Britain's £100k Tax Cliff: Parents Keep Just £38 of Every £100

Workers earning between £100,000 and £125,140 in the UK keep only £38 of every £100 they earn, once a hidden 60% effective tax rate and 2% national insurance are counted. An estimated 800,000 people sit in that band, according to a freedom of information request by NFU Mutual.

The mechanism is the withdrawal of the tax-free personal allowance. For every £2 of income above £100,000, earners lose £1 of the £12,570 annual allowance. The result is a marginal rate far above the 45% top rate most people associate with high incomes.

"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.

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

Why Parents Take the Hardest Hit

For families with small children in England, the income threshold cuts twice. High earners lose access to government childcare subsidies once a parent's adjusted net income exceeds £100,000 for a tax year.

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. Sarah Coles, AJ Bell's head of personal finance, says parents "lose a big chunk" of support the moment they cross the line: "It isn't tapered away gradually, hence the 'cliff-edge' moniker."

AJ Bell's calculations cover a family with a nine-month-old baby and a two-year-old, and break the £30,000 into three components:

• Tax-free childcare: £4,000
• Free hours' childcare: £23,872
• Child benefit: £2,337

What Exactly Disappears?

The losses stack up fast at £100,001 of income.

All entitlement to tax-free childcare, worth up to £2,000 per child per year, goes. So does the 30 hours of funded term-time childcare for children aged nine months to three years, and half of the 30 hours for children aged three to four.

Child benefit disappears too — currently £27.05 a week for the eldest or only child and £17.90 for each additional child. The high-income child benefit charge, a tax penalty that applies once someone's income exceeds £60,000, claws back the entire entitlement at this level.

How Many Children Missed Out?

Official government data puts the number of children who missed funded childcare in 2025-26 because a parent exceeded the threshold at between 50,500 and 99,000. Those figures come from freedom of information data obtained by the wealth management firm Quilter.

Two years earlier, the estimate ran between 15,600 and 30,800 children. The count has roughly tripled in that period, which suggests the cliff-edge is biting a fast-growing share of families as more earners cross six figures.

For anyone negotiating a pay rise above £100,000, the arithmetic now matters as much as the headline salary.