Earning over £100,000
The £100,000 childcare cliff
Britain’s tax system tapers almost everything. Childcare support is the exception. Go one pound over £100,000 of adjusted net income and both schemes stop — not reduce, stop — which is how a pay rise ends up costing thousands.
£12,260 of childcare support at risk.
What the cliff costs you
£12,260
a year in childcare support, withdrawn in full because your adjusted net income is over £100,000. It is a cliff, not a taper: one pound over and all of it goes.
- Free hours (30h × 38 weeks)
- £10,260
- Tax-Free Childcare
- £2,000
- Personal allowance lost
- £5,000
You are also inside the taper band, where every extra pound is taxed at an effective 60% before National Insurance — 40% tax plus the allowance you lose as you earn.
The way back under
Paying £10,000 more into your pension this year brings your adjusted net income to £100,000 and restores £12,260 of childcare support plus £5,000 of personal allowance.
The free hours are England only. Income tax, National Insurance, student loan repayments and Scottish rates are not modelled — this shows the childcare cliff and the allowance taper, not your whole tax position.
What actually goes
Two schemes, one threshold, no taper
Free childcare for working parents
In England, a child aged 9 months to 4 years gets 30 hours a week for 38 weeks, ages 9 months to 4 years. At a nursery charging £9 an hour that is a little over £10,000 a year, per child. It is withdrawn entirely if either parent’s adjusted net income goes over £100,000.
England only. Scotland, Wales and Northern Ireland run different schemes with different rules. GOV.UK, Free Childcare for Working Parents
Tax-Free Childcare
£2 for every £8 paid in, up to £2,000 per child a year (£4,000 if disabled), to age 11. That is worth up to £2,000 a child a year, for every child up to eleven — so it keeps costing you long after the nursery years, through wraparound care, holiday clubs and after-school places. Same threshold, same all-or-nothing test.
Cannot be held at the same time as Universal Credit or childcare vouchers. Runs UK-wide, unlike the free hours. GOV.UK, Tax-Free Childcare
And the allowance taper underneath it
Separately, the personal allowance is £12,570, reduced by £1 for every £2 of adjusted net income above £100,000, and nil at £125,140. Produces an effective 60% marginal rate on income between £100,000 and £125,140 in England, Wales and Northern Ireland. Scottish rates differ. So the childcare cliff lands on top of a band that was already the most expensive stretch of income in the country.
Child Benefit, for completeness
Child Benefit is clawed back earlier and more gently: 1% of child benefit for every £200 of adjusted net income over £60,000, and all of it at £80,000. By £100,000 it has usually gone already, so it is rarely the thing that changes a decision at this threshold — but it is measured on the same adjusted net income, so the same lever moves it.
Why it is worth knowing
The pound that costs you ten thousand
Almost nothing else in British tax works like this. Income tax steps up in bands. The personal allowance tapers. Child Benefit tapers. Childcare support does neither: it is a switch, and the test is either parent, not the household. One person’s bonus can remove support that was funding the other person’s return to work.
The consequence is a genuine cliff in take-home value. With two children in nursery, the support at stake can exceed £20,000 a year — which means a household on £101,000 can end up materially worse off than the same household on £99,000. Run your own numbers above; the shape of the answer surprises most people.
The lever: adjusted net income
The threshold is not tested on your salary. It is tested on adjusted net income, which is total taxable income before personal allowances, less certain reliefs including pension contributions and gift aid. Includes foreign income. It is not the same as gross salary or taxable pay.
That gives you three real options.
- Pay more into a pension. Personal contributions and salary sacrifice both reduce adjusted net income. This is the main lever, and near the threshold the arithmetic is unusually favourable: the contribution is coming out of income taxed at an effective 60%, and it can restore childcare support on top.
- Give through Gift Aid. Gift Aid donations also reduce adjusted net income. Smaller in scale than pension contributions for most people, but it counts, and it is often forgotten.
- Watch the timing. The test is on expected adjusted net income for the current tax year, so a bonus paid in March lands differently from one paid in April. Where the timing is yours to choose, it is worth choosing deliberately.
Where this stops
This page explains how the rules work and lets you do the arithmetic on your own figures. It is not advice, and pension decisions have consequences well beyond one tax year — the money is locked up until your late fifties, annual and tapered allowances apply, and salary sacrifice can affect other things. Somebody regulated should look at the whole picture before you act on it.
Every figure here is dated and sourced on methodology, and rechecked before each tax year.
Questions
The £100,000 rule, in detail
What exactly is adjusted net income?
It is the figure the £100,000 test is actually applied to, and it is not your salary. What adjusted net income is, and what reduces it. In short: Total taxable income before personal allowances, less certain reliefs including pension contributions and Gift Aid.
This matters more than anything else on this page, because it is the one part of the test you have any influence over. Two people on identical salaries can sit on opposite sides of the threshold depending on what they put into a pension.
Check it against GOV.UK, High Income Child Benefit Charge before relying on it — bonuses, benefits in kind and rental income all land in places people do not expect.
Is the test on our household income or just one of us?
Either parent, not the household — and this is the part that catches people. If you or your partner has adjusted net income above £100,000, the support goes, for the whole household. It does not matter what the other person earns.
What goes is both schemes at once. The free hours are 30 hours a week for 38 weeks, ages 9 months to 4 years — lost if either parent's adjusted net income is over £100,000. Tax-Free Childcare is £2 for every £8 paid in, up to £2,000 per child a year (£4,000 if disabled), to age 11 — lost if either parent's adjusted net income is over £100,000.
So a couple each earning £95,000 keeps everything, on £190,000 between them. A couple earning £101,000 and £20,000 loses everything, on £121,000. That is not a taper or a gradual reduction. It is a cliff, and one person's bonus can walk the household off it.
Can a pension contribution get me back under the threshold?
Mechanically, yes — pension contributions reduce adjusted net income, and adjusted net income is what the test measures. Somebody at £108,000 who puts an additional £8,000 into a pension is measured at £100,000.
The limit on how much can go in is £60,000, and the allowance is reduced for high earners, so this is not unlimited. The method by which you contribute also matters — salary sacrifice, relief at source and net pay do not all behave identically for this purpose.
We are describing how the rule works, not telling you to do it. Money in a pension is money you cannot reach for decades, and whether that trade is right for you depends on your whole position. This is the point to talk to an accountant or a regulated adviser, and it is worth doing before the tax year ends rather than after.
Is this the same everywhere in the UK?
No. The free hours described here are England only. As GOV.UK, Free Childcare for Working Parents puts it: England only. Scotland, Wales and Northern Ireland run different schemes with different rules. The hours, the ages and the rules all differ, so the numbers on this page will not be right for you.
Tax-Free Childcare is UK-wide, and so is the £100,000 threshold that governs it.
What else happens when I cross £100,000?
The personal allowance starts to disappear: £12,570, reduced by £1 for every £2 of adjusted net income above £100,000, and nil at £125,140. Because you are losing tax-free income at the same time as paying tax on the income above it, the effective rate through that band reaches about 60 per cent before National Insurance.
Child Benefit is a separate test with its own threshold — 1% of child benefit for every £200 of adjusted net income over £60,000, and all of it at £80,000.
The calculator on this page deliberately does not model income tax, National Insurance, student loan repayments or Scottish rates. Those need your employment status and where you live, and half an answer on tax is worse than none.
The Swealth letter
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Plain writing about British money, including the thresholds that move without anyone announcing them.