Rob Marris: I have considerable sympathy with the new clause, as I understand it. I urge my right hon. Friend the Paymaster General to consider the issue sympathetically, even if the wording is not quite right.
Dawn Primarolo: I understand that the Low Incomes Tax Reform Group made representations on new clause 11, but it is incredibly difficult to find circumstances in which a charge would arise. I will explain to the Committee how the system operates and why new clause 11 is not necessary. The hon. Member for Arundel and South Downs and my hon. Friend the Member for Wolverhampton, South-West are, I think, echoing a point that all Committee members would want to make, which is that fostering children and
Column Number: 361providing adult care are very important. We would all want to support people engaged in such activities.
The problem comes in the following respect, regardless of whether it is a theoretical point: if those activities amount to a trade or business, the person carrying on that trade or business sets aside part of their only or main residence exclusively for business purposes. If that occurs, the rules for private residence relief should be available in respect of the part of the gain that is their private residence. However, 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—although I do not intend to speculate on circumstances, because that is always dangerous.
The hon. Gentleman will understand that I am a little nervous of a blanket clause that says that a residence set aside specifically and only for the purpose of trade or business should still qualify for residence relief. I do not see the problem in the first place—it is not occurring—and I am concerned about putting in a rule that just might provide greater opportunities for other things, let me put it no stronger.
As I have said, foster carers are using their own home and taking in children as if they were part of the family. That often happens with the provision of respite care for adults. In those circumstances, 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. I cannot see a reason for a new provision, and I am nervous of introducing one. It would be inappropriate for private residence relief to be available on the gain for part of a property that has been referred to as a business part of that property.
I am not aware that representations have been made to us that there is an issue here with regard to real cases. Of course, I am not aware of every single case that comes to the Inland Revenue. I am saying to the hon. Gentleman that where the care is being provided in people's own home, and they are therefore not carrying out a business or trade, the residence relief is available. I am struggling to see under which circumstances such care would come under the business or trade categorisation, because then the residence would have to be wholly put aside exclusively and only for that purpose, and it would not be foster care and respite care, which are driven by going into somebody else's home—if I am making myself clear.
The hon. Gentleman, who has made his point and spoken to the new clause, has certainly caused this subject to be scrutinised in preparation for the Committee.
Mr. Prisk: I did not intend to intervene at this point, but I am reminded of a constituency case—it is one I suspect hon. Members will be familiar with—in which an extension was made to a home for the purpose of fostering a significantly disabled child. When that home went on sale, that extension was regarded as an improvement, and therefore there was a
Column Number: 362question about tax. Will the Paymaster General clarify that situation?
Dawn Primarolo: It is difficult for me to comment on particular cases without having the full details, but the example that the hon. Gentleman has given is similar to the theoretical example that I asked my officials about. A family is foster caring for a child with disabilities and adaptations are necessary, but the home is still a residence and is not exclusively put aside for the purpose of foster care. Would that come under the business or trading rules? The issue would be whether, under the rules, the people concerned were carrying out a trade.
It is difficult. We are venturing into how other tax rules impinge on this area. In those circumstances, I am advised that, where the residence still operates as the family home and the child or adult is taken into that home, residence relief would be available.
It is always dangerous to go down the route of saying, ''What if this happened? What if that happened?'' in a Finance Bill Committee. If the hon. Members for Hertford and Stortford (Mr. Prisk) and for Arundel and South Downs have specific examples of the rules not operating as expected, I will be happy for my officials to look into those individual cases. However, I am not keen to put a general blanket provision into the Bill when I do not think that it is necessary in the first place and am a little nervous that it might be used in ways that none of us intended.
Rob Marris: Accountants used to advise—I think they still do—that a dentist, for example, who had a surgery in her own home should hold a party there at least once a year and invite the tax inspector. That would get round the word ''exclusively'' because it would mean that it could be shown that that room within the residence was not used exclusively for dental purposes. I am told by the Chartered Institute of Taxation that the problem with foster care is that it is difficult for people to say that, once a year, they share the bedroom where the foster child stays. I am grateful to the Paymaster General for saying that she will look into the matter. That is sufficient for me.
Mr. Flight: I can understand why the Paymaster General does not want to change the law if that is not necessary. However, it strikes me that, to the extent that the issue could arise—she will be aware that not just the Chartered Institute of Taxation, but one of the key charities has raised the matter—it is unsatisfactory for the position to be at least potentially grey in an area such as this. Is not an alternative solution for the Revenue to make it clear in guidance that it does not regard fostering a child, or being an adult carer in one's house, as in any way constituting a trade for tax purposes? If that were made clear, it could resolve the problem.
Dawn Primarolo: The hon. Gentleman is quite correct about the ways in which the matter could be resolved if there is a problem. However, unless he writes to me with examples, I am unable to ascertain whether somebody has looked at the Bill and said, ''We can see a theoretical possibility'', although no one has actually been caught in that situation, or whether
Column Number: 363the matter is, as he said, a little grey for some people and therefore could be clarified in Inland Revenue guidance. As a rule, because Finance Bills are already rather large, I do not include provisions to deal with theoretical possibilities that may not arise—or I try not to.
I hope that the hon. Gentleman, recognising that guidance may be another way to deal with the matter, will send me the details, so that my officials can consider them. I would be happy to reply to him and all members of the Committee if such details should—that is a big should—make clarification and guidance necessary, in which case that simple step could be taken. On that basis, I hope that he will accept that this important subject has been adequately aired, will not press new clause 11 to a vote, but will agree to leave me to find out whether the incidents are theoretical or happening and, if they are happening, what I can do about them.
The Chairman: Order. If the hon. Gentleman presses new clause 11 to a vote, it will be not today but at the end of the Bill.
Mr. Flight: I will be happy not to press new clause 11 to a vote later in our proceedings. I shall write to the Paymaster General, as she suggested. I simply end by saying that the issue is greyness, not whether such incidents are tax challenges. I cannot see any objection in principle to Revenue guidance that makes it clear that fostering and adult caring are not viewed as businesses for tax purposes. I do not believe that anyone ever thought that they should be, and I cannot imagine that any member of this Committee thinks that.
Dawn Primarolo: The hon. Gentleman may be aware that the Government consulted on taxation and foster carers and that there were changes in the Finance Bill last year. To my recollection, his point was not made last year—it is completely new, and that is why I am struggling with it. It was not made when we specifically asked all the associations about these issues. That is why I wish to ensure that this is a grey area before we rewrite the guidance.
Question put and agreed to.
Schedule 22 agreed to.
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