Cap on Income Tax reliefs
The cap on Income Tax reliefs was first announced by the Chancellor as part of the 2012 Budget. New legislation was introduced in Finance Act 2013 that applies a cap to Income Tax reliefs claimed by individuals from 6 April 2013. This measure is the first time a limitation to existing reliefs has been introduced.
The cap is set at 25% of income or £50,000, whichever is the greater. The reliefs affected by the introduction of the cap include:
- Trade loss reliefs
- Post-cessation trade relief and
- Qualifying loan interest relief.
Any other reliefs which do not meet this criteria will be unaffected by the change.
HMRC have recently published new guidance that explains, with supporting examples: how the limit is calculated, the measure of income used to calculate the limit, which reliefs are subject to the limit, and how different circumstances are treated.