Can You Get Fostering Pay and Universal Credit?

Questions about finances are common for people exploring fostering. Understanding how fostering pay works, and how they interact with benefits such as Universal Credit, is often an important part of deciding whether fostering could fit within a household.

Fostering pay is structured differently from a typical salary. Payments are intended to support the day-to-day care of a child and to help cover the additional costs that come with providing a stable home. Because of this, fostering income is treated differently within the tax and benefits systems.

For anyone considering fostering in Wales, understanding how fostering pay is viewed alongside Universal Credit can help provide a clearer picture of how the system works in practice.

How Fostering Pay Works in Wales

Foster carers in Wales receive payments designed to support the care of a child placed in their home. These payments are commonly referred to as fostering allowances. They are intended to cover the everyday costs involved in caring for a child, such as food, clothing, activities, travel, and general household expenses.

All fostering services in Wales must pay at least the National Minimum Allowance, which is set each year by the Welsh Government. This ensures there is a consistent baseline of financial support for foster carers across Wales. Some fostering services may also provide additional payments depending on the type of placement or the level of experience a foster carer has.

From a tax perspective, foster carers are usually treated as self employed, but fostering income is handled under a specific HMRC scheme called Qualifying Care Relief. This scheme recognises that fostering payments are primarily intended to support the care of a child rather than function as a typical salary.

Under Qualifying Care Relief, foster carers receive a tax threshold made up of a fixed annual amount and a weekly allowance for each child placed in their home. Because of this, many foster carers do not pay income tax on fostering payments, as their total fostering income often falls within the relief limits. Even so, foster carers normally register for Self Assessment with HMRC so their fostering income can be declared properly.

Why Fostering Pay Is Treated Differently to Wages

Fostering payments are treated differently from normal wages because they are not designed to function as a standard salary. Instead, the payments are intended to support the care of a child placed in a foster home and to cover the additional costs involved in providing that care.

In the UK, this difference is recognised within the tax system through a specific scheme known as Qualifying Care Relief. This scheme applies to foster carers and similar care arrangements and allows carers to receive fostering payments up to a defined threshold without paying tax on that income. 

Qualifying Care Relief works by combining two elements:

• a fixed annual tax exemption for the fostering household
• an additional weekly tax relief amount for each child in placement

These two elements create a tax threshold that is specifically designed for fostering households. If the total fostering payments received during the year fall below this threshold, HMRC treats the carer as not making a taxable profit from fostering.

The system exists because fostering payments include money that is intended to meet the needs of a child rather than act purely as personal income. Food, clothing, travel, activities, and household costs are all part of caring for a child who is fostered, and the tax system reflects this by recognising that much of the payment is linked to those responsibilities.

Because of this structure, fostering pay sits in a different category from typical employment wages. Foster carers are usually registered as self employed for tax purposes, but the special relief rules mean many carers have little or no tax to pay on their fostering income. 

Is Fostering Pay Counted as Income for Universal Credit?

In most cases, fostering payments are not counted as income when Universal Credit is calculated. The Department for Work and Pensions (DWP) treats fostering allowances and related payments differently from earnings, which means they are disregarded when assessing entitlement to Universal Credit.

This approach reflects the purpose of fostering payments. Allowances are intended to cover the costs involved in caring for a child rather than to act as personal income. Because of this, they are not included in the list of income sources that Universal Credit takes into account when calculating a claimant’s award.

In practical terms, this means that someone can claim Universal Credit while fostering, provided they meet the normal eligibility rules for the benefit. The fostering allowance itself should not reduce the Universal Credit amount they receive.

However, there are a few important points to understand:

• You cannot claim the child element of Universal Credit for a child who is fostered, because the fostering allowance is intended to cover the cost of caring for that child.
• Other income in the household, such as wages or a partner’s earnings, may still affect a Universal Credit claim in the usual way.
• The DWP should still be informed if you start fostering, so your claim can be recorded correctly.

Because fostering allowances are disregarded as income for Universal Credit, many foster carers are able to continue receiving support while providing a home for a child. 

Can Fostering Affect Other Benefits?

In many cases, fostering does not reduce entitlement to most state benefits. This is because fostering allowances are usually disregarded as income when means-tested benefits are calculated, meaning they are not included in the income assessment used to decide eligibility.

As a result, many foster carers are able to continue receiving benefits while fostering, depending on their personal circumstances and the eligibility rules for each benefit.

Some examples include:

• Housing Benefit or the housing element of Universal Credit
  Fostering allowances are normally ignored when these benefits are calculated. In some situations, foster carers may also be able to receive support for one additional bedroom intended for a foster child.
• Council Tax Reduction
  This is a means-tested benefit provided by local authorities. Fostering payments are generally disregarded when council tax support is assessed, meaning carers may still qualify if they meet the normal criteria.
• Disability benefits
  If a child who is fostered qualifies for benefits such as Disability Living Allowance (DLA) or Personal Independence Payment (PIP), these can still be claimed on the child’s behalf where appropriate.

However, there are also some important points to understand. Foster carers usually cannot claim benefits intended for a parent of the child, such as Child Benefit or the child element of Universal Credit, because the fostering allowance is intended to cover the cost of caring for that child.

Every household’s situation is different, and entitlement to benefits can depend on factors such as employment income, household composition, and housing arrangements. For this reason, anyone considering fostering while receiving benefits is usually encouraged to seek individual advice so their specific circumstances can be taken into account.

Speaking to Family Fostering Partners About Fostering Pay

Understanding how fostering pay works can help people make informed decisions when considering fostering. Questions about allowances, tax, and how fostering payments interact with benefits such as Universal Credit are common, and it is important to have clear information before beginning the process.

At Family Fostering Partners Wales, prospective foster carers are given the opportunity to discuss fostering pay and financial support as part of their early conversations with the team. This helps ensure people understand how fostering allowances are structured and what support is available while caring for a child.

If you are considering fostering and would like to learn more about fostering pay in Wales, the team at Family Fostering Partners are happy to talk through your questions.

Get in touch with us today to find out more about fostering and the support available throughout the fostering journey.