Is a Pay Rise Over £100k Worth It With Young Children?

The email from HR was three lines long. “Pleased to confirm your new salary of £105,000.” Priya forwarded it to her husband with a champagne emoji.

His reply took eleven minutes and was one line. “Doesn’t this lose us the nursery hours?”

Priya isn’t a real person. She’s a composite of the parents who ask this exact question every pay review season, often enough that one Reddit thread is simply titled “Can we cool it with the £100k childcare cliff edge”. Her numbers are real, though. They’re worked on the 2026/27 rules for England, and they say her £7,000 pay rise leaves her family roughly £12,700 a year worse off.

Worse off. After a pay rise. If you’re earning somewhere around £90,000 to £115,000, with small children in nursery and an offer letter on the kitchen table, this is your sum too. So let’s do it slowly, the way you’d want a friend to do it for you.

The band nobody prints on the table

Start with the comforting rule. Moving into a higher tax band normally can’t make you poorer, because the higher rate only applies to the pounds above the line. This site has a whole piece on why higher tax brackets won’t make you poorer, and that rule holds almost everywhere in the UK system.

£100,000 is where it breaks.

Everyone gets a personal allowance, the first £12,570 of income you pay no tax on. Once your income passes £100,000, HMRC takes that allowance back at £1 for every £2 you earn above the line. By £125,140 it’s gone. GOV.UK’s own wording is blunt. “Your allowance is zero if your income is £125,140 or above.”

Here’s what that does to each extra £2 Priya earns. The £2 itself is taxed at 40%, which is 80p. But it also removes £1 of her tax-free allowance, so another £1 of her pay that used to be tax-free now gets taxed at 40% too. That’s another 40p. So £1.20 goes in tax on £2 of pay, which is 60%. Add 2% National Insurance and she’s handing over 62p of every extra pound, keeping 38p.

HMRC’s table says 40%. The real figure is 62%. That gap has a name, the effective marginal tax rate. It’s what the next pound you earn actually leaves you with, once you count everything that changes when you earn it. The printed band is only one of those things. I think it’s the sneakiest rate in the whole income tax system, mostly because it isn’t on the table at all.

For Priya, the rise splits in two. The first £2,000, from £98,000 to £100,000, is taxed at the ordinary 40% plus 2% NI, so she keeps £1,160. The next £5,000 sits in the 62% zone, so she keeps £1,900. Her yearly take-home goes from £67,397 to £70,457.

That’s a £7,000 pay rise worth £3,060. About £255 a month. Irritating, but not a disaster.

The disaster is in the nursery bill.

The pound that costs £15,750

One phrase matters here, and it’s adjusted net income. That’s your taxable income after taking off things like pension contributions and Gift Aid. HMRC’s own manual says it “is not the same as gross income”. Hold onto that, because it becomes the way out later.

England’s two big childcare schemes both test it. Tax-Free Childcare adds £2 for every £8 you pay into a childcare account, up to £2,000 per child per year. The working-parent funded hours give 30 hours a week of free childcare, for 38 weeks a year, to children from 9 months old until they start school. GOV.UK says you lose both if “you or your partner’s expected adjusted net income… is over £100,000 for the current tax year.”

Read that carefully, because two words do a lot of work. “Over” means exactly £100,000 keeps everything. And “or your partner” means it only takes one of you. Priya’s husband earns well under the line, and it doesn’t matter. Her income alone switches off help for the whole household.

What doesn’t switch off is the universal 15 hours that every 3- and 4-year-old in England gets, whatever their parents earn.

So picture Priya’s two. Arjun is 2 and Maya is 3, both in nursery full time. Arjun loses all 30 funded hours, which comes to 1,140 hours a year. Maya drops from 30 hours to the universal 15, losing 570 hours. Both lose the Tax-Free Childcare top-up.

To price those hours I’ve used the Coram Childcare Survey 2026, the standard annual survey of British childcare costs, with its regional tables as reproduced by childcaresubsidycalculator.co.uk. At average English prices, 25 hours a week for a two-year-old costs £174.85, or about £6.99 an hour. Hours for 3- and 4-year-olds come to about £6.64. So my estimate goes like this. Arjun’s lost hours are worth about £7,970 a year. Maya’s are worth about £3,780. The Tax-Free Childcare top-up is worth up to £4,000 for the two of them. Together that’s roughly £15,750.

Now think about the pound between £100,000 and £100,001. Earning it costs Priya’s family about £15,750. As an effective marginal tax rate, that’s somewhere around 1.6 million percent. HMRC doesn’t print that one on the table either.

London makes it worse

Childcare prices vary a lot across England. In Coram’s figures, 25 hours a week for a child under 2 costs £238.01 in inner London and £156.15 in Yorkshire and the Humber. Same hours, same child, about £80 a week apart.

Running Priya’s sums in other regions gives these estimates. In inner London, the lost help comes to about £19,160 a year. In the North East, one of the cheaper regions, it’s about £14,350. The two-year-old figures for each region are my estimates, scaled from Coram’s under-2 regional gaps, because the survey’s regional table doesn’t give that exact measure.

Take away the £3,060 she gains from the rise, and her family ends up behind by:

• about £11,300 a year in the North East
• about £12,700 a year at the England average
• about £16,100 a year in inner London

These sit at the top of the range on purpose. They assume private nursery rates, every funded hour used, and fees high enough to claim the full Tax-Free Childcare top-up for both children, which Maya’s smaller bill may not reach. A family using fewer paid hours loses less. A family whose children are already at school loses only the 62% band and none of the childcare.

The pension door, and the lock on it

Remember adjusted net income? Pension contributions come off it. That’s the whole fix, and it’s ordinary, legitimate tax planning.

Say Priya takes the £105,000 and asks her employer to pay £5,000 of it straight into her workplace pension through salary sacrifice. That’s an arrangement where you give up part of your salary and your employer pays it into your pension instead. Her taxable pay drops to £100,000, which isn’t “over” £100,000, so the family keeps every hour and the full top-up.

Her take-home becomes £68,557. That’s £1,900 less than taking the full £105,000 as cash, but £1,160 more than she had on £98,000. Meanwhile £5,000 lands in her pension. Some employers also pass on part of the National Insurance they save, though that’s up to them.

Put the two versions next to each other. Without the pension move, the rise is £3,060 of cash minus around £15,750 of childcare. With it, the rise is £1,160 of cash plus £5,000 in her pension, and the childcare stays. For a cost of £1,900 in take-home, she gets £5,000 of retirement savings and keeps help worth five figures. That’s the 62% band working in her favour for once.

If you’re really paying for those nursery hours, I find this hard to argue against. The family I’d tell to slow down is the one whose cash is already stretched thin, for the reason below.

If your employer doesn’t offer salary sacrifice, paying into a personal pension also reduces adjusted net income, by the gross amount. The pension provider adds basic-rate relief. The higher-rate part you normally claim yourself, through self-assessment or by asking HMRC to adjust your tax code, so check how your provider handles it. Either way, the money has to go in before 5 April 2027 to count for this tax year.

Now the catch, and it’s a real one. Pension money is locked away until your minimum pension age, which is 55 today and is due to rise to 57 in April 2028. Priya’s in her thirties. That £5,000 won’t be spendable for roughly two decades, and her nursery bills arrive monthly, starting now. Every pound in the pension is a pound not available for the car, the boiler or the deposit. That’s opportunity cost, and it’s worth thinking through before you fill in the form.

It also helps to think of the pension as part of planning together for a family retirement rather than as a tax trick. That’s what it actually is. Just don’t sacrifice so much that the household has no emergency fund left.

A few more small print points. Salary sacrifice lowers your official salary, and anything worked out from that salary may shrink with it. That can include how much a mortgage lender will offer, life cover set as a multiple of salary, and statutory pay such as maternity pay. Schemes differ, so ask HR how yours works. And from April 2029, only the first £2,000 a year of sacrificed pension contributions will be free of National Insurance. The income tax relief stays, so the fix still works. On Priya’s £5,000 it adds about £60 a year in NI.

Timing is its own trap

Eligibility is checked every three months. You sign in to your childcare account and reconfirm, and if you don’t, Tax-Free Childcare stops. What you’re confirming is your expected adjusted net income for the current tax year, and an expected bonus counts as part of that.

Two things follow. First, a bonus that tips you over £100,000 can cost you the childcare just as surely as a pay rise. Second, a rise that starts partway through the year only adds a few months of the higher pay to this year’s income, so you might stay under this year and go over next year. HMRC’s rules on what happens when your expected income changes mid-year, and how long help continues, are fiddly enough that I won’t paraphrase them. Use HMRC’s childcare calculator and your childcare account with your real figures, and check before your next reconfirmation, not after.

How big the rise has to be

There’s a salary at which going over the line finally pays. Above £125,140, the allowance is gone and the effective rate settles at 45% tax plus 2% NI, so you keep 53p of each pound. From there it’s simple arithmetic to find where Priya gets back to her £98,000 take-home plus the childcare she’s lost.

My estimates put that at about £132,000 in the North East, £135,000 at the England average and £141,000 in inner London. So for a parent on £98,000 with Priya’s family, the offer needs to be roughly 35% to 45% higher before it’s worth taking with no pension changes. A £7,000 rise isn’t close. I’d still be wary of anyone who tells you the answer is to turn the rise down, though. Next year’s rise starts from this year’s salary, and the pension route above usually beats saying no.

This catches more families every year, and the reason is boring. The £100,000 limit came in with Tax-Free Childcare and the 30 hours in 2017 and hasn’t moved since. Income tax thresholds are frozen until 2031, according to Which?. Salaries rise, the line stays put, and more parents drift up to it.

The think tank Centax, reported by City AM in September 2026, estimated that nearly 12,000 parents may now be keeping their income under £100,000 to hold onto free childcare, up from about 1,100 in 2022. “Our analysis shows the childcare cliff-edge stands to grow dramatically by the end of this parliament,” said Arun Advani of Centax. I went through the Budget document from 28 October 2026 looking for any change to the £100,000 rules for childcare or the personal allowance, and found nothing that touched them.

To be fair to the people who designed it, a cliff edge is a choice, not an accident. The state is drawing a line on who gets help, and lines have edges. Centax put the cost of removing the limit entirely at about £640m in 2030, and suggested that raising it to £111,000 would come at no additional fiscal cost. Whether either happens is a political question. Nobody knows the answer yet.

Back at the kitchen table

Priya’s husband was right, and so was the champagne emoji, mostly. On these numbers, the rise works for a family like hers when the pension form goes in alongside it. Without that form, it’s a £12,700 pay cut dressed up as good news.

Your number will be different. It depends on your children’s ages, where you live, how many hours you use and what your pension scheme allows. These sums use income tax rates for England, Wales and Northern Ireland and England’s funded hours, so Scotland’s bands and the other nations’ childcare schemes will change the answer. But the number exists, and you can work it out before you reply to HR.

This is education, not personal financial or tax advice. Check your own figures with HMRC’s childcare calculator or a regulated adviser before making decisions.