Earners between £100,000 and £125,140 face a 60% effective income tax rate due to HMRC’s Personal Allowance taper. The workplace nursery salary sacrifice scheme turns this into an advantage: salary sacrifice in this band saves 62p of every £1 sacrificed. After the management fee, you keep 56.3p of every £1 of nursery fees, the highest savings rate on nursery fees achievable under current UK tax rules. Tax-Free Childcare excludes you entirely above £100,000.
Save up to 56.3% on nursery fees
How higher-rate taxpayers make the biggest savings on nursery fees through the workplace nursery salary sacrifice scheme
How much could you save on nursery fees?
Enter your annual salary and monthly nursery fees. Defaulted to the maximum saving point: £125,140 salary and £1,822/month fees. Figures use 2026/27 tax rates.
Annual saving: £1,822/month nursery fees
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Earning below £100,000? See how Tax-Free Childcare compares →
£125,140 salary · £1,822/month in nursery fees
£12,309 Feel The Benefit saves you £12,309 per year, 56.3% of fees Tax-Free Childcare excludes earners above £100,000; the workplace nursery scheme has no income ceiling. Compare with Tax-Free Childcare
Why the saving reaches 56.3%
Most people assume a 15% management fee would significantly eat into any savings on nursery fees. At basic-rate levels, that is partly true. But for earners between £100,000 and £125,140, the UK tax system works in a dramatically different way, and this employer salary sacrifice nursery scheme exploits it fully.
When your income falls in this range, HMRC reduces your Personal Allowance (the portion of income you earn tax-free) by £1 for every £2 above £100,000. By £125,140, your Personal Allowance is zero. Every extra pound you earn in this band is effectively taxed twice:
- 40% income tax on the pound itself
- 20% income tax on the £0.50 of Personal Allowance you lose (which would otherwise have been tax-free)
- 2% National Insurance on the same pound
Combined, that is a 62% effective marginal tax rate (not 40%).
The Workplace Nursery Scheme works through salary sacrifice: nursery fees plus the management fee are taken from your gross pay before tax is calculated. When your entire sacrifice falls within this 62% zone, the tax and NI relief is extraordinary. Crucially, the management fee (which might seem costly) is itself largely recovered in tax relief, since it too is sacrificed from within this band.
The result: 56.3p returned for every £1 of nursery fees paid. This is the mathematical maximum achievable under current UK 2026/27 tax rules, verified across every salary and fee combination.
For comparison: a basic-rate taxpayer (20% IT + 8% NI = 28% marginal rate) achieves around 17–18% net saving. A standard higher-rate taxpayer (40% + 2% = 42%) saves around 33%. The Personal Allowance taper zone adds 20 percentage points on top of the higher-rate saving, a profound difference driven entirely by the quirk of how HMRC implements the £100,000 threshold.
How 56.3% is calculated
Sacrifice per £1 of fees £1.15 Nursery fee + 15% management
Tax & NI relief at 62% +71.3p 62% × £1.15 sacrificed
Less: management fee cost −15.0p 15% of £1 fee
Net saving per £1 of fees 56.3p
Effective rate breakdown:
20% basic-rate IT → 42% higher rate
+20% taper effect → 62% effective rate
62% × £1.15 − £0.15 = 56.3%
Requires: all sacrifice within the £100,000–£125,140 taper zone. 2026/27 rates.
Worked examples by salary
Annual savings on nursery fees at £1,500/month through the workplace nursery scheme (typical London average, annual total £18,000). Sacrifice = £20,700/year including 15% management fee.
| Annual salary | Tax position | Annual saving | % of fees saved |
|---|---|---|---|
| £100,000 | Higher rate (40%), taper not yet active | £5,994 | 33.3% |
| £110,000 | Personal Allowance taper, 60% effective IT rate | £7,994 | 44.4% |
| £120,000 | Personal Allowance taper, 60% effective IT rate | £9,994 | 55.5% |
| £125,140 ★ | Personal Allowance taper, maximum saving point | £10,134 | 56.3% |
| £130,000 | Sacrifice spans taper & additional rate | £9,405 | 52.3% |
| £140,000 | Sacrifice spans taper & additional rate | £7,905 | 43.9% |
| £150,000 | Additional rate (45%), above taper | £7,029 | 39.1% |
| £160,000 | Additional rate (45%) | £7,029 | 39.1% |
| £170,000 | Additional rate (45%) | £7,029 | 39.1% |
| £180,000 | Additional rate (45%) | £7,029 | 39.1% |
| £200,000 | Additional rate (45%) | £7,029 | 39.1% |
All figures at £1,500/month (£18,000/year) nursery fees, 2026/27 tax rates, England. The saving at £150,000–£200,000 is flat at 39.1% because the entire £20,700 sacrifice falls within the 45% additional-rate band (47% combined with NI): 47% × £1.15 − 15% = 39.05%. ★ Peak at £125,140 assumes the full sacrifice falls within the Personal Allowance taper zone.
Peak saving at £125,140
56.3% net saving on nursery fees
The Personal Allowance taper creates a 60% effective income tax rate, pushing the net saving on nursery fees to 56.3%, the mathematical maximum under current UK tax rules.
TFC excludes you entirely
No income ceiling on this scheme
Earners above £100,000 cannot claim Tax-Free Childcare. The employer workplace nursery scheme has no income ceiling: no cap, no upper limit.
Restore your allowances
Save on income & recover benefits
Salary sacrifice reduces adjusted net income, potentially restoring your Personal Allowance, Child Benefit eligibility, or Tax-Free Childcare qualification.
Frequently asked questions
HMRC’s Personal Allowance taper means every pound earned between £100,000 and £125,140 is effectively taxed at 60% income tax: you lose 50p of tax-free allowance for every extra pound (taxed at 40%), on top of the standard 40% tax on the pound itself. Add 2% National Insurance and the combined marginal rate is 62%. When your salary sacrifice falls entirely within this band, the relief is 62% × £1.15 = 71.3p per £1 of fees. Subtract the 15p management fee and your net saving is 56.3p per £1.
Your Personal Allowance (the amount of income you receive tax-free: £12,570 in 2026/27) is reduced by £1 for every £2 your adjusted net income exceeds £100,000. At £112,570 your allowance is halved (£6,285). At £125,140 it reaches zero. This creates a hidden 60% income tax rate in the £100,000–£125,140 band, even though most people are only aware of the headline 40% higher-rate band.
Above £125,140 the Personal Allowance is fully withdrawn and the additional rate of 45% income tax applies. With 2% NI, the marginal rate is 47%, still producing a very strong saving of around 39.1% of fees (47% × £1.15 − 15%). The saving doesn’t fall to zero; it simply comes off the 62% peak and settles flat once the whole sacrifice falls in the additional-rate zone (typically from around £150,000 salary at £1,500/month fees).
At exactly £100,000, the taper has not yet started, so the effective marginal rate is the standard higher rate of 40% plus 2% NI = 42%, producing a saving of around 33.3% on nursery fees. However, any salary increase above £100,000 immediately enters the taper zone. If you’re close to £100,000, salary sacrifice can also keep your adjusted net income below this threshold and preserve your full Personal Allowance.
Yes, and this is a powerful secondary benefit of the employer salary sacrifice nursery scheme. Salary sacrifice reduces your gross pay, which in turn reduces your adjusted net income. For example, if you earn £105,000 and sacrifice £5,175 (£375/month × 1.15), your adjusted net income falls to £99,825, below the £100,000 threshold. This could restore some or all of your Personal Allowance and may make you eligible for Tax-Free Childcare, Child Benefit, or other means-tested benefits. Speak to a tax adviser to confirm your exact position.
Yes. There is no income ceiling on the Workplace Nursery Scheme. High earners can use it regardless of salary. This is the most important difference from Tax-Free Childcare, which excludes households where either parent’s adjusted net income exceeds £100,000 in the tax year.
Feel The Benefit charges a 15% management fee on top of nursery fees. This fee is included in the salary sacrifice, so it also benefits from tax and NI relief. In the Personal Allowance taper zone, the management fee costs just 5.7p net per £1 of fee: the 62% marginal rate saves you 71.3p on every £1.15 sacrificed, more than covering the 15p overhead. At basic rate the net management fee cost is around 8.7p per £1. It does not cancel the saving; it is largely absorbed by the tax relief itself.
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