£100,000 free hours limit - means extra £40,000 gross income?

[FrightHorizons]

I’ll be going back to work after mat leave in September.

I have two children, one will be 3 in September and the other 9 months in August.

The only childcare scheme I can claim is 15 free hours for the 3 year old.

For the 3 year old, the 15 hours I can’t claim is £300pcm. This is £5,600 inc TFC.

For the 9 month old, the 30 hours I can’t claim is £700pcm. This is £10,400 inc TFC.

This means I need to make about £16,000 net to pay those childcare costs.

This means earning an extra £40,000 gross to pay that £16,000 difference. Is that right?

I’d love to know how many other parents are finding themselves in this situation - nursery fees are now £2,250 a month for the littlest one too (they were £1,900 when the first started at the same age!).

I am wondering if I have got my sums wrong!

I thought that from September any child 9m plus qualified for 30 free hours of childcare. It's not the case right now but it's planned to be.

And yet this supposedly incredibly difficult calculation has been implemented for other tax subsidies (and it is a tax subsidy) and for benefits with considerable speed in the past.

Its entirely possible and has often been discussed with the arguments against being entirely political rather than logistical.

(Incidentally, arguably the most generous pensions tax relief is the up to £720 that non-earners can claim (they can turn a £2880 contribution into £3600 irrespective of whether they have paid any income tax at all). Now that really is a government top-up!)

Or enlightened self interest. Encouraging the lowest earners to invest in their own pensions reduces the benefits bill after state retirement age.

I don't think the government necessarily view it as a bad thing though as it encourages people to put into their pension.

My pension pot is more than ample for my future likely needs - thanks tax payer for the subsidies!

I have 4 DC. Is that good enough to allow me to have an opinion?

Not read full thread but are you sure nursery free hours are worth that much? 15 hours is really 11 unless term time only. And they often charge top ups and different dates for extra hours.

Other than that you won't like this, but it's not all about money. Go part time and spend time with your children while they're tiny. Not everyone is lucky enough to have this choice but surely it's by far the best option if you're no worse off?

I've worked 3 days since mine were born. Earn 36k. No regrets whatsoever. Will go to 4 days once youngest starts school

This doesn’t make sense.

So if I end up with £30,000 after taxes and benefits fr £100,000 of income… what is the remaining percentage? I’ll give you a clue that I will be benefitting to the tune of 30% of that £100,000.

The pension contributions are capped at £60,000 so this isn’t necessarily a ‘get out of jail free card’ on adding it to your pension.

Quite a few people here saying they’ve gone part time to accommodate that.

If you have English passports you can't work in Spain unless digital nomads.

Its entirely possible and has often been discussed with the arguments against being entirely political rather than logistical.

The arguments against aren't all political. The bucket of cold water usually comes from pensions administrators (ie the ones who would need to actually implement the soundbite and who know how complicated it would be in practice).

Encouraging the lowest earners to invest in their own pensions reduces the benefits bill after state retirement age.

Yes, it's a fantastic policy. But a rather inconvenient one for the people on this thread claiming that it's only people like the OP who get generous tax relief, n'est-ce pas? For non-earners it isn't even really tax relief but genuinely free money from the government. I pay contributions into a junior SIPP for my children and they get this top-up. More people should know about it.

There is an upper income limit.

This means the effective loss is far greater, as it’s more hours and over a longer period (and more likely to include more than one child at a time).

If you earn >£100,000 you can only claim 15 hours at age 3 (which I have included in my calculations).

As if low earners can afford a junior sipp... That is free money for kids of the rich only

Oh I know, I'm not saying that. But the policy applies to everyone irrespective of whether they pay income tax. Or would you rather the very lowest earners be excluded from getting tax relief if they do want to pay pension contributions?...

Similar to others, I put about high % of my salary into my pension and went down to 4 days a week to stay just at £100k. It’s very much a first world problem but every year when I get a payrise, I don’t see a penny of it as I have to lop it all into a pension, but hopefully 65 year old me will be grateful. Quite annoying really but otherwise the marginal rate tax is eye watering.

How old are your kids?

From September, you lose 30 hours and tax free childcare per child.

So where for a 9 month old today you might be losing out on £2,000 of support (tax free childcare), by September 2025 that might be £10,000 of support.

Which changes the picture in terms of overall tax / benefits picture quite significantly.

I worked 4 days a week as well not just for this reason but that was a factor.

I'm now full time but I earn well over 100k now so I'm sucking up the extra tax and my DC are teens now anyway.

OP the other thing you could consider is taking parental leave for a few weeks a year. You're entitled to ask for it and it's unpaid so brings your earnings down, I did this to cover summer holidays a few times.

Yes we will be digital nomads…

I do this too. And I buy extra holiday.

And to be fair I do love a 4 day week, I’d struggle to give that up now 😁

A 4-day week is great if you can afford it even if you're a basic rate taxpayer - 50% extra time off (compared to working a 5-day week) for a 20% reduction of gross salary!

Yes, I do think the inaction on some of the cliff edges, not just 100k, might be deliberate in order to nudge people into paying more pension contributions. But it's a big risk if so, since some will choose to work less instead.

It could be, but I think it's more likely (in the case of the £100k cliff edge) to be because governments of all shades daren't touch it because the people who would bleat the loudest about it being adjusted (even if they tinkered with the tax thresholds to smoothen the impact on a cost-neutral basis) would be the ones who understand the tax regime the least and who would just see a "less tax for rich people!!!" headline.

@C8H10N4O2 - my point was more that you were coming across as possibly being male rather than female. And for me that changes the equation. I would not have been willing to forego spending time with my DC to only take home 30 per cent of the extra - as I see it as a direct sacrifice and trade off towards time spent with my own children. My DH may have made a different choice - that may just be us, or it may be part of a broader picture.
And yes, I did also breastfeed for ages etc. which men do not do.

Also a possibility!

I think the best way to prevent this would be to fix all our cliff edges at once, right across the income spectrum. Nursery hours, child benefit, FSM, UC. Would make it harder for people to make it all about greedy benefits scroungers/high earners/middle earners expecting special treatment. But I expect practically it would be too difficult.

Why would you assume "male" (or specifically "female") about that post? Because I'm a top rate tax payer? Feel free to AS my posts on homebirth experiences.

Childcare costs come out of the family income - children have two parents, at least at the outset, with equal responsibility for childcare costs. As many pps point out - its a short term cost for a long term big financial benefit just as the tax anomoly applies to one portion of income and is nearly always avoided by maxing out the tax subsidised pension.

None of this has anything to do with personal choices for those who are lucky enough to have them. However you cut it, those of us who earn enough to worry about these tax issues are the privileged 1% with access to schemes to minimise the tax take which are not available to our much lower paid fellows (male or female).

The 70% tax quote, I can’t get my head around it?

I earn the same as you…… I don’t have children, I don’t pay 70% tax.

You don’t add the loss of a benefit as a tax. Or am I taxed before I chose not to have kids? So I was never entitled to the benefit anyway 🤷🏽‍♀️

Are you a single parent? Or do you have a husband who works an equally well paying job?

Yeah OP is wrong - whichever way you look at it, it isn't a 70% tax rate at all.

I also earn similarly to OP