Considering becoming a foster carer is a generous and rewarding decision. However, understanding the financial implications, particularly regarding tax, is crucial. This guide provides a comprehensive overview of tax and National Insurance for foster carers in the UK, based on current regulations (as of late 2023/early 2024, referencing 2025 allowances where specified) and aiming to demystify the process.

Foster Care and Taxes: An Overview

Generally, foster carers are fortunate to benefit from significant tax relief thanks to Qualifying Care Relief (formerly known as Foster Care Relief). This relief means the fostering allowance you receive is often not subject to income tax. However, it’s important to understand that other taxes – National Insurance and Council Tax – still apply, and a small percentage of foster carers may find themselves with a taxable profit. This guide will break down each aspect, providing clarity and resources to help you navigate the system.

Foster Care Pay & Allowances: The Foundation

Before diving into taxes, it’s important to understand what constitutes foster care pay. This includes:

  • Fostering Allowances: Regular payments to cover the costs of caring for a child or young person.
  • Bridging Retainer Payments: Payments made when a foster placement ends, bridging the gap until a new placement is found.
  • Expenses: Reimbursement for specific costs directly related to the child’s care (e.g., mileage, activities).

Do Foster Carers Pay Tax? A Detailed Look

While the fostering allowance itself is largely protected by Qualifying Care Relief, several types of tax may be relevant:

  • Income Tax: As mentioned, the allowance is usually exempt. However, if your total fostering income exceeds your tax threshold (explained below), the excess is considered taxable profit.
  • National Insurance: You will need to pay National Insurance Contributions (NICs). These contributions are essential for qualifying for a state pension and other benefits.
  • Council Tax: Fostering doesn’t automatically exempt you from Council Tax. You’ll need to pay Council Tax on your property, though discounts may apply based on your individual circumstances (see section on Council Tax below).
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Is the Foster Carers’ Allowance Taxable? Understanding Qualifying Care Relief

Qualifying Care Relief is the key to understanding the tax benefits for foster carers. It allows you to receive payments up to a specific threshold without paying income tax. This relief applies to:

  • Foster care
  • Shared Lives care
  • Staying Put foster care (for young people fostered after their 18th birthday)
  • Parent and Child fostering

The Qualifying Care Relief threshold is generous, meaning most foster carers with National Fostering Group don’t pay any tax. However, it’s vital to calculate your position annually.

The 2025 Foster Care Tax Allowance: Calculating Your Threshold

For the 2025 tax year, your Qualifying Care Relief tax threshold is calculated as follows:

  1. Basic Tax Allowance: £19,360 for each household for a full year. This is pro-rated if you were approved as a foster carer partway through the tax year.
  2. Individual Child Allowance:
    • £405 per week for each child under 11 years old.
    • £485 per week for each child aged 11 years old or above.

Total Tax Threshold = Basic Tax Allowance + (Number of Children x Weekly Child Allowance)

Example:

A foster carer looking after one child aged 8 for the entire tax year would have a threshold of:

£19,360 + (£405 x 52 weeks) = £19,360 + £21,060 = £40,420

This means they could earn up to £40,420 in fostering allowances without paying income tax.

Working Out If You Owe Tax: A Three-Step Process

  1. Calculate Your Tax Threshold (as detailed above).
  2. Determine Your Total Annual Payments: Obtain your end-of-year statement from your fostering agency (e.g., National Fostering Group). This statement will detail all payments received, including allowances, bridging retainer payments, and expenses.
  3. Compare and Calculate:
    • If Total Payments < Tax Threshold: You owe no Income Tax.
    • If Total Payments > Tax Threshold: The amount above the threshold is considered taxable profit and subject to income tax.
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Special Considerations: Factors Affecting Your Tax Liability

  • Personal Tax Allowance: The standard personal tax allowance (currently £12,570 for the 2024/25 and 2025/26 tax years) can be used to offset any taxable profit from fostering, particularly if you are a full-time foster carer with no other income.
  • Couples Fostering: Couples can choose to declare all fostering income under one carer’s name or split it as a partnership. The best option depends on your individual financial situation. It’s generally beneficial to register as a partnership if both foster full-time and combined income exceeds the threshold.
  • Part-Year Fostering: If you were approved as a foster carer mid-year, your basic tax allowance will be pro-rated accordingly.

Being a Self-Employed Foster Carer: Registration and Record Keeping

Since April 2003, all foster carers have been treated as self-employed by HMRC. This means:

  • Registration: You must register as self-employed with HMRC within 6 months of the end of the tax year in which you were approved (by 5th October). You can register online (HMRC’s preferred method), via a CWF1 form, or by calling the Newly Self-Employed Helpline on 0300 200 3310. You’ll need your National Insurance number and approval date.
  • Unique Taxpayer Reference (UTR): Upon registration, you’ll receive a UTR, which you’ll use to submit your self-assessment tax return online.
  • Record Keeping: Maintain accurate records of all income and expenses related to fostering. While Qualifying Care Relief simplifies things, good record-keeping is still essential.

Do You Need an Accountant?

Qualifying Care Relief significantly simplifies the tax process for foster carers. Many can manage their self-assessment tax returns without professional help. However, if you have complex financial affairs, or simply prefer the peace of mind, an accountant can be beneficial.

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Resources and Support

  • HMRC: The HMRC website (https://www.gov.uk/) provides comprehensive information on self-employment and tax.
  • The Fostering Network: Offers free advice and support to foster carers. Helpline: 0207 401 9582 or email.
  • National Fostering Group: Provides support and guidance to its foster carers, including assistance with tax matters. Contact them via their enquiry form.

National Insurance Contributions (NICs)

Foster carers do pay National Insurance. As a self-employed individual, you’ll be eligible for:

  • Class 2 NICs: All foster carers must register for these.
  • Class 4 NICs: You may need to pay these depending on your taxable profit.

NICs contribute to your state pension and entitlement to other benefits.

Council Tax: Are Foster Carers Exempt?

Fostering doesn’t automatically exempt you from Council Tax. However, you may be eligible for a discount:

  • Single Adult Household: If you are the only adult living in your household, you may be eligible for a 25% reduction, even with a foster child.

Contact your local council for specific information regarding your circumstances.

Final Thoughts

Becoming a foster carer is a life-changing experience. Understanding the financial aspects, including tax, is essential for a smooth and rewarding journey. Don’t hesitate to seek support from your fostering agency, HMRC, or The Fostering Network. With the benefits of Qualifying Care Relief and readily available resources, you can confidently navigate the tax system and focus on providing a loving and supportive home for a child in need.

Disclaimer: This article provides general information and should not be considered financial or tax advice. Tax laws and regulations are subject to change. Always consult with a qualified professional for personalized advice.