Tax treatment of Kinship Allowances in the Kinship Zones Pilot Scheme
Published 19 May 2026
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This publication is available at https://www.gov.uk/government/publications/tax-treatment-of-kinship-allowances-in-the-kinship-zones-pilot-scheme/tax-treatment-of-kinship-allowances-in-the-kinship-zones-pilot-scheme
Who is likely to be affected
The measure will affect kinship carers who take part in the Department for Education (DfE) Kinship Zones pilot scheme. The exemption will not include carers who are ‘excluded relatives’ of the child being cared for, in line with the existing exemption for certain kinship care payments. ‘Excluded relatives’ are normally the child’s birth parents and their spouses.
General description of the measure
This measure provides an Income Tax exemption for kinship allowances made under the Department for Education’s (DfE) Kinship Zones pilot scheme (referred to throughout as ‘the scheme’).
Policy objective
The policy objective of this measure is to ensure kinship allowances made under the scheme are exempt from Income Tax.
This measure aims to support the scheme. To help achieve this, the measure will make the kinship allowances from the scheme exempt from Income Tax. This will ensure carers receive the full financial benefit of the support offered and simplify the tax affairs of affected kinship carers, as they will not need to complete Self Assessment returns in respect of this income.
Background to the measure
The scheme was announced on 30 October 2024 and began on 1 April 2026. The tax exemption for kinship allowances made under the scheme was announced in a Written Ministerial Statement on 2 March 2026.
Detailed proposal
Operative date
This measure will have retroactive effect from 1 April 2026.
Current law
Current law on exempt payments made to adopters and other types of carers in England and Wales, including some kinship carers, is included in Chapter 8 of Part 6 of the Income Tax (Trading and Other Income) Act 2005 section 744. S744(1) lists payments currently exempt from Income Tax, S744(2) excludes payments made to certain relatives and other persons from the exemptions.
Section 747 of Chapter 8, Part 6 of the Income Tax (Trading and Other Income) Act 2005 provides a power for HM Treasury to amend section 744 to add a description of a payment.
Proposed revisions
Legislation through a Statutory Instrument will amend section 744 in Chapter 8 of Part 6 of the Income Tax (Trading and Other Income) Act 2005. This section lists types of payment which are exempt from tax and the statutory instrument will add the scheme to this list, as kinship allowances paid under the scheme are not paid under any of the provisions currently listed. The statutory instrument will also apply the exclusions at subsection (2) of section 744 to the exemption for kinship allowances made under the scheme.
Summary of impacts
Exchequer impact (£million)
| 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 | 2029 to 2030 | 2030 to 2031 |
|---|---|---|---|---|---|
| nil | nil | nil | nil | nil | nil |
This measure is not expected to have an Exchequer impact.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
The measure will affect approximately 4,500 kinship carers who take part in the scheme. This measure is expected to have a positive impact on kinship carers as it means those on the scheme will not need to declare this income or pay tax on it. It will enable them to participate in the scheme without taking on any new tax responsibilities.
No impacts are expected on family formation, stability or breakdown. Customer experience is expected to remain the same as there will be no changes to tax processes or administrative obligations.
Equalities impacts
This measure affects kinship carers who are taking part in the DfE scheme. If a protected group is overrepresented in the population of kinship carers then it will be disproportionately impacted.
HMRC does not currently hold data on the protected characteristics of kinship carers and so cannot make an assessment of the impacts on those with shared protected characteristics. However, DfE conducted an equality impact assessment of the scheme and found that the majority of kinship carers are female and older in age compared to the general population. In England and Wales, 59.2% of children living in kinship care lived with at least one grandparent.
Health and disability deprivation is defined as any household member reporting “bad” or “very bad” general health, or where day-to-day activities are limited due to a long-term physical or mental health condition. Almost half of all kinship care households (46.8%) were deprived based on this measure compared with around a quarter of parental households (25.4%). This suggests that kinship carers are more likely to be disabled, which also correlates with being older in age.
No data were available on the other protected characteristics of kinship carers and so HMRC cannot make an assessment of the impacts on other groups with shared protected characteristics.
Administrative impact on business including civil society organisations
There is no impact on businesses as this measure only affects individuals.
Operational impact (£million) (HMRC or other)
There will be no operational impact for HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups and DfE.
Further advice
If you have any questions about this change, contact the Business Profits Team by email: businessprofits.admin@hmrc.gov.uk.
Declaration
Dan Tomlinson MP, Exchequer Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.