Tax2 min read · Updated 21 October 2026
The £100k tax trap: why earning more can leave you worse off
Why income between £100,000 and £125,140 is taxed at an effective 60%, how you also lose childcare help, and the legal ways to get back under the line.
Why it happens
Your Personal Allowance of £12,570 shrinks by £1 for every £2 of adjusted net income over £100,000. It is gone at £125,140. The lost allowance is taxed at 40%, so each extra £1 earned in that band keeps only 40p.
The childcare cliff
Tax-Free Childcare and the 30 hours of free childcare in England need both parents to be under £100,000 of adjusted net income. Go £1 over and both end. That is why this is called a cliff, not a slope.
A worked example
Income £108,000. You are £8,000 over. A gross pension payment of £8,000 brings adjusted net income to £100,000. Tax saved: £4,800. Real cost: £3,200, and the money is yours in the pension. Add childcare help of £4,000 and the move pays for itself.
At £120,000 the gap is £20,000, tax saved £12,000, cost £8,000.
The levers
| Pension (relief at source) | Lowers adjusted net income by the gross amount |
| Salary sacrifice | Lowers pay before tax and NI |
| Gift Aid | Gross donation lowers adjusted net income |
| Spouse transfer | Move savings or rental income to a lower earner |
Common questions
What is adjusted net income?
Your total taxable income minus gross pension payments and Gift Aid.
Do both parents need to be under £100k?
Yes. If either is over, the childcare help stops.
Is a pension payment lost money?
No. It stays yours in the pension, though you cannot touch it until pension age.