Personal Tax

Cap on unlimited income tax reliefs

Produced by Tolley
  • 19 Oct 2021 22:40

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Cap on unlimited income tax reliefs
  • Introduction
  • Reliefs included in the cap
  • Operation of the cap
  • Calculating the amount of reliefs for the year
  • Definition of adjusted total income
  • Order of deduction of reliefs
  • Excess reliefs
  • Reliefs against total income which can be carried forward or back
  • How does the cap on income tax reliefs affect different types of taxpayers?
  • More...

Cap on unlimited income tax reliefs


The cap on unlimited income tax reliefs applies from 6 April 2013. The cap only applies where the person claims more than £50,000 in reliefs in any one tax year. It acts to limit the relief for the tax year to the greater of:

  1. £50,000

  2. 25% of the ‘adjusted total income’ (see below)

ITA 2007, s 24A(1)–(5)

This guidance note discusses the reliefs which are and are not subject to the cap as well as the operation of the cap. For more on the impact of the cap on claims over multiple tax years, see the Cap on unlimited income tax reliefs ― claims over more than one tax year guidance note.

Reliefs included in the cap

In terms of the policy rationale as to which reliefs were to be included in the cap, the following general rules were applied:

  1. it needed to be a relief against general income (ie a Step 2 deduction for the purposes of ITA 2007, s 23, see the Proforma income tax calculation guidance note), and

  2. the relief must not have been capped prior to the introduction of these rules

However, interested parties successfully lobbied to ensure that the income tax relief available for losses on EIS / SEIS shares to be excluded from the cap. Similarly, losses on qualifying investments in social enterprises are also excluded from the cap. These losses continue to be fully relievable against income under ITA 2007, s 131 provided the conditions for that relief are met. This is clear recognition of the vital source of funding provided by business angels. However, other shareholdings which qualify for loss relief against income are included in the cap.

Also, trading losses that are attributable to overlap relief (which can crystallise on cessation of the trade or change of accounting date) are not included in the cap. This means that a trading loss may need to be split between the amount which relates to the overlap relief

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