Tax-Free Childcare £100,000 Income Limit Explained

Tax-Free Childcare has an individual £100,000 income limit, but the figure HMRC uses is adjusted net income, not simply the salary shown in your employment contract. Understanding that distinction matters if either parent is close to the threshold.

The £100,000 rule in one sentence

You cannot get Tax-Free Childcare if you or your partner expects their adjusted net income to be over £100,000 in the current tax year. The limit applies to each person separately, not to your combined household income.

A couple with adjusted net incomes of £70,000 each may pass this part of the eligibility test. If one person expects adjusted net income of £101,000 and the other earns £30,000, they do not. Employment, child age, immigration status and the other scheme rules still apply.

What is adjusted net income?

Adjusted net income starts with your total taxable income before Personal Allowances. HMRC says this can include:

• employment income and taxable benefits from your job;
• self-employed profits;
• most pension income and some taxable state benefits;
• savings interest and dividends;
• taxable rental, trust and foreign income.

Certain deductions and reliefs are then taken into account. These can include qualifying trading losses, gross pension contributions and the grossed-up value of eligible Gift Aid donations. This is why adjusted net income can differ from both salary and take-home pay.

Do pension contributions reduce adjusted net income?

They can, but the calculation depends on how the contribution is made. HMRC's adjusted net income guidance says contributions to a private pension using relief at source are deducted at their grossed-up value. A £4,000 personal contribution that receives basic-rate tax relief is normally treated as £5,000 gross for this calculation.

For example, someone with £104,000 of taxable income who makes a £4,000 relief-at-source pension contribution may have adjusted net income of £99,000, assuming there is no other income or adjustment. Workplace net-pay and salary-sacrifice arrangements operate differently, so check your payslip and scheme documents rather than deducting the same amount twice.

A pension contribution should be a real financial decision, not just a childcare calculation. If the result affects your eligibility, ask HMRC or a regulated tax adviser to confirm how your particular arrangement is treated.

What about bonuses, dividends and rental income?

They can count when they are taxable. A late-year bonus, company dividend, savings interest or rental profit may push adjusted net income over the limit even if basic salary is below £100,000. Include income you reasonably expect across the whole tax year when you apply or reconfirm.

How to check your estimate

1. Add the taxable income you expect from every source for the current tax year, including likely bonuses and benefits.
2. Check which pension contributions, Gift Aid donations, losses or other adjustments HMRC allows you to deduct.
3. Compare the result with the £100,000 limit for each parent separately.
4. Revisit the estimate if your pay, bonus, investments or other circumstances change before your next reconfirmation.

Does the same limit apply to free childcare hours?

In England, the working-parent childcare entitlement also uses a £100,000 individual adjusted net income limit. The schemes have other differences, though. Read our guide to using free childcare hours with Tax-Free Childcare before planning your provider bill.

Official guidance

Use GOV.UK to check Tax-Free Childcare eligibility and follow HMRC's steps for calculating adjusted net income.