Accommodation with relatives on UK trip. Are they bearing cost of expenses?

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As you will be staying with your relative and he will bear a part of the cost, yes, you will have to answer yes on the question: "Will anyone be paying towards the cost of your visit". You will be able to explain who and how much you expect they will spend for you on the form, either in an explanation on this question or in an other part of the form. 'Staying with relative and taking part of our meals there' should do.
Your cousin is not a sponsor to your trip, that would be if he pays part of the travel costs and out of your text I do not get the impression he will do so.

I think the proper UK English version for the relationship of your children with your host will be 'cousin' (second cousin once removed may be the more precise, but as cousin is a wide catch word, I think that alone should do, even when with the different generation 'uncle' seems a more natural way to address.) You can also say 'cousin of parent' if that fits.

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