How much tax is payable on foster parent income?

Foster parents are unsung heroes. They make a big contribution by providing children in need with a safe, secure and nurturing family environment. According to The Fostering Network charity, there are more than 100,000 children in care in the UK and almost three-quarters of them live with some 53,000 foster families.

The UK needs many more foster carers and it may be something that you're considering. Being a foster parent means caring for a child as part of your family and it's a big commitment. And although money isn't the reason why most people do it, fostering can provide significant additional income. So, what are the tax implications?

Key facts about fostering and becoming a foster parent

• Usually, you must be at least 21 to become a foster parent and have the legal right to live and work in the UK.
• Foster care can range from one night through a few years to when a child or young person legally becomes an adult. Fostering can involve caring for more than one child/young person.
• You must also be able to provide full-time care, whether it's short term (ie days, weeks or months) or long term, when a child can't return to their birth family but adoption isn't an option.
• You can foster a relative, for example, your grandchild or nephew/niece. Foster parents have no statutory right to time off work to care for foster children.
• In England, you must apply to your local council or an independent fostering agency to become a foster parent and the process can take up to eight months.
• You must pass a two-stage assessment conducted by a social worker, which involves meetings at your home and elsewhere. Your application may not be approved.
• Foster care rules are slightly different in Scotland, Wales and Northern Ireland.

Need to know! You do not need to own your home to foster, but you'll normally be expected to have a spare bedroom for the child(ren) or young person(s).

How much do foster parents get paid?

Foster parents receive a foster care allowance which is determined by the child's age, whether they have additional needs, how many children/young people you're fostering, your fostering skills/experience, where you live and which fostering service you use. The fostering service to which you apply will tell you how much allowance is payable.

• In England, the minimum weekly foster care allowance ranges between £165 and £289 per child/young person. The older the child, the higher the allowance, while you'll also get more if you live in an area with higher living costs (eg London).
• In Scotland, the minimum weekly foster care allowance is £168-£268, in Wales it's £218-£248 and in Northern Ireland it's £145-£213 (2024/25 for all figures).
• Private independent fostering agencies pay a higher rate than local authorities.
• Some UK foster carers receive an additional fee to cover, for example, having to reduce their work hours to do the school run.
• You may also be able to apply for extra money to cover birthdays, school trips, holidays and religious festivals, etc.
• You may also be able to get Bridging Retainer Payments, which are weekly payments you receive between foster placements to provide you with regular, reliable income.

Need to know! If you're claiming benefits, you must tell the organisation that pays you that you're receiving foster care allowance. Benefits are unaffected in many cases, but it's worth checking before you start fostering.

Do I pay tax on foster parent income?

When you start fostering, you must register as self-employed via government website GOV.UK. This also means you'll need to complete and file a Self Assessment tax return (the SA100) each year (plus any supplementary pages relating to your other sources of taxable income).

 

Need to know! Overwhelmingly, people complete and file their Self Assessment tax return online. You should do this before the deadline, which is midnight on 31 January. Miss it and there's an automatic £100 fine.

• Foster parents are entitled to qualifying care relief. This allows you to earn up to £18,140 a year (about £350 a week) from fostering before anytax is payable.
• Many people in the UK do not need to pay any tax on their income from fostering because it's below this threshold. Tax may still be payable on their other sources of income, for example, from a job or rental income received.
• Foster parents also get tax relief for every week (or part week) that a child is in their care. This also means that no tax is payable on some of your fostering income over £18,140. For the 2024/25 tax year, you get an additional £375 for each child under the age of 11 and £450 for each child aged 11 or more.

Foster parents also get their tax-free personal allowance , so they can also earn up to an additional £12,570 (2024/25), perhaps from a job or business, without having to pay any tax, while other tax-free allowances may also be available. Because foster parents are classed as self-employed, they can also be entitled to National Insurance credits, which count towards their State Pension.

If your total taxable income exceeds the personal allowance threshold (£12,570), the tax you pay will be determined by the Income Tax band your total taxable income falls into (the bands are slightly different in Scotland ).

Need to know! If you foster as a couple, one of you can declare all of the fostering income as the main carer or you can split your income as a partnership. The latter only usually happens when both partners foster full-time and their household income from fostering takes them over the qualifying care relief threshold.

More information about fostering

 

Visit GOV.UK for more guidance on becoming a foster parent in England . Similar guidance is available if you live in Scotland , Wales or Northern Ireland . You should also seek advice from your local authority.

Copyright 2024. Sponsored post by Mike Parkes of GoSimpleTax - tax return software that can help you manage your self assessment.