Foster Care special rules

The rules are set out on the HMRC website at http://www.hmrc.gov.uk/individuals/foster-carers.htm and are further covered in the self assessment helpsheet no 236 (Helpsheet 236 (2009-10)).

Under the special rules you compare:

a)      The tax free amount (‘exemptions’) for the tax year calculated under the rules, with

b)      Your total income from foster care for the tax year from the local authority

Only where your total income exceeds the exemptions is there any taxable income. Even when there is taxable income there are two further considerations:

1. If any of the fostered children have special needs and there are specific additional associated costs, then allowance for additional costs may be negotiated with HMRC in addition to the standard tax exempt amounts
2. Unless you have other taxable income, then you can use your tax free personal allowance (£6,475 for those under 65 for 2010/11) against your taxable income from fostering.  

Note: If both of a couple foster, the foster care may be undertaken by a partnership for tax purposes. In this case HMRC advise that the exemptions should be set against partnership income. Each partner would then have a personal allowance to set against their share of the partnership profit