Who qualifies for the foster care tax allowance?

Individuals who are approved foster carers and receive qualifying care payments under a formal fostering arrangement are generally eligible to use HMRC’s Qualifying Care Relief (QCR) rules. The relief is intended for people providing foster care through an approved fostering service, such as a local authority or independent fostering provider, rather than for every type of care provided in a private home.

Eligibility normally depends on the nature of the arrangement, the person providing the care and the payments received. The main qualifying circumstances are:

• Approval as a foster carer: you must have gone through the fostering assessment and approval process with a recognised fostering service. This can include single foster carers, couples who foster together and other approved household members where the fostering service’s arrangements recognise their role.
• Care provided under an approved arrangement: the child or young person must be placed with you through the fostering service’s formal arrangements. Informal care for a relative or family friend is not automatically treated as foster care for tax purposes.
• Qualifying fostering receipts: the payments must arise from providing qualifying care. This can include the regular fostering payment and relevant amounts connected with a placement, but the description used by the fostering service is not the only factor HMRC considers.
• Care provided in your home: QCR is designed for people who provide care in a domestic setting as part of an approved care arrangement. The tax treatment of other services, employment income or separate self-employed work is considered separately.

Approval by itself does not make every amount received by a foster carer exempt from tax. For example, a payment may relate to an activity or service that falls outside the qualifying care arrangement. Similarly, money received before approval, after a fostering arrangement has ended, or under a separate contract may need to be examined under different tax rules.

Foster carers who have another source of income can still qualify. Having employment, self-employment, a pension or investment income does not, by itself, prevent a person from using QCR for qualifying fostering receipts. The fostering income and the other income must still be considered correctly, and a person may have separate tax or reporting responsibilities. The relief applies to the qualifying care activity; it does not make unrelated income tax-free.

Where two people in the same household foster together, the relief is generally considered at household level rather than as a completely separate allowance for each person. The way income and relief are allocated can depend on how the fostering arrangement is set up and who is responsible for the care. Couples should keep clear records and obtain advice if their circumstances are not straightforward.

People who provide respite or short-term placements may also be able to use QCR when they are approved foster carers and the respite care is arranged through the fostering service. The length of an individual placement is not the only test. The formal status of the carer and the arrangement through which the care is provided are important.

QCR may not apply in the same way to:

• informal arrangements where a child stays with you without being placed through an approved fostering service;
• adoption, special guardianship or ordinary family care, which have different legal and financial arrangements;
• lodger, room-rental or accommodation-only income where you are not providing qualifying foster care;
• payments for unrelated consultancy, training, transport or other services supplied under a separate agreement; or
• amounts that are not connected with the qualifying care arrangement.

These situations do not necessarily mean that no tax relief is available at all; they mean that the foster care rules should not be applied automatically. The relevant income may need to be dealt with under ordinary income tax rules or another specific scheme.

To establish whether you qualify, check the documents from your fostering service, including your approval status, placement agreement and payment statements. Identify which amounts relate directly to qualifying care and keep them separate from other household income. You should also retain records of placements and expenses, even where you expect the relief to cover the fostering receipts, because the figures may be needed if HMRC asks how your position was calculated.

If your fostering circumstances change—for example, you stop fostering, change fostering services, foster jointly with another person or begin receiving a new type of payment—review your tax position for the relevant tax year. A fostering service can explain how its arrangements work, while HMRC or a suitably qualified tax adviser can clarify whether particular receipts fall within Qualifying Care Relief.