What is the £100k income ‘cliff-edge’?

The tax-free personal allowance starts to be taken away when you hit six figures, and in England you lose access to childcare subsidies

Believe it or not, there are downsides to earning more than £100,000 a year – particularly if you have small children.

“It’s the ambition of many people to reach an income of £100,000, but it does come with an unexpected sting in the tail,” says Sean McCann, a chartered financial planner at NFU Mutual.

Those who make it into six figures face a 60% tax bill on some income. That is because the tax-free personal allowance starts to be taken away once you earn more than £100,000.

For every £2 of income over that, you lose £1 of the £12,570 annual tax-free personal allowance.

“This means that any earnings between £100,000 and £125,140 are effectively taxed at 60%,” says McCann. “When you add on the 2% national insurance payable, that means you only keep £38 of every £100 earned.”

An estimated 800,000 people are in this position, according to a freedom of information request by NFU Mutual.

In England, high earners also lose access to government childcare subsidies once a parent has an adjusted net income of more than £100,000 for a tax year.

As a result, a family with two young children loses roughly £30,000 of financial support if either parent earns even £1 more than the threshold, according to the investment platform AJ Bell.

There are three components to this: tax-free childcare; free hours’ childcare; and child benefit.

AJ Bell’s maths is for a family with a nine-month-old baby and a two-year-old, and puts a value of £4,000, £23,872, and £2,337 on the respective elements.

Sarah Coles, the platform’s head of personal finance, says parents “lose a big chunk” of support as soon as they hit the earnings limit: “It isn’t tapered away gradually, hence the ‘cliff-edge’ moniker.”

All entitlement to tax-free childcare (worth up to £2,000 a child a year) goes, Coles explains.

You also forgo the 30 hours funded term-time childcare for children aged nine months old to three years old, and half the 30 hours for children aged between three and four.

And at this level, all the family’s child benefit entitlement (currently £27.05 a week for your eldest or only child, and £17.90 for each additional child) is clawed back by the high-income child benefit charge (a tax “penalty” that kicks in when someone’s income exceeds £60,000).

So how many missed out on funded childcare because a parent exceeded the income threshold?

Official government data suggests that between 50,500 and 99,000 children in 2025-26. That is according to a freedom of information figures obtained by the wealth management firm Quilter. That is up sharply on just two years earlier, when it was estimated at between 15,600 and 30,800.