Earning over £100,000
The £100,000 childcare cliff
Most British benefits taper as income rises. Childcare support does not: one pound over £100,000 of adjusted net income and both schemes stop in full. A pay rise can leave you thousands of pounds worse off.
£12,260 of childcare support at risk.
What the cliff costs you
£12,260
a year in childcare support, gone in one go because your adjusted net income is over £100,000. There is no gradual withdrawal. One pound over the line and the full amount drops away.
- Free hours (30h × 38 weeks)
- £10,260
- Tax-Free Childcare
- £2,000
- Personal allowance lost
- £5,000
You are in the personal allowance taper band too. Every extra pound lands at an effective 60% once you count the allowance coming off. National Insurance is on top.
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.
Free hours apply in England only. We have not modelled income tax, National Insurance, student loans or Scottish rates. You are looking at childcare support and the allowance taper only.
What you lose
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 an illustrative £9 an hour that is £10,260 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 It is withdrawn entirely if either parent’s adjusted net income goes over £100,000.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 can matter 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. It is measured on the same adjusted net income, so the same lever moves it.
Why the cliff matters
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 stops in full at the line. The test is on either parent. One person’s bonus can remove support that was funding the other person’s return to work.
With two children in nursery at the same illustrative rate, the support at stake is £24,520 a year. A household just over the line can be materially worse off than the same household just under it. The calculator above uses your own hours and rate.
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.
Three things reduce it, by the rules.
- Pension contributions. Personal contributions and salary sacrifice both reduce adjusted net income. Near the threshold the arithmetic is unusual: the contribution comes out of income taxed at an effective 60%, and the same reduction is what the childcare test reads.
- Gift Aid. Gift Aid donations also reduce adjusted net income. Smaller in scale than pension contributions for most people, but they count, and they are often forgotten.
- Timing. The test is on expected adjusted net income for the current tax year, so a bonus paid in March lands in a different year from one paid in April.
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, and annual and tapered allowances apply, and salary sacrifice can affect other things. Somebody regulated should look at the whole picture before relying 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?
Adjusted net income is what the £100,000 tests use, and it is not the same as salary alone. 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.
That definition matters because two people on identical salaries can land on opposite sides of the line depending on pension contributions and other adjustments.
Cross-check against GOV.UK, High Income Child Benefit Charge before you rely on a figure. Bonuses, benefits in kind and rental income often arrive where people do not expect them.
Is the test on our household income or just one of us?
Either parent, not combined household income. If you or your partner has adjusted net income above £100,000, both childcare schemes stop for the whole household, whatever the other person earns.
Both schemes drop away together. 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.
A couple on £95,000 each keeps the support on £190,000 between them. A couple on £101,000 and £20,000 loses it on £121,000. There is no taper. One bonus can remove everything overnight.
Can a pension contribution get me back under the threshold?
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 act on it. Pension money is locked away for years, and whether that trade-off suits you depends on the rest of your finances. This is where an accountant or regulated adviser earns their fee. The allowance is annual, so it disappears after the tax year ends.
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. Losing tax-free income while paying tax on the slice above creates an effective rate of about 60 per cent through that band, before National Insurance.
Child Benefit uses a separate test: 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 does not model income tax, National Insurance, student loans or Scottish rates. Those need employment status and where you live, and a partial tax figure would mislead.
The Swealth letter
One letter a week, on Thursday
Plain writing about British money, including the thresholds that move without anyone announcing them.