If either parent earns over £100,000, you lose the right to Tax-Free Childcare and the extended free childcare hours — potentially worth £7,500 a year per child. But there's a completely legal way to get it back, and most financial advisers don't bring it up unprompted.
The working parent childcare entitlements — 30 free hours and Tax-Free Childcare — have a hard income limit. If either parent's adjusted net income exceeds £100,000, you lose eligibility for both. Completely. Immediately.
This isn't a taper. It's a cliff. Earn £99,999 and you get everything. Earn £100,001 and you get nothing. For a family with two young children in London paying £15/hr nursery fees, the difference between those two incomes can be £15,000 a year in lost support.
What makes this particularly galling is that the £100,000 limit is per parent, not per household. A couple each earning £99,000 — combined household income of £198,000 — qualifies in full. A single parent earning £101,000 gets nothing.
This is where the fix lives. Your adjusted net income is not the same as your salary. It's your gross income minus certain tax reliefs — most importantly, pension contributions and Gift Aid donations.
If you earn £108,000 and make an £8,000 pension contribution, your adjusted net income is £100,000. You're eligible. The pension money isn't lost — it's sitting in your pension pot, growing, untouched until retirement. You've effectively been paid £8,000 into your future while simultaneously restoring £7,500+ a year in childcare entitlements.
This is the trick. It's not a loophole. It's how the tax system is explicitly designed to work. HMRC publishes guidance on it. It just isn't widely known among parents who don't have accountants.
Scenario: One parent earns £110,000. Two children aged 1 and 3.
The pension contribution costs £10,000 of take-home pay. It returns up to £18,260 in childcare entitlements plus tax relief. The net gain is over £8,000 per year — and the pension contribution itself isn't money down the drain, it's money in your retirement fund.
If you're employed, the most straightforward route is to increase your pension contributions through your employer's scheme. Ask your payroll or HR department to increase your monthly contributions by the relevant amount. Because it goes through payroll, it reduces your gross income before tax — and it reduces your adjusted net income for childcare eligibility purposes.
If you have a personal pension or SIPP, you make the contributions yourself and claim the tax relief through self-assessment. The effect on your adjusted net income is the same.
One thing to check: workplace pension contributions made through salary sacrifice reduce your gross pay, which automatically reduces adjusted net income. Contributions made as personal contributions (where you pay and claim tax relief separately) also reduce adjusted net income, but the mechanics differ slightly. In either case the result is the same for childcare eligibility.
When to apply for childcare after making the contribution: You apply to HMRC's Childcare Service and state your expected income for the year. HMRC assess based on your expected adjusted net income — so if you're planning contributions to bring you under £100,000, you can apply as soon as you've committed to making them. You don't have to wait until after you've paid them.
This same pension contribution approach also affects Child Benefit. The High Income Child Benefit Charge (HICBC) starts at £60,000 and tapers away completely at £80,000. If your income sits between those two figures, pension contributions reduce your adjusted net income — and reduce the HICBC you owe, potentially saving hundreds or thousands more per year on top of the childcare benefit.
If your income is between £60,000 and £80,000, a pension contribution of £1,000 saves you roughly £500 in Child Benefit clawback plus up to £400 in income tax relief. The combined return on that contribution is significant before you even get to childcare entitlements.
The numbers in this article are genuine and the strategy is legitimate. But the specifics depend on your employment type, your pension arrangement, your partner's income, and your exact adjusted net income. Before making significant contribution changes, speak to a financial adviser or accountant — ideally one who specialises in family finances. Many people in the £100k–£130k income range have never had this pointed out to them and are leaving substantial money on the table.
Don't forget to reconfirm. Once you've restored eligibility and applied for the free childcare hours, you must reconfirm your eligibility every three months via the HMRC Childcare Service. If your income changes — bonus, pay rise, freelance income — and you go back over £100,000, your eligibility lapses. Keep track of your adjusted net income throughout the year, not just at tax return time.
Our tool flags the pension contribution opportunity automatically if your income is near the £100,000 threshold — and estimates what you could restore.
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