The £100,000 threshold can cut tax efficiency and childcare support
Earning over £100,000 can trigger a sharp loss of income and family support. The personal allowance is withdrawn above that threshold, creating an effective 60% income tax rate on earnings up to £125,140; in England, some childcare support also stops once a parent’s adjusted net income exceeds £100,000.
For every £2 earned above £100,000, £1 of the £12,570 allowance is lost, and with National Insurance included, workers keep about £38 of each extra £100 in that band. An estimated 800,000 people face this tax effect. For a family with a nine-month-old and a two-year-old, losing tax-free childcare, funded hours and child benefit can mean roughly £30,000 less support; estimates of children missing funded childcare rose to 50,500–99,000 in 2025-26, up from 15,600–30,800 two years earlier.
In short
- The personal allowance tapers away above £100,000.
- Some earnings up to £125,140 face an effective 60% tax rate.
- In England, childcare and child benefit losses can total about £30,000.
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The case for
The £100,000 cliff edge can make extra work or promotion yield little take-home pay just as families face high childcare costs. Withdrawing the personal allowance and childcare support together can create abrupt penalties that may discourage work, complicate family finances and keep some children from early education. A more gradual taper could preserve incentives while targeting support towards families who need it.
The case against
Tax and childcare support must be funded from limited public resources, so setting income limits is one way to focus help on lower- and middle-income families. Extending support to households above £100,000 would require higher taxes, reduced spending elsewhere or greater borrowing, and could direct public money to families better able to meet childcare costs themselves. A clear threshold may also be simpler to administer than a more gradual system.
Explained simply
The personal allowance is the part of someone’s income they can receive each year before paying income tax. For people earning more than £100,000, it is gradually withdrawn, so the extra tax on earnings in that band can be much higher than the headline tax rate suggests; National Insurance also applies.
In England, some help with childcare and child benefit depends on a parent’s income. Families with young children may therefore lose both tax benefits and support with childcare as earnings rise, which can affect how much work is financially worthwhile and what care they can afford.
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Originally published by The Guardian as “What is the £100k income ‘cliff-edge’?”.