This page works through what actually happens to pay between £100,000 and £125,140: where the roughly 60% effective tax band comes from, why the childcare rules make £100,001 a cliff rather than a slope, and the plain arithmetic of the pension contribution that steps back under the line.
Above £100,000 of adjusted net income, the £12,570 personal allowance is withdrawn at £1 for every £2 of income, disappearing entirely at £125,140. Losing allowance is the same as gaining taxable income, so each extra £1 in this zone is taxed twice over.
The arithmetic per extra £1 between the two thresholds: 40p of higher-rate tax, plus 50p of personal allowance lost, which is itself taxed at 40% for another 20p, plus 2p of National Insurance. That is 62p kept by HMRC out of each £1, before student loan repayments for those who have them. On paper the UK's top rate of income tax is 45%. In practice the most expensive band in the system sits between £100,000 and £125,140, and it is not close.
Worked at a salary of £105,000 with no pension contributions: the personal allowance shrinks from £12,570 to £10,070, taxable income is £94,930, and income tax comes to £30,432 for the year. Hold that number; it is the "before" in the restore section below.
Two schemes share the same eligibility line: tax-free childcare, worth up to £2,000 per child per year (£500 a quarter), and the 30 funded hours a week for working parents of children from 9 months to 4 years old. If either parent's adjusted net income goes over £100,000, both are lost in full.
Unlike the personal allowance, there is no taper here. A parent of two nursery-age children using the full tax-free childcare top-up loses £4,000 a year of support the moment income crosses from £99,999 to £100,001, and the funded-hours entitlement on top of it, whose cash value depends on local nursery rates but is commonly thousands of pounds more per child. On the wrong side of the line, a £1 pay rise can cost more than some pay rises are worth. This is a cliff edge in the literal sense: the effective marginal rate at the crossing point is not 62%, it is unbounded.
Note the test is per parent, not per household: two earners on £99,000 each keep everything at £198,000 of household income, while a single earner on £101,000 loses it all. Nobody defends this shape; it is simply how the rules are written, and planning around a line this sharp is exactly what the rules anticipate through the adjusted-net-income definition below.
Adjusted net income is income after gross pension contributions. A contribution that brings the figure back to £100,000 restores the tapered allowance pound for pound, and with it, childcare eligibility.
| Salary £105,000, contribution by salary sacrifice | No contribution | £5,000 sacrificed |
|---|---|---|
| Adjusted net income | £105,000 | £100,000 |
| Personal allowance | £10,070 | £12,570 |
| Income tax for the year | £30,432 | £27,432 |
| Take-home cost of the £5,000 | £1,900 | |
| Childcare eligibility (if a parent) | Lost | Restored |
Read it plainly: £5,000 goes into the pension, and take-home pay falls by £1,900. That is 62% effective relief from the band arithmetic alone. For the parent of two in the cliff example above, the same contribution also restores up to £4,000 of tax-free childcare and the funded hours, in which case the household ends the year with more money than if the £5,000 had been taken as pay. A result that sounds too good to be usual is, in this one zone, simply how the thresholds compose.
Information and guidance only. Not personal advice. The figures show 2026/27 tax arithmetic for the stated example, not a recommendation to contribute. Pension money is locked until at least age 57 from 2028, contributions are limited by the annual allowance and your relevant earnings, and childcare eligibility has conditions beyond income. Investment values can fall as well as rise and you may get back less than you put in. Verify decisions with a qualified FCA-authorised adviser before acting.
The trap arithmetic is real, and so are the cases where the escape route is narrower than it looks.
First, the money is deferred, not free: the contribution buys retirement income, so a household that needs the cash this year for the mortgage cannot eat the relief. Second, large contributions meet the £60,000 annual allowance, which itself tapers away for the highest earners; unused allowance from the previous three years can extend the room, but it has to actually exist. Third, income in this zone is often lumpy: a bonus paid in March can cross the line for a year in which childcare was already claimed, and the eligibility test is about expected income for the current tax year. Fourth, above £125,140 the personal allowance is already gone, the band arithmetic changes, and this page's headline numbers no longer describe you. The wrapper comparison and the stop-signals page pick up those threads.
Methodology. Income tax computed on 2026/27 rules bundle UK-2026.1.1: personal allowance £12,570 tapered £1 per £2 between £100,000 and £125,140, basic rate 20% on the first £37,700 of taxable income, higher rate 40% above, employee National Insurance 2% above £50,270. Worked example: £105,000 salary, £5,000 salary-sacrifice contribution, no other income or deductions. Childcare rules from gov.uk (tax-free childcare top-up £500 per quarter per child; 30 funded hours for 9 months to 4 year olds; both lost where either parent's expected adjusted net income exceeds £100,000), accessed 8 August 2026. All arithmetic machine-checked before publication. Published 8 August 2026 · figures last verified 8 August 2026.
Sonuswealth is pre-launch. The app computes your marginal rate with the taper and charge thresholds included, and shows what a contribution restores.