Finance Bill Tracking Service 2010 | Budget 2010

BN37 SPECIAL GUARDIANSHIP ORDERS AND RESIDENCE ORDERS

Who is likely to be affected?

1. Individuals who care for one or more children placed with them under:

•    a special guardianship order (i.e. special guardians); or

•    a residence order, where that individual is not the children's parent or step-parent (e.g. certain kinship carers).

General description of the measure

2. This measure will mean that certain payments to special guardians, and to certain carers looking after children under a residence order, will be exempt from income tax.

3. The new exemption will be similar to the current tax exemption for payments to adopters.

4. The Government intends to legislate this measure in a Finance Bill to be introduced as soon as possible in the next Parliament.

Operative date

5. This change will have effect for payments received on or after 6 April 2010.

Current law and proposed revisions

6. Income from providing care is normally taxed under the trading income rules, or the rules for miscellaneous income. However, there are special income tax rules for foster carers, those who have adopted a child, and shared lives carers.

7. Foster carers do not pay income tax on their foster care income, up to a certain limit (known as their individual limit). If a foster carer's income is more than their individual limit, they may choose to pay tax on:

•    their foster care income less their individual limit; or

•    their actual profits computed using the normal tax rules for businesses.

8. Individuals who have adopted a child are exempt from income tax on certain payments they receive in connection to the adoption of the child.

9. HM Revenue & Customs (HMRC) provide simplified income tax arrangements for certain carers, known currently as the simplified arrangements for adult placement carers. Despite the title, the simplified arrangements also extend to those who care for children and who do not qualify for foster care relief. These arrangements allow the carer to claim a fixed rate of expenses when computing their taxable profits from providing care to a maximum of three people. The fixed rate of expenses are:

•    £400 a week for the first individual placed with the carer;

•    £250 a week for the second individual placed with the carer; and

•    a further £250 a week for the third individual placed with the carer.

10. The simplified arrangements for adult placement carers are to be replaced with a new income tax relief for shared lives carers, which will be similar to the current income tax relief for foster carers. In the meantime, carers can continue to use the simplified arrangements. This change was announced at the 2009 Pre-Budget Report.

11. Following informal consultation about the new income tax relief for shared lives carers, it has been decided that carers who take on legal parental responsibility for a child should be taxed in a similar way to those who have adopted a child. Therefore a new income tax exemption for special guardians and certain kinship carers will be introduced.

12. This will not change the new income tax relief for shared lives carers.

13. The income tax exemption will only apply to qualifying payments to qualifying carers.

14. Qualifying payments are payments:

•    by the child's parents or payments by, or on behalf of, the local authority;

•    to a qualifying carer; and

•    which are made in relation to a special guardianship order or a residence order.

15. Qualifying carers are individuals who care for one or more children placed with them under:

•    a special guardianship order; or

•    a residence order, where the individual is not the child's parent or step-parent.

16. Kinship carers who are providing care to a child who has not been placed with them under a residence order will not be a qualifying carer for the purposes of this income tax exemption. However, they will be entitled to claim the new income tax relief for shared lives carers.

17. Qualifying carers will not be able to claim the new income tax relief for shared lives carers, as they will be exempt from income tax on their caring income instead.

Further advice

18. If you have any questions about this change, please contact Jenni Rich on 020 7147 0686 (email: jenni.rich@hmrc.gsi.gov.uk). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk