Navigating the Health and Social Care (Wales) Act 2025: Guidance for residential care homes, fostering agencies and secure accommodation providers

The Health and Social Care (Wales) Act 2025 represents a transformative shift for children’s care services in Wales. For care providers operating residential homes, fostering agencies, or secure accommodation for looked-after children, this Act introduces a clear directive: by 2030, all such services must be delivered on a not-for-profit basis. This guide outlines what the changes mean for care providers, who will be affected, and what options exist to restructure and remain compliant.

What has changed?

The Act introduces a phased elimination of private profit in the delivery of children’s care services. In practice, this means that only not-for-profit providers will be permitted to deliver services such as fostering, children’s residential care, and secure accommodation.

The Health and Social Care (Wales) Act 2025 (the 2025 Act’) provides amendments to existing legislation. Section 3 of the 2025 Act introduces a new section 6B to the Social Care (Wales) Act 2016. Under the new Section 6B of the Social Care (Wales) Act, new providers must fall within one of the following categories:

• A charitable company limited by guarantee.
• A charitable incorporated organisation (CIO).
• A charitable registered society (e.g. community benefit society).
• A community interest company (CIC) limited by guarantee without share capital.

Any new entrants to the market must adopt one of these legal forms. From 2027, existing for-profit providers will be barred from expanding services or taking new placements unless they transition to an approved not-for-profit model. By 2030, local authorities will be prohibited from placing children with any for-profit provider, except in defined exceptional circumstances.

Who will be affected?

The reforms directly impact:

• Private companies operating children’s care homes or fostering services in Wales.
• England-based providers operating homes in Wales or receiving placements from Welsh authorities.
• Local authorities that currently commission services from for-profit providers.
• Investors or owners of care companies reliant on profit distribution.

If your organisation operates on a for-profit basis, you will no longer be eligible to register or continue accepting placements in Wales beyond the transition deadlines.

Options for providers

1. Convert to a not-for-profit model: This is the most direct route to compliance. Providers can convert their legal structure to one of the approved models, such as a charitable company or CIC. Depending on your current legal structure, this may involves setting up a new legal entity, transferring the assets, and meeting governance requirements. For example, registering as a charity requires an application to be submitted to the Charity Commission and adherence to strict rules prohibiting distribution of profits and restrictions on trustee benefits and payments.
2. Set up a new entity and transfer Wales services: Some providers may find it more feasible to establish a new not-for-profit organisation to operate services in Wales. This approach allows for a clean structural separation, with the existing entity continuing to operate services outside of Wales, if relevant. The new entity would need to register with Care Inspectorate Wales and potentially undergo a parallel period of operation. Agreements would also need to be put in place if the two entities were sharing some resources, such as IT, HR and administrative teams.
3. Set up a wholly owned trading subsidiary to carry out care in Wales: You may want to incorporate a wholly owned trading subsidiary to carry out the care activities as required by this new legislation. The current directors would lose some control as you would need to ensure that conflicts of interest are managed and that the not for profit has a quorum of unconflicted directors who can make decisions about the parent entity.
4. Collaborate with or merge into an existing charity or not for profit entity: Smaller providers or those seeking to exit the sector may wish to merge into an existing charitable provider or sell its business and assets to a not-for-profit entity. This can offer continuity of care while avoiding the administrative burden of setting up a new not-for-profit structure. The receiving charity must have objects which allow it to carry out the care activities in Wales.
5. Gradual wind-down and exit: For some, the best commercial option may be to begin an orderly exit from the Welsh market. Providers can continue to care for children already placed with them but refrain from taking new placements after the relevant deadlines. An exit strategy should include communication with commissioners, staff, and families to ensure continuity of care.

The most suitable option will depend on your current legal structure and operations and what your aims are when trying to become compliant. If you have operation in England and in Wales, then it may be sensible to split these into two separate organisations (which can be part of the same corporate group) to enable you to comply with the rules and obligations in each country. You should also consider what assets you own, how they are used and whether they will be transferred to the new not-for-profit entity.

Not-for-profit organisations can pay for goods and services in the same way as any other organisation. If you are setting up a new organisation, the existing company could rent property to the not-for-profit organisation or enter into contracts for goods and/or services. This should not be above market rate, and the board of the not-for-profit organisation will have a duty to ensure they are getting good value for money.

Considerations when restructuring

• Timing: Charity registrations and CIW approvals can take several months. Early planning is essential.
• Governance: Not-for-profit entities require robust oversight and compliance with charity or CIC regulations. A charity should have at least three trustees who are volunteers and make decisions about the strategy of the charity. There should be a clear separation between the board of trustees and the senior management team and conflicts of interest must be managed. There are also strict rules on payments to trustees and Charity Commission consent is required if the charity wants to employ a trustee.
• Financial implications: Converting to a non-profit status may mean relinquishing ownership or profit rights. All profits must be reinvested into the activities of the not for profit organisation and cannot be distributed to the members. There are, however, tax benefits of the different legal structures which can be advantageous in generating additional income for the organisation. Professional advice is critical.
• TUPE and staff transfers: Changing entity may involve transferring staff under employment protection regulations. You should consider how may employees will be transferred and any consultation obligations you will need to comply with.
• Commissioner engagement: Local authorities will want assurances on your transition plans to continue commissioning services.

Pros and cons of approved models

All of the approved models have an asset lock which means that the assets and profits cannot be distributed to the members but must be used in furtherance of the objects of the organisation. These same rules will apply on dissolution. You should therefore consider which assets are put into the not-for-profit organisation as from that date they will be held for the charitable purposes.

Charitable company limited by guarantee

Pros

• Familiar structure, commonly used in the third sector.
• Access to charitable tax reliefs.
• Dual registration with the Charity Commission and Companies House enhances transparency and credibility.

Cons

• Requires compliance with both charity and company law (dual regulatory burden).
• Trustees are generally unpaid, which may limit recruitment of some professionals.

Charitable incorporated organisation (CIO)

Pros

• Regulated solely by the Charity Commission (no need to register with Companies House).
• Simplified reporting and governance requirements.
• Offers limited liability for members and trustees.

Cons

• Less familiar to some banks and commercial partners.
• Can take longer to set up due to Charity Commission registration timelines.

Charitable registered society (e.g. Community benefit society)

Pros

• Emphasises community or co-operative ownership.
• Can raise capital through community shares (subject to charitable restrictions).

Cons

• Less common structure with more complex setup.
• Regulatory framework may be less familiar to mainstream advisers or funders.

Community interest company (CIC) limited by guarantee

Pros

• Quicker to set up compared to a charity.
• Greater flexibility in governance, including ability to pay directors.
• Asset lock ensures surplus is reinvested for community benefit.

Cons

• Not eligible for charitable tax reliefs.
• May not be perceived as purely charitable by commissioners or the public.

Looking ahead

The Welsh Government has confirmed the first key date as 1 April 2026. Between now and then, we expect further guidance on implementation, registration procedures, and possibly transitional support for providers. Care Inspectorate Wales and the Charity Commission are likely to face increased application volumes, so delays should be anticipated.

Providers are encouraged to:

• Audit their current structure.
• Engage with legal and financial advisors.
• Begin early discussions with commissioners and regulators.
• Make use of Welsh Government-supported advisory services.

Conclusion

The Health and Social Care (Wales) Act 2025 is a significant milestone in the journey to reform children’s care in Wales. For care providers, it represents both a challenge and an opportunity to reassess delivery models and align services with a not-for-profit ethos. Early planning, transparent communication, and informed legal advice will be key to navigating the transition successfully.