Many families are unaware that the £100,000 adjusted net income threshold is one of the sharpest “cliff edges” in the UK tax and benefits system. Crossing it, even by £1 triggers three major losses:

• Tax-Free Childcare Worth up to £2,000 per child annually (£4,000 for disabled children).
• Extra 30 hours of free childcare Eligibility for 30 hours drops to the universal 15 hours for 3–4-year-olds
• Personal allowance taper For every £2 over £100,000, £1 of personal allowance is withdrawn, disappearing at £125,140 — creating an effective 60% marginal tax band.

When combined (especially for families with young children benefiting from the expanded 30 hours free childcare offer), earning a little more can easily leave you worse off net.

An effective solution: pension contributions

Pension contributions are still the single most powerful and HMRC-approved way to manage this threshold because they directly reduce “adjusted net income” – the exact figure used for all these rules (childcare eligibility and personal allowance taper)

By making personal or salary sacrifice pension contributions you can:

• Bring adjusted net income back under £100,000
• Immediately restore the full personal allowance and all childcare benefits
• Receive full tax relief on the contribution
• Receive relief on National Insurance Contributions until 2029 (if done through salary sacrifice)
• Build significant long-term wealth
   

Case study – real client example

Husband £110,000 | Wife £50,000 | Per one child under 2 in full-time nursery
Situation before planning Adjusted net income = £110,000 → over the threshold

• No 30 hours free childcare at all for under-3s
• No Tax-Free Childcare top-up
• Personal allowance reduced by £5,000 → £10,000 marginal rate is £6,000 more in tax
• Weekly nursery bill with 50 hours (Coram Family and Childcare Survey 2025): £341/week for 39 weeks → £13,299 

After planning £10,000 salary-sacrifice pension contribution → adjusted net income falls to £100,000 exactly

• 30 funded hours restored from 9 months old
• New weekly cost: ≈ £136 → £5,304 per year (this is based on childcare hours only. Additional costs for food, toiletries, etc, will apply)
• Tax-Free Childcare top-up on the amount they still pay → extra £2,000 government top-up (capped)
• Full £12,570 personal allowance restored and income tax relief on contribution → £6,000

Total available annual benefit restored/gained ≈ £15,995. Compared to receiving an extra £4,000 in your pocket each year.

Why act now?

• Frozen tax thresholds are dragging more people over £100,000 every year
• Expanded 30-hour childcare has made the penalty bigger than ever
• Unrestricted salary sacrifice window closes April 2029

Get in touch for a free, no-obligation conversation — most clients are astonished how much they can legally keep.

References

Source: https://www.brooksmacdonald.com/resources/insights/navigating-the-100000-pound-threshold