E1.101D Income tax calculation for individuals—cap on income tax reliefs
The income tax calculation for individuals is prescribed by the steps in ITA 2007, s 23 and is discussed in detail in E1.101B.
At Step 2 of the income tax calculation, certain losses or payments can be deducted from income. This takes place before the deduction of the personal allowance at Step 3 of the calculation.
Step 2 reliefs fall into two categories:
• deductions from component income (meaning that relief can be obtained only against a certain category or categories of income), or
• deductions from total income
For a comprehensive list of Step 2 reliefs, including whether relief is allowed against component income or total income, see E1.101C.
From 2013/14 onwards, there is a limit to the amount of Step 2 reliefs that can be set against total income in the tax year. This is often referred to as the 'cap on income tax reliefs' and applies to individuals only.
The limit applies where the individual claims more than £50,000 in reliefs which are within the cap in any one year. It acts to limit the relief to the greater of1:
• £50,000, and
• 25% of the individual's 'adjusted total