Foster carer tax allowance
Discover everything you need to know about the fostering tax allowance...
Do foster carers pay tax?
Most foster parents won’t pay tax on their fostering allowance due to a special tax rule called ‘Qualifying Care Relief’ (QCR). This makes fostering incredibly tax-efficient, allowing both you and the child in your care to benefit fully from the allowance. So receiving £25,000 per year through fostering allowances is equivalent to earning a taxable salary of £30,000.
This foster carer tax allowance applies to all types of foster care, including short-term, long-term, respite, staying put, and parent and child fostering.
How does foster parent tax relief work?
QCR consists of the following two elements:
- An annual tax exemption of £18,140 per household
- A tax relief for each week a child spends in your care, based on their age:
- Under 11 years old - £375
- 11 years old or older - £450
If your total income from fostering is less than your QCR, you won’t pay tax.
The above is based on 2023/24 tax relief figures.
Download our finance guide today
Discover everything you need to know about fostering allowances, tax relief, benefits and pensions by downloading our Guide to Fostering Finances.
How do I work out my fostering tax allowance?
Working out your taxable income from fostering is simple and can be completed by following these steps...
Step 1 - Work out your total annual income from fostering
First, work out the total amount of annual income received from fostering, including:
- Weekly fostering allowance
- Holiday payments
- Clothing allowances
- Mileage claims
- Respite payments
- All other reimbursed expenses
When you add all these together, you’ll be left with your total income.
Step 2 - Work out your fostering tax relief
Every fostering household receives £18,140 of QCR for a full year, plus a weekly tax relief allowance for each child in your care which varies depending on their age:
- £375 per week for children under 11
- £450 per week for children aged 11 and over
How to work out your fostering tax relief
To work out your total QCR, multiply the number of weeks that a child has stayed with you by the relevant amount (as above), then add £18,140.
Examples
Susie has been caring for Ben, aged 7, for the full tax year. Susie will receive £20,400 in tax relief. £18,140 + (£375 x 52)
John has been caring for Lily, aged 6, and Dylan, aged 14, for a full tax year. John will receive £36,000 in tax relief. £18,140 + ((£375 x 52) + (£450 x 52))
Extra tip:
You should record the day(s) that a child arrives and leaves your care. This is because the weekly tax relief allowance runs from Monday to Sunday. This means that if a child stays with you for 1 night, you’ll be entitled to 1 week of tax relief. However, if a child comes to you on a Saturday and leaves on a Tuesday, while it’s only 3 nights, you’re entitled to 2 weeks of tax relief.
Make sure you submit this information correctly on your tax return or provide it to your accountant.
Step 3 - Work out your taxable income
The final step is to work out how much of your fostering income you’ll need to pay tax on.
To achieve this, simply subtract your fostering tax relief (step 2) from your total income from fostering (step 1).
Examples
Susie receives £19,172 from fostering Ben (aged 7) and is eligible for £37,640 in foster parent tax relief. She will not pay tax on her income from fostering.
John receives £39,974 from fostering Lily (aged 6) and Dylan (aged 14) and is eligible for £61,040 in foster parent tax relief. He will not pay tax on his income from fostering.
Tax support for our foster parents
When you foster with ISP, you’ll receive a free membership to FosterTalk. This includes 1-2-1 support and advice from a foster care tax expert, as well as access to their Foster Guide to Tax, National Insurance, and Benefits.
Employment status as a foster parent
Foster parents are classified as self-employed, so you’ll need to register with HMRC as soon as you start fostering. This applies irrespective of the type of fostering you provide, whether it be full-time care or occasional respite, and regardless of how much you’re likely to earn.
You can register yourself as self-employed in three relatively straightforward ways:
- Register online here
- Complete a CWF1 form available online
- Call the newly self-employed helpline on 0300 200 3504
Frequently asked questions
Do foster parents need to complete a tax return?
Yes, you’ll need to complete a tax return (also known as a ‘self-assessment’) every year when fostering. Make sure you do this before the deadline to avoid getting a fine from HMRC.
You can only submit one self-assessment, so make sure any other sources of income are included within the same tax return. Within your self-assessment, make sure you tick the box for ‘If you are a foster carer or shared lives carer, put ‘X’ in the box’.
Do foster parents need to keep receipts for all expenses?
As a foster parent, you’re not required to keep receipts to complete a tax return. Instead, you simply need to keep:
- All your remittance slips from your fostering provider for the year.
- An annual summary from your fostering provider (if you have one).
- A record of the dates and ages of all children who you cared for, even if only stayed for 1 night (including respite).
The only exception is for ‘exceptional expenses’ where you’re required to keep receipts. These expenses typically arise from specialist requirements unique to the child in your care, such as medical equipment, sensory aids, travel expenses to hospitals, therapeutic interventions, and other related needs.
Are there scenarios where I may pay tax?
Generally, income from fostering is tax-free, however, there are some factors that may affect this. For example:
- The number of children you have in placement
- Whether you’re paid an enhanced fee for a child in your care
- Whether you operate as a partnership for tax purposes
- Whether you receive any other income – e.g. a part-time job
Discover our financial support package
As an Orange Grove foster parent, you’ll receive a generous fostering allowance to cover the cost of caring for a child, while also rewarding your hard work and dedication. We also offer other benefits, such as allowances for birthdays and religious festivals, plus two weeks of paid respite.
National insurance for foster parents
Foster parents aren’t normally required to pay National Insurance Contributions (NICs). However, you may choose to pay voluntarily to qualify for benefits such as State Pension.
Foster carer benefits and pensions
Benefits won’t be affected by your fostering allowance because the income is disregarded when calculating your eligibility. You can also claim your state or private pension.
Can you work and foster?
Around 40% of foster parents work alongside fostering. As part of the assessment process, we’ll simply look at whether you’ll be able to meet a child in care’s needs alongside your other work commitments.
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