Most tax thresholds in the UK taper. You cross them and lose something gradually. The £100,000 childcare threshold does not work that way, and that is what catches people out.
At an adjusted net income of £100,000 you qualify. At £100,000.01 you do not. There is no taper, no partial entitlement and no grace. One pound of income can cost a family thousands of pounds of childcare support.
What exactly you lose
Both of the main schemes test the same threshold, so they fail together:
- Tax-Free Childcare — the 25% top-up, worth up to £2,000 per child per year, or £4,000 for a disabled child.
- The 30 funded hours for children from 9 months to school age — 1,140 hours a year.
Two details decide most real cases:
The test is per parent, not per household. Each parent must be at or under £100,000. One parent at £100,001 removes both schemes from the whole family, even if the other parent earns nothing at all. A couple earning £99,000 each — £198,000 between them — keeps everything.
The universal 15 hours survives. Every 3- and 4-year-old gets 570 hours a year regardless of income. If your child is three or four, crossing £100,000 costs you the working-parent half of the entitlement, not all of it. Below three, there is no universal entitlement to fall back on.
What counts as income here
This is where people get it wrong, usually in their own favour. The measure is adjusted net income, not your salary and not the figure on your payslip.
It includes salary, bonus, taxable benefits in kind, rental profit, dividends, interest and most other taxable income. From that you deduct grossed-up Gift Aid donations and gross personal pension contributions made under relief at source.
One trap is worth stating plainly, because it is the most common error people make when working this out themselves: if you pay into a pension by salary sacrifice or under a net pay arrangement, do not deduct it again. Those contributions never appeared in your taxable pay, so your gross figure is already lower. Subtracting them a second time produces a number that is too low, and a confidence in your eligibility that is not justified.
The arithmetic that makes this worth acting on
Here is why the cliff edge is unusual: the pound that takes you over is already being taxed at a punitive rate.
Between £100,000 and £125,140 your personal allowance is withdrawn at £1 for every £2 earned. That means each extra pound carries 40p of higher-rate tax plus another 20p from the allowance you are losing — 60p in tax, and 62p once employee National Insurance is counted. You are already keeping only 38p of each pound in this band before childcare enters the picture.
A worked example. One parent on £108,000, a partner on £40,000, one child of two in nursery. The parent sacrifices £8,000 of salary into their pension, bringing adjusted net income to exactly £100,000.
| Salary sacrificed into pension | £8,000 |
| Reduction in take-home pay (at 62% marginal relief) | about £3,040 |
| Tax-Free Childcare regained | up to £2,000 |
| 30 funded hours regained (1,140 hours at an assumed £7/hour) | about £7,980 |
The £8,000 is not spent. It is still yours, in your pension. The actual cost to the household this year is roughly £3,040 of take-home pay, against something in the region of £9,000 of childcare support — plus the restored personal allowance.
Treat the funded-hours figure as illustrative: it depends entirely on your provider's hourly rate and how many hours you actually use. Multiply 1,140 by your own rate to get your number. The point is not the precise total but the shape of it — the support regained is usually several times the take-home pay given up.
Timing
The threshold is tested when you confirm eligibility, and both schemes require reconfirmation every three months. If your income goes over temporarily, you do not lose the current quarter — there is no mid-quarter clawback — but you become ineligible from the next reconfirmation.
Pension contributions have to land in the right tax year, which makes 5 April the real deadline. A bonus arriving in March is the classic case: sacrificing it before it is paid is straightforward, reclaiming the position afterwards is not.
Before you act
Pension contributions are not free of constraints, and this page cannot tell you whether they suit your circumstances. The specific things worth asking a qualified adviser or your pension provider about:
- Your annual allowance, and whether the tapered annual allowance applies to you — it starts to bite at higher incomes and would limit what you can contribute.
- Carry forward of unused allowance from the previous three tax years.
- Whether you have triggered the money purchase annual allowance by flexibly accessing a pension, which reduces what you can contribute sharply.
- Whether your employer offers bonus sacrifice, which is often the simplest route, and whether they pass on any of their own National Insurance saving.
Money in a pension is money you cannot access until at least 55, rising to 57. That is the genuine trade-off, and it is a personal one.
Common questions
Does my partner's income get added to mine?
No. Each parent is assessed separately against £100,000. There is no household total for this test.
What if I am exactly on £100,000?
You remain eligible. The rule is that income must not exceed £100,000, so £100,000.00 qualifies and £100,000.01 does not.
I went over last year. Can I get it back?
Yes. Eligibility is reassessed at each reconfirmation, so bringing adjusted net income back to £100,000 or below restores both schemes from the next period. This is not a one-off loss.
Does losing it affect my older children too?
Yes, for Tax-Free Childcare and the working-parent funded hours — the test is on the parent, so it applies to every child in the family. The universal 15 hours for 3- and 4-year-olds is unaffected.