone’s dwelling house, particularly if someone has been living with the family as a foster child for a long time. If such an arrangement had been made on a semi-commercial basis—for example if the adult who had been placed in the property was paying rent—that would raise some questions. I would be grateful if the Minister addressed those and stated whether the clause is restricted to people who come through the adult placement service, which is the regulated process, or whether it has wider implications.
The clause is important because it will hopefully remove some of the disincentives for people who are worried that they will be subject to capital gains tax on the profits arising from the disposal of their own dwelling house just because they have provided a valuable service by having an adult placed in their home. We broadly welcome the clause, but I would be grateful if the Minister clarified the parameters of the provision and stated the situations in which it would apply. What could be done to address some of the greyer areas around the edges, such as the situation to which my hon. Friend the Member for Wirral South referred?
I welcome the hon. Lady’s remarks about the clause. I did not anticipate that it would be controversial, but she raised some fair points.
Clause 16 extends the capital gains tax rules for private residence relief and ensures that people who care for vulnerable adults in their home under an adult placement scheme are not at risk of losing part of the tax relief when they sell their home.
By way of background, I should say that private residence relief is available to individuals who make a gain on selling or disposing of their only or main homes. In most cases, the relief ensures that people have no capital gains tax to pay when they dispose of their homes. It is possible that some adult placement carers are losing part of the relief on their homes. The risk arises because private residence relief is not available for any part of the home that is used exclusively for business purposes.
That limitation could have an impact on some carers. The terms of an adult placement scheme may require the carer to set aside part of their home exclusively for the use of the person in their care. That part of their home could be in use exclusively for business purposes and private residence relief might then not be available on that part of the home. As a result, the carer could face a capital gains tax bill on part of any gain that they make on disposing of their home.
Hon. Members asked whether this measure was just restricted to adult placement carers. It is, but the point is that other shared-life carers—foster carers, for instance—do not face the same issue because a part of their homes is not set aside exclusively for caring and, therefore, for business purposes. The issue arises only in the circumstance that I have described.
Will the Minister clarify that? I am sure that Committee members are familiar with people taking an elderly relative into their home and having what is colloquially known as a “granny flat”—a separate part of the accommodation that is used solely by that relative.
Often these days, with people finding it difficult to get on the housing ladder, young couples move in with their parents—they may have had a child when young—and might live in accommodation that is similarly ring-fenced, with its own bathroom and kitchen. They may pay rent, so that there is a semi-commercial relationship with the owners of the property as well as the family relationship.
Would that also create problems in respect of people’s capital gains situation? If so, can anything be done to deal with that? The spirit of the provisions on capital gains tax properties is that they are designed more for people who own lots of dwelling houses commercially—buy-to-let or whatever; they are not designed to discourage people from taking in family members and giving them a roof over their heads when they need it.
The hon. Lady is right. We do not want to discourage that type of arrangement.
The issue here is that, although part of a home might, for example, be used predominantly by someone for whom care is being provided, under the local authority adult placement scheme there may be an arrangement where part of the home is used exclusively for that individual. It is in those circumstances that we run into this difficulty, whereas foster carers, for example, are not deemed to use a part of the home, or to set part of it aside, exclusively for business. We do not believe that the restrictions on private residence relief would cause a problem.
The issue arises in the context of adult placement schemes. In such a scheme, part of a home—a room, for example—might be designated exclusively as being for the person to whom the care is provided. We do not believe that that issue applies more widely in foster care, for example. If that experience arose, we would consider it, but we are not conscious that it has ever been an issue. The problem arises in the context of adult placement schemes, where there is a degree of exclusivity in respect of part of a home.
I thank the Minister for giving way so generously. I assume that the reason why the provision has been introduced is that situations have arisen in which what we are discussing has been a problem for people in the adult placement carer scheme and they have been subject to capital gains liability. I assume that the provision is not intended to be retrospective.
Are any cases currently being challenged in which someone has been asked to pay capital gains tax on the disposal of a dwelling house when they are within the adult placement carer scheme? If so, will implementation of the provision affect any of those current disputes? Is the Minister aware of the number of such cases, the amounts involved and whether we can do anything to help people caught up in such a situation?
We believe that 100 or so people may benefit from the clarification of the law and that therefore it is the right thing to do. Hon. Members on both sides of the Committee recognise the valuable and much-appreciated service that carers provide to the community and to the individuals receiving care. The whole Committee would agree that it is not right that a carer under an adult placement scheme should lose private residence relief or that it should be at risk. Although other reliefs may shield the carer from a tax charge, the protection is not certain.
The fundamental point is that the property is still the carer’s home and they should be entitled to the normal relief. Clause 16 responds to the concerns. It removes any doubt that adult placement carers are entitled to the full benefits of private residence relief, including relief on any part of their home that they use for the care of an adult under the scheme. The important point is that the clause provides certainty. That certainty will be welcomed and ensure that carers are not unfairly penalised or put off providing care by the worry of a possible capital gains tax bill.
There are no current cases of which we are aware in which people are not going to benefit from the change because of the historical position, but the important point is that we have a clause that provides clarity in the future. We do not want to put people off providing care. That would be unfortunate and it is not the intention behind private residence relief. Therefore, we think that this is a useful step.
Is there any possibility of the provision’s being abused? I assume that in most cases when people participate in the adult placement carer scheme, just one person is placed in their home, so it is fairly clear that they are just taking part in what we all agree is a very worthwhile venture. Would the exemption from capital gains tax apply to those who have several people and for whom the situation is almost equivalent to running a nursing home or care home but the person who owns the property happens also to live in part of that property as their dwelling house?
Are there limitations on the extent to which the provision would apply? Let us say, for example, that someone has three or four people living in the property. It is a very big property and the person occupies only a wing of it as their private dwelling house.
The clarification of the relief that we are providing in the clause relates only to adult placement carers—a point that the hon. Lady raised herself. It is relatively narrow, so we do not particularly see vulnerability. She outlines perfectly reasonable circumstances that we do not think will fall within the circumstances outlined in the clause, because it relates to adult placement carers. That means, by and large, circumstances in which an individual uses their home in providing support to a small number of people. We are not talking about big nursing homes, equivalent care homes or anything of that sort. We are talking about individuals using their home to provide that support. I am sure that hon. Members on both sides of the Committee will support this clarification, which I hope will prevent any uncertainty about how the capital gains tax relief will apply.