Tax-Free Childcare — £100k Income Cap Unchanged

Tax-Free Childcare (TFC) remains available for 2025/26 with unchanged eligibility criteria. The scheme provides a government top-up of 20% on childcare payments, up to a maximum of £2,000 per child per year (or £4,000 for disabled children). Parents pay into an online childcare account, and for every £8 deposited, the government adds £2. The maximum quarterly payment that attracts the top-up is £2,000 per child, yielding £500 in government funding per quarter.

The key restriction for high earners is the £100,000 adjusted net income cap. If either parent exceeds this threshold, the entire household loses eligibility for TFC. Unlike some other benefits, there is no taper — it is an all-or-nothing cliff edge. For a family with two children using the full TFC allowance, this means losing £4,000 per year of government top-ups the moment one parent's adjusted net income crosses £100,001. Combined with the loss of funded childcare hours (which shares the same threshold), the total cost of breaching £100k can be substantial.

One approach some earners use to manage this threshold is salary sacrifice into a pension. Reducing gross salary below £100,000 through employer pension contributions could affect TFC eligibility while also contributing to retirement savings and National Insurance relief. It is important to note that TFC and employer-supported childcare vouchers (for those still on legacy schemes) cannot be used simultaneously — families must choose one or the other. The relative value of each option depends on individual circumstances such as expected childcare spend, employer scheme terms, and tax position.