Thousands of parents lose out on £874m in childcare help due to nasty tax trap – how you can avoid being caught

THOUSANDS of parents are losing out on a total of £874million in childcare support due to a nasty tax trap, new research reveals. Children aged between nine months and two-years-old can get up to 30 hours of funded childcare in the UK – but only if their parents earn a net salary less than £100,000. This income barrier has been frozen since the scheme began in 2018, meaning more and more parents are losing out on the support. Between 50,500 and 99,000 children were affected by the £100,000 earnings limit in 2025/26, according to Department of Education (DoE) figures revealed by Quilter. Sign up for the Money newsletter Thank you! This means their families were ineligible for the funded childcare hours for working parents because of them earns over £100,000. The total value of funded childcare support unavailable to these families is estimated to be up to £874million. The number of kids impacted has risen around nine-fold since 2018/2019, when between 10,900 and 22,500 were unable to access the support. If the income threshold had risen in line with inflation since 2018, it would now be around £137,000, Quilter’s analysis found. 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. Most read in Money “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.” How to beat the childcare tax trap You don’t have to turn down a pay rise or a promotion in order to save on childcare – there are clever ways you can get around the rules without losing money. Start by looking at what pension contributions you can make – this can bring your net salary down while also helping you save for your future. Ian says: “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.” You could also look at using salary sacrifice, if this is something your workplace offers. This allows you to give up some of your gross salary to your employer in exchange for a non-cash benefit, such as extra pension contributions or a cycle-to-work scheme. Quilter also suggests parents make sure to review the impact of bonuses and other taxable benefits. Comment now