Are kinship foster allowances taxable?

For an approved kinship foster carer, payments are generally considered under HMRC’s qualifying care relief rules rather than taxed in the same way as ordinary employment income. This relief is designed to recognise the costs of caring for a child, meaning the relevant fostering receipts may be covered in full or in part. Whether any tax is due depends on the type of arrangement, the payments received and your individual circumstances.

What qualifying care relief means

Qualifying care relief allows an approved foster carer to deduct a statutory qualifying amount from fostering receipts before calculating any taxable profit. The calculation takes account of the carer’s household and the children cared for during the relevant tax year. If the receipts are within the available relief, there may be no taxable fostering profit to report. If they exceed the relief, the surplus may be taxable.

The relief can apply to payments connected with the child’s care, including regular fostering allowances and some additional payments. However, the name used for a payment does not decide its tax treatment. A payment described as an allowance, fee, contribution or grant may need to be considered separately.

Your approval status matters

Tax treatment can differ according to whether you are:

• an approved kinship foster carer caring for a child under a formal fostering arrangement;
• a family member providing care under a different legal order, such as a special guardianship or child arrangements order; or
• providing informal family care without foster-carer approval.

Qualifying care relief is linked to qualifying care arrangements. A family member who receives support under a different arrangement should not assume that foster-carer tax rules apply automatically. The relevant local authority payment scheme and the legal basis for the child’s placement should be checked before completing a tax return.

Do you need to declare the allowance?

Even where qualifying care relief means that no tax is ultimately payable, you may still need to keep records and establish whether HMRC requires you to register or report the income. Foster carers are commonly treated as self-employed for tax purposes, but the reporting position depends on the level and nature of your receipts and your wider circumstances.

Keep documentation such as:

• approval details and the date the fostering arrangement began;
• placement dates and the children cared for;
• statements or schedules showing allowances, fees and additional payments;
• payments received directly from the local authority or fostering service; and
• records used to calculate your qualifying care relief.

Good records are particularly important where a child moves in or out during the tax year, where more than one child is placed, or where you receive one-off payments in addition to the regular allowance.

Allowances and benefits are separate issues

Tax treatment should not be confused with entitlement to means-tested benefits or other financial support. A payment that is covered by qualifying care relief for income tax purposes may still need to be disclosed when a benefits authority assesses your circumstances. The effect can also depend on whether the payment is for fostering, a child-related benefit, a particular allowance or another form of support.

Before applying, tell the fostering service about any existing self-employment, pension income, employment or benefits. Ask it to confirm the legal basis of the kinship placement and the nature of each payment. For a personal decision, particularly where the arrangement is changing or the payments are substantial, obtain current guidance from HMRC or a qualified tax adviser.