The £100k tax trap. What every family needs to know before moving to London.

Key things to note:

Income between £100,000 and £125,140 is effectively taxed at 60% due to the loss of the personal allowance
If either parent’s adjusted net income exceeds £100,000, the entire household loses free childcare. Worth up to £9,600 per child per year.
The threshold includes salary, bonuses and some benefits. Not just your base pay.
The standard fix is pension salary sacrifice. But this may not make sense for a short term expat stint.
Getting a UK tax advisor before you arrive is not a luxury. For families near this threshold it is essential.

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When we were first deciding whether to move to London, a contact who had been living there for years gave us a piece of advice that stopped us mid-conversation.

“Make sure you understand what happens to your benefits if your income goes over £100,000. It is not what most people expect.”

We had done our research on London’s cost of living. We knew salaries needed to be higher to cover housing, childcare and general expenses. What we had not fully grasped was that earning more in the UK does not always mean keeping more. For families with young children, the cliff edge at £100,000 is one of the most important financial realities to understand before you arrive.

This is our honest account of what we learned, the scenarios we ran, and why we believe getting professional tax advice before you land is not optional if your household income is anywhere near this threshold.

What the £100k tax trap actually means

In the UK, most people receive a personal allowance. This is a portion of their income that is completely tax free. For the current tax year this sits at £12,570.

Once your income exceeds £100,000 this allowance begins to taper. For every £2 you earn above £100,000, you lose £1 of your personal allowance. By the time your income reaches £125,140, your personal allowance is gone entirely.

The effect is that income between £100,000 and £125,140 is effectively taxed at 60%. You are paying 40% income tax on that band plus losing 20p of tax free allowance for every pound earned. This is before National Insurance contributions are factored in.

And it gets worse for parents.

The childcare cliff: the part that genuinely shocked us

For families with young children, the £100,000 threshold triggers a separate and arguably more painful consequence.

If either parent’s adjusted net income exceeds £100,000, even by £1, the entire household loses eligibility for:

Tax free childcare worth up to £2,000 per child per year
30 hours of free childcare per week for children aged nine months to five years

That loss of 30 free childcare hours carries an annual cost of approximately £9,600 per child. With two young children the numbers compound quickly.

What makes this particularly brutal is that there is no gradual taper. Cross the threshold by £1 and the entitlement disappears entirely.

This is also a household rule, not an individual one. It does not matter if one parent earns £100,001 and the other earns £50,000. If either parent’s adjusted net income exceeds the threshold, the whole family loses the benefit. Compare this to a household where both parents earn £90,000 each, a combined £180,000, who keep their childcare entitlement in full because neither individual crosses £100,000.

The system rewards dual income households and penalises single high earners. For families making decisions about how to structure their work and income, this matters enormously.

What counts toward the £100,000 threshold

This is where it gets more nuanced than most people realise, and where we had to look carefully at our own situation.

The £100,000 threshold is based on your adjusted net income. Not just your base salary. This includes:

Annual salary
Bonuses
Some employer provided benefits such as private medical insurance coverage

This means a base salary comfortably below £100,000 can still breach the threshold once bonuses and benefits are added. It is worth understanding your total package, not just your headline number, before you make assumptions about where you land.

Why the standard fix is complicated for expats

The most commonly cited solution to the £100k trap is pension salary sacrifice. This essentially means redirecting a portion of your salary into a pension before tax is calculated. This reduces your adjusted net income, potentially bringing it below £100,000 and restoring both your personal allowance and your childcare eligibility.

For UK residents planning to stay long term, this is a sensible strategy.

For expats on a two to three year stint, it is more complicated.

Contributing significantly to a UK pension when you do not plan to remain in the UK long term means locking money away in a pension scheme you may struggle to access or benefit from. The tax efficiency of pension contributions depends heavily on your long term plans, your home country’s tax treatment of foreign pension income, and a range of other factors that vary by individual circumstance.

There is also the question of worldwide income. How your home country taxes income earned while you are living abroad, and whether any treaties or exemptions apply, is a post of its own and one we will cover separately once we have worked through it with a professional advisor.

The honest answer is that the right strategy for an expat family near the £100,000 threshold is not one-size-fits-all. It requires specific advice from someone who understands both UK tax and the expat dimension.

What this meant for our household

When we started running scenarios on our household income, factoring in salary, bonuses and benefits, we realised we needed to think carefully about how we structured our work during the London years.

This was part of what shaped my own thinking about not taking a complete career break. Contributing financially to the household, even part time or through something new, is not just about income. It is about making sure we structure our earnings in a way that makes sense for our family. Keeping our childcare eligibility, managing our total household adjusted net income, and not inadvertently tipping into the trap through a combination of salary and benefits.

It also reinforced why getting a UK tax advisor before we arrive is not a nice to have. It is essential. We have not yet chosen one and will share our experience in a future post once we do.

What to take away from all of this

If your household income, including bonuses and employer benefits, is anywhere near £100,000, understand this trap before you arrive. Not after your first UK payslip.

Know what counts toward your adjusted net income. Base salary is not the whole picture.

If you have young children, the childcare cliff is real and the numbers are significant. Factor this into your decision about how both parents structure their work.

Be cautious about generic advice around pension salary sacrifice if you are on a short term expat stint. The strategy that works for a UK permanent resident may not work for you.

And get proper tax advice. We cannot say this strongly enough. The cost of good advice is minimal compared to the cost of getting this wrong.

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We are not financial advisors and this post does not constitute financial advice. It reflects our own experience and decisions, which may not be right for your situation. Please seek advice from a qualified financial advisor before making any changes to your insurance or financial plans.

Some links on this blog may be affiliate links. I only ever recommend things we genuinely use ourselves.

If you found this useful, you might also want to read:

Should we move to London with young children? Here’s how we actually made the decision.

What happens to your Singapore insurance when you move overseas? Why the window before you leave matters more than you think.

Are you navigating the £100k trap as an expat family? Drop your questions in the comments. We will share what we learn as we go.