Earn just over £100,000 and you could be worse off, says Paul Lewis

Why you should be careful about crossing the six-figure cliff edge.

Getty Images

Published: August 14, 2026 at 3:13 PM

We may earn commission from links on this page. Our editorial is always independent.

A hundred thousand pounds a year. It sounds a lot. And it would put you in the top 5% of earners. In a room of 20 random people, 19 earn less.

Ad

So why are some people – especially parents – desperate to keep their pay below six figures? It’s because two middle-class means-tests kick in at that level and can leave parents of young children worse off for topping the threshold.

Income tax

On incomes between £100,000 and £125,140 your rate of income tax shoots up in England, Wales and Northern Ireland.

It starts with the higher rate of income tax above £50,270, which is 40%. In Scotland, it starts at £43,663 and is 42%, rising to 45% above £75,000.

But once pay after pension contributions tops £100,000, every £100 you earn is taxed at 60% (67.5% in Scotland).

That’s because the personal tax-free allowance – the £12,570 income you can have before any income tax is due – is means-tested.

For every £2 of income above £100,000 your personal allowance is reduced by £1. So if your annual pay rises by £100, you lose £50 of your personal allowance, which means another £50 is taxed at 40% – effectively a 20% tax on that £100 (22.5% in Scotland).

Add that to the 40% higher rate and altogether you lose £60 of your £100 pay rise – £67.50 in Scotland.

Childcare

For parents with young children, falling over the £100,000 cliff edge costs even more.

The moment one of them reaches six figures, they lose their tax-free childcare worth up to £2,000 a year for each child under 11. That applies throughout the UK.

In England, they also lose the 30 hours of “free” childcare for 38 weeks of the year for children aged nine months to two, and half of the 30 hours for children aged three and four.

The average childcare subsidy ranges from £5.62 to £11.22 an hour so losing it can cost them many thousands of pounds per child.

No wonder parents, especially in England, try to keep what is called their adjusted net income below the magic six figures.

The easiest way to do that is to pay more into a pension, either directly or through a salary sacrifice scheme – they are not due to be restricted until April 2029.

Or, of course, just say no to that promotion or pay rise – because unless it’s a very big one, you may end up worse off.

Ad

Paul Lewis presents Money Box on Radio 4.

Ad

Ad

Ad