Are kinship fostering payments taxable for grandparents?

For an approved kinship foster carer, the fostering payment is normally dealt with under HMRC’s Qualifying Care Relief (QCR) rules rather than being taxed in full. QCR provides a tax calculation specifically for foster carers, which can reduce or eliminate the taxable profit arising from fostering. The result depends on the type of approval, the care provided and the relevant tax year.

QCR is not simply a blanket exemption from every tax obligation. Foster carers are generally treated as self-employed for tax purposes, and the relief works by applying a qualifying amount to the income received from foster care. This amount is based on factors such as the carer’s household and the number of days children are placed. Any income left after the applicable relief and allowable deductions may be taxable.

This means a grandparent should not assume that every payment connected with caring for a grandchild has the same treatment. The following may need to be considered separately:

• the fostering allowance paid for the child’s day-to-day care;
• any separate fee or professional payment included in the fostering agreement;
• other income received from employment, self-employment, a pension or investments; and
• payments made under a different legal arrangement, such as a special guardianship order or another family-care scheme.

A payment under a special guardianship or family-and-friends arrangement is not automatically a fostering payment for tax purposes. The legal basis of the placement and the wording of the payment agreement are important. QCR should only be applied where the arrangement meets the relevant HMRC rules, so a grandparent should obtain confirmation before treating a payment as covered by foster-carer relief.

Good record-keeping helps establish the correct position. Keep the approval documents, placement dates, payment statements, agreements, receipts for relevant expenses and correspondence with the local authority or fostering service. Records should distinguish fostering income from other household income and show which costs relate to the placement. The records may also be needed if HMRC asks how the figures were calculated.

Tax treatment can also change if the arrangement changes. For example, a grandparent may move from temporary care to an approved fostering placement, receive a different type of payment, care for more than one child or stop fostering during the tax year. A change in approval status or payment structure should be checked rather than carried forward on the assumption that the previous treatment still applies.

Before completing a tax return, ask the local authority or fostering service for a written breakdown of the payments and whether they are made under an approved fostering arrangement. If there is any uncertainty, contact HMRC or a qualified tax adviser and explain that the income relates to kinship fostering. They can confirm whether QCR applies, whether registration or reporting is required and how any taxable balance should be declared.

The safest approach is to assess the legal arrangement and each type of payment separately, keep clear records from the start of the placement and avoid describing a payment as tax-free until its treatment has been confirmed.