UK parents face income drop due to childcare and tax trap after £100k salary
In the UK, parents with two young children paying for 50 hours of childcare a week see their net income drop when their gross earnings exceed £100,000. Due to tax policies and the removal of free childcare, it is financially more advantageous to earn around £99,000 than between £100,000 and £145,000.
As income rises above £100,000, families face significantly higher taxes and childcare costs, which erode their take-home pay after expenses. In London, parents paying for extensive childcare face an effective reduction in real income beyond this threshold.
This is an example of a tax “trap” where increasing gross earnings does not translate into higher net income, compounded by the withdrawal of childcare subsidies. Consequently, families incur greater out-of-pocket expenses for childcare.
This dynamic affects family decisions regarding work and earnings, potentially discouraging efforts to increase income or accept higher-paid positions.
Therefore, UK tax and childcare policies currently create a financial disincentive for many families with young children to earn more, highlighting the need for policy review and reform.
