Between £100,000 and £125,140 of adjusted net income, you lose Personal Allowance at an effective 60% marginal rate. If you have a child under 5, crossing £100,000 at all can also wipe out Tax-Free Childcare and your 30 free hours — for the whole year, not just the fringe pound. Enter your numbers below for an instant, UK-specific answer.
This is a simplified estimate for education purposes, not regulated financial advice. It assumes salary sacrifice (a personal pension/relief-at-source contribution gets the tax saving but not the National Insurance or student loan saving shown below), that your salary is above your student loan's repayment threshold (true for almost everyone in this income band), and it uses illustrative average childcare values — Tax-Free Childcare tops up to £2,000/child/yr (children under 11), and the 30 hours offer is commonly cited as worth up to £7,500/child/yr, though the real figure varies by location, provider and hours actually used. Candid Finance Ltd is not authorised or regulated by the Financial Conduct Authority (FCA).
The Personal Allowance is the first £12,570 you earn tax-free each year. Once your adjusted net income (broadly: salary plus bonus and other income, minus pension contributions) passes £100,000, that allowance is withdrawn at £1 for every £2 earned above it — so it's gone completely by £125,140.
| Adjusted net income | Personal Allowance left | Effective marginal rate |
|---|---|---|
| £100,000 | £12,570 (full) | 40% |
| £110,000 | £7,570 | 60% |
| £120,000 | £2,570 | 60% |
| £125,140+ | £0 | 45% |
Every extra £1 earned in the £100,000–£125,140 band is taxed at 40%, and also strips away 50p of allowance that would otherwise have been tax-free — 40% of that 50p is a further 20% effective tax. 40% + 20% = 60%. Above £125,140 the allowance is already gone, so the rate drops back to the flat 45% additional rate. Add 2% employee National Insurance, plus 6–9% if you're still repaying a student loan, and the true marginal rate in this band is often 62–71%.
Tax-Free Childcare and the 30 free hours offer both use the same test: if either parent's adjusted net income goes even £1 over £100,000, the household loses the entire entitlement for the whole year — it isn't tapered like the Personal Allowance. For a family with a child under 5 using the full 30 hours, that single pound can cost several thousand pounds in support, on top of the 60% tax rate on income in that band. That's what people mean by an effective marginal rate that "exceeds 100%" right at the threshold: the tax system takes 60p of that last pound, and the childcare system takes thousands more.
Most people who fall into this band don't plan to — a bonus, a pay rise, or investment/dividend income pushes their adjusted net income over £100,000 without their base salary changing. Because it's based on total income for the tax year, a one-off bonus in an otherwise sub-£100k salary can be enough to trigger both the tax trap and the childcare cliff at once.
Because both the taper and the childcare cliff are based on adjusted net income, pension contributions taken before tax reduce it directly. Sacrificing enough to bring your adjusted net income back to £100,000 restores your full Personal Allowance and your full childcare entitlement — the same pound of sacrifice fixes both at once, which is why the effective relief in this band is so much higher than pension contributions get anywhere else.
Should I pay off my student loan early? — if you're weighing pension sacrifice against loan overpayment, this checks the loan side of that comparison. · Mortgage overpayment vs high-yield savings — if a mortgage fix is ending, this runs the same kind of comparison for that spare cash.