Here’s what would have happened to the childcare threshold if it had tracked UK inflation
Key Points
- The £100,000 childcare threshold would sit at around £137,000 had it tracked inflation since 2017
- The personal allowance taper would begin at around £159,000 on the same basis
- Up to 99,000 children were affected by the limit in 2025/26, against a maximum of 30,800 in 2018/19
- Part of the rise reflects the expansion of funded childcare to under-threes
- Both thresholds remain frozen at £100,000
The £100,000 income limit that decides whether working parents get funded childcare would stand at around £137,000 today had it risen with inflation, according to Quilter analysis using the Bank of England inflation calculator.
The threshold came in with the 30 hours offer in 2017 and has not changed since. Eligibility depends on adjusted net income and applies to each parent individually, so a household loses the working parents entitlement in full if either parent goes above £100,000.
Wages have risen across the intervening years while the line has stayed where it was, pulling more families over it.
The same pattern applies to the personal allowance taper, which starts at the same figure. Quilter’s analysis puts the inflation-adjusted equivalent at around £159,000.
As it stands, income between £100,000 and £125,140 carries an effective tax rate of 60% as the allowance is withdrawn, so parents who cross the childcare threshold meet both rules at once.
Department for Education figures obtained by Quilter under the Freedom of Information Act show how many families the limit now catches.
The department estimates that between 50,500 and 99,000 children were affected in 2025/26, with the value of unavailable support running from £446 million to £874 million. In 2018/19 the equivalent estimate was 10,900 to 30,800 children and £41 million to £84 million.
Part of that increase reflects the expansion of funded childcare rather than the frozen threshold. The offer covered 15 additional hours a week for three and four-year-olds in 2018/19, and by 2025/26 it extended to eligible children aged nine months to two years at up to 30 hours a week.
A larger eligible group and a more valuable entitlement both push the totals up.
“While £100,000 is still a high income, it is not worth what it was when this threshold was set,” said Ian Futcher, financial planner at Quilter. “As earnings and childcare costs have risen, more families are finding themselves caught by rules that were designed in a different economic environment.”
“This increasingly catches families out because the threshold has remained unchanged while wages have risen and childcare support has expanded,” he added. “More and more households are discovering they have crossed a line that triggers a significant change in their financial position.”
Because the test uses adjusted net income, Quilter said parents near the line may be able to remain eligible through pension contributions, salary sacrifice arrangements, and planning around the timing of bonuses and taxable benefits. The government has said it will keep the childcare thresholds under review.
