5 August 2026
Families are losing up to £874m of government-funded childcare support as a frozen £100,000 income threshold increasingly catches working parents, according to Department for Education estimates obtained by Quilter through a Freedom of Information request.
The Department for Education estimates that between 50,500 and 99,000 children were affected by the £100,000 earnings limit in 2025/26, meaning their families were ineligible for the working parents funded childcare entitlement because one parent exceeded the income threshold. The department estimates the value of funded childcare support unavailable to these families was up to £874 million.
|
Year
|
Children affected (range)
|
Value of support unavailable (range)
|
|
2018/19
|
10,900 - 22,500
|
£41m - £84m
|
|
2019/20
|
11,800 - 23,400
|
£44m - £88m
|
|
2020/21
|
12,300 - 24,300
|
£46m - £91m
|
|
2021/22
|
13,800 - 27,100
|
£52m - £101m
|
|
2022/23
|
15,500 - 28,900
|
£55m - £108m
|
|
2023/24
|
15,600 - 30,800
|
£58m - £115m
|
|
2024/25
|
46,400 - 91,300
|
£239m - £469m
|
|
2025/26
|
50,500 - 99,000
|
£446m - £874m
|
Source: Department for Education estimates obtained by Quilter through a Freedom of Information request. Figures are presented as ranges by the Department for Education to reflect uncertainty around household eligibility assumptions and whether both parents are working. The value of support assumes full take-up of available childcare hours and maximum use of the entitlement.
The figures highlight the growing impact of what has become one of the sharpest financial cliff edges facing working families. Under current rules, households lose eligibility for the working parents funded childcare entitlement if either parent has adjusted net income above £100,000. In practice, this means that a relatively modest pay rise, promotion or bonus can result in a family losing access to childcare support worth thousands of pounds a year.
The sharp rise partly reflects the government's expansion of childcare support in recent years. When the series begins in 2018/19, working parents of three and four-year-olds could access 15 additional funded hours a week. By 2024/25, funded childcare had been extended to eligible children aged nine months to two years, while by 2025/26 eligible children aged nine months to two years could access up to 30 funded hours. The Department for Education's calculations therefore reflect both a larger eligible population and a more generous childcare offer.
However, the figures also highlight the growing significance of the £100,000 earnings threshold. As childcare support has expanded, so too has the value of support available to eligible families. This means the financial consequences of crossing the income threshold are now far greater than when the restriction was first introduced.
For many households, the childcare earnings limit sits alongside another major cliff edge. Once adjusted net income exceeds £100,000, the personal allowance also begins to be withdrawn, creating an effective tax rate of 60% on income between £100,000 and £125,140. When combined with the potential loss of childcare support, the financial consequences of crossing the threshold can be particularly severe.
Analysis using the Bank of England inflation calculator using CPI found that if the childcare threshold had risen broadly in line with inflation since its introduction, it would now stand at around £137,000. Similarly, if the personal allowance taper threshold had kept pace with inflation, it would now begin at around £159,000.
How families may be able to preserve eligibility
Because eligibility is based on adjusted net income rather than salary alone, some parents may be able to remain below the threshold through careful planning, including:
- Increasing pension contributions
- Making use of salary sacrifice arrangements where available
- Reviewing the impact of bonuses and other taxable benefits
- Monitoring adjusted net income throughout the tax year
Ian Futcher, financial planner at Quilter, said:
"These figures demonstrate how a threshold that once affected a relatively small number of families is now having a much wider impact. While £100,000 is still a high income, it is not worth what it was when this threshold was set. As earnings and childcare costs have risen, more families are finding themselves caught by rules that were designed in a different economic environment.
"The childcare income limit creates one of the sharpest financial cliff edges in the system. If a parent's adjusted net income exceeds £100,000, their family loses eligibility for the working parents’ childcare entitlement entirely. In practice, that can mean a pay rise, promotion or bonus unexpectedly results in the loss of support worth thousands of pounds.
"This increasingly catches families out because the threshold has remained unchanged while wages have risen and childcare support has expanded. More and more households are discovering they have crossed a line that triggers a significant change in their financial position.
"The impact can be particularly stark because the childcare threshold sits alongside the personal allowance taper, which can leave people questioning whether earning more is delivering the financial benefit they expected.
"At a time when policymakers want people to develop their careers, increase earnings and improve their financial resilience, these types of cliff-edge policies risk acting as a brake on ambition.
"The good news is that there are often planning opportunities available. Eligibility is based on adjusted net income, so pension contributions can be particularly effective. Not only can they help improve long-term retirement outcomes, but they may also help preserve access to valuable childcare support and other tax allowances. Given the sums involved, understanding these thresholds can make a significant difference to family finances."
