Is a kinship fostering allowance taxable?

The tax treatment of a kinship fostering allowance depends mainly on your legal fostering status and who has placed the child. An allowance paid to an approved kinship foster carer may fall within HM Revenue & Customs’ Qualifying Care Relief rules, while payments made under a different kinship arrangement may be treated differently.

Approved kinship foster carers

If you are approved as a foster carer by a local authority or fostering agency and a child is placed with you as a looked-after child, your fostering income will generally be considered under the tax rules for foster carers. Qualifying Care Relief is designed to recognise the costs involved in providing care. It can reduce the amount of fostering income counted when working out whether you have taxable profit.

This does not mean that every payment is automatically exempt, or that the same tax position applies to every relative carer. The relief depends on the qualifying care arrangement, the relevant tax year and your individual circumstances. The rules and thresholds can change, so avoid relying on an old calculation or information supplied for a different type of placement.

Other kinship care arrangements

A payment made under a special guardianship order, child arrangements order or another family-care arrangement is not necessarily a fostering allowance for tax purposes. These arrangements have different legal foundations and may not qualify for the foster carer tax rules. The purpose of the payment, the authority responsible for it and the terms of the order or agreement can all affect how it should be treated.

Informal support from relatives can also be different from an allowance paid for an approved fostering placement. Calling a payment a “kinship allowance” does not, by itself, establish its tax treatment. Ask the local authority or fostering provider to confirm the basis on which the payment is made and whether they issue any tax information.

What you may need to do

• Confirm whether you are an approved foster carer, a kinship carer under another legal order, or caring under an informal family arrangement.
• Check whether the child was placed by a local authority or fostering agency and whether the payment is for foster care, maintenance, expenses or another purpose.
• Keep statements, payment records, placement documents and records of relevant care-related costs.
• Check whether you need to register for Self Assessment and report the income, even if Qualifying Care Relief means that little or no tax is ultimately due.
• Keep personal income, employment income and other self-employed activities separate from fostering records, as they may be dealt with under different rules.

Qualifying Care Relief is a tax calculation rather than a general exemption from record-keeping. You may still need to retain evidence of placements and payments, particularly if HMRC asks how you arrived at your figures. Do not assume that an allowance is tax-free simply because it is intended to help with a child’s care costs.

Tax treatment is also separate from benefits and other financial assessments. A payment that is not taxable income may still need to be reported to another organisation, while a taxable payment may be assessed differently under benefit rules. If you receive means-tested benefits, check the relevant reporting requirements separately.

The safest way to establish your position is to obtain the written payment terms from the local authority or agency and discuss them with HMRC or a qualified tax adviser who understands foster and kinship care. They can confirm whether Qualifying Care Relief applies, whether a tax return is required and how the allowance should be recorded for the relevant tax year.