Answers · UK 2025/26

What income counts towards the GBP 100,000 limit for Tax-Free Childcare and free hours?

Adjusted net income counts: your total taxable income (salary, bonus, rental, savings, dividends) minus gross pension contributions and Gift Aid donations. If either parent's adjusted net income exceeds GBP 100,000, you lose Tax-Free Childcare and the funded hours entirely, even if you are GBP 1 over.

Last updated: 10 June 2026Last reviewed: 10 June 2026How we verify

Full answer

Both Tax-Free Childcare and the funded childcare hours use adjusted net income, the same measure as the Personal Allowance taper and the High Income Child Benefit Charge. It starts with your total income (salary, bonuses, taxable benefits in kind, rental profit, savings interest and dividends above their allowances) and then deducts the grossed-up value of personal pension contributions and Gift Aid donations. If either partner goes over GBP 100,000, the whole family loses both schemes, a hard cliff edge with no taper. Worked example: a parent has a GBP 104,000 salary and a GBP 6,000 bonus, giving GBP 110,000. They pay GBP 10,000 (gross) into a personal pension, reducing adjusted net income to GBP 100,000, which keeps them eligible. Without that contribution, losing Tax-Free Childcare (up to GBP 2,000 per child) and 30 funded hours (worth several thousand pounds a year) could cost the family far more than the extra take-home from the bonus, the so-called GBP 100k childcare trap. This overlaps with the 60% effective tax band created by the Personal Allowance taper between GBP 100,000 and GBP 125,140, where each GBP 2 of income removes GBP 1 of allowance. A salary sacrifice or extra pension contribution can pull you back under GBP 100,000 and restore eligibility. Use the pension calculator to model contributions and the take-home pay calculator to see the net effect. Confirm the rules at gov.uk/tax-free-childcare.