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Frozen tax bands have claimed many victims, with millions of workers and pensioners dragged into the tax net as their incomes grow.
But now thousands more children are falling victim to the unfair system, as their parents miss out on support because of the frozen £100,000 earnings threshold.
Families are losing up to £874million of government-funded childcare support as parents' incomes rise above the frozen £100,000 income threshold at which the support is removed, according to new figures.
The Department for Education estimates that between 50,500 and 99,000 children were affected by the earnings limit in the last tax year, a Freedom of Information request by Quilter shared with This Is Money shows.
As more people earn over £100,000, more families become ineligible for the working parents funded childcare entitlement.
Once one parent exceeds the income threshold, they lose their entitlement to tax-free childcare and 30 hours of free childcare.
The number of children affected by frozen thresholds has almost quadrupled since 2021, when the freeze on income tax bands was introduced.
Families miss out on childcare as the £100,000 earnings threshold remains frozen
In 2021, between 13,800 and 27,100 children were thought to be affected, with families losing up to £101million.
That figure steadily increased until the 2024-25 tax year, when the estimated number of children affected increased sharply to between 46,400 and 91,300.
This meant that up to £469million of government support was no longer available to families.
That partly reflects the expansion of childcare support to include younger children.
In 2018-2019, working parents of three and four-year-olds could access 15 funded hours a week, which was extended to children aged between nine months and two years old in 2024-25.
By 2025-26, eligible children aged between nine months and two years old could access up to 30 hours.
While the Department of Education's figures reflect a larger eligible population, they also emphasise the financial consequences related to the £100,000 cliff edge. Had the childcare threshold increased in line with inflation since its introduction, it would have increased to £137,000.
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. As earnings and childcare costs have risen, more families are finding themselves caught by rules that were designed in a different economic environment.
Parents earning between £100,000 and £125,150 also face a 60 per cent marginal tax rate, because for every extra £1 earned, 50p of the tax-free personal allowance is removed.
There have been calls for urgent reform to the threshold, which threatens to distort behaviour and threaten both earnings growth and long-term investment.
Research by IG found that four in five 'Henrys' (high earners, not rich yet) reported taking action to avoid crossing it, with 28 per cent turning down a promotion and a quarter refusing a bonus or pay rise.
Futcher said: 'More and more households are discovering they have crossed a line that triggers a significant change in their financial position.
'The impact can be particularly stark because the childcare threshold sits alongside the personal allowance taper, which can leave people questioning whether earning more is delivering the financial benefit they expected.'
How to avoid the childcare tax trap
The 60 per cent tax trap causes higher earners to find ways to minimise the effect of higher tax bands, and there are similar opportunities for those looking to beat the childcare cliff edge.
Eligibility is based on adjusted net income rather than salary alone, so increasing pension contributions can be an effective way to navigate the threshold.
Futcher said: '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.'
Making use of salary sacrifice arrangements and reviewing the impact of bonuses and other taxable benefits are also worth considering.