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Taxation (UK) · The scope of income tax

Cap on Income Tax Reliefs for ACCA TX-UK

Updated 11 October 2026 · Fact-checked

The cap on income tax reliefs limits certain reliefs that would otherwise be unlimited. Unless otherwise restricted, they are capped at the higher of £50,000 or 25% of adjusted total income, which is income before those reliefs. Work out the cap, then deduct only the capped reliefs. Any excess is not deducted against income that year.

Understand Cap on Income Tax Reliefs

Some income tax reliefs have no upper limit of their own. Without a cap, a taxpayer with large reliefs could reduce taxable income to almost nothing. The cap stops this.

The ACCA tax tables say: "Unless otherwise restricted, reliefs are capped at the higher of £50,000 or 25% of income." So you always compute two figures and use the larger one. A person with income of £150,000 has a 25% figure of £37,500, so the £50,000 applies. A person with income of £400,000 has a 25% figure of £100,000, which is higher, so the cap is £100,000.

The income used for the 25% test is adjusted total income. This is total income before the capped reliefs are deducted, adjusted for any items the question tells you to adjust for. Do not measure the 25% on income after the reliefs.

The cap bites only on reliefs that are otherwise uncapped. The classic examples in TX-UK are trading loss relief against general income, early trade losses relief against general income, and interest paid on qualifying loans, such as a loan to invest in a partnership or close company. Early trade losses relief is a claim against total income of the three tax years before the loss year, taking the earliest year first. Other reliefs already have their own limits or are outside the cap. Charitable giving and pension contributions are not part of this cap. Gift Aid extends the bands, and pension relief has its own annual allowance.

The cap matters in questions where a sole trader has a big loss and wants to set it against other income. You must check whether the loss relief exceeds the cap. If it does, the extra cannot be used against general income in that claim.

Key rules to remember

Cap on income tax reliefs
Cap = higher of £50,000 or 25% × income
Applies unless otherwise restricted. Compute both figures and take the larger.
25% test
25% × income = income × 0.25
This exceeds £50,000 only when income is above £200,000.
Relief allowed
Relief deducted = lower of (capped reliefs claimed) and (cap)
Any excess over the cap is not deducted against income in that year.

How to solve Cap on Income Tax Reliefs questions

Use this method for any question on the cap on income tax reliefs.

  1. 1List all the reliefs claimed and mark which are uncapped ones, such as trading loss relief against general income and qualifying loan interest.
  2. 2Ignore reliefs outside the cap, such as Gift Aid and pension contributions, and the personal allowance.
  3. 3Work out adjusted total income for the cap test. This is total income before the capped reliefs, adjusted for any items the question tells you to adjust for.
  4. 4Calculate 25% of that income and compare it with £50,000. Take the higher figure as the cap.
  5. 5Add up the capped reliefs and compare the total with the cap.
  6. 6Deduct the lower of the total reliefs and the cap in the income tax computation.
  7. 7State what happens to any excess relief, and show the effect on taxable income and the tax.

Quickest way: Two-number cap check

When to use it: Use it in objective test questions where you must say how much relief is allowed against income.

  1. If income is £200,000 or less, the cap is £50,000.
  2. If income is above £200,000, the cap is 25% of income.
  3. Compare the capped reliefs with the cap and pick the smaller figure.
  4. Check the reliefs are ones the cap applies to before you apply it.

Common mistakes in Cap on Income Tax Reliefs

  • Using only 25% of income as the cap.

    Students remember the percentage and forget the £50,000 floor.

    Fix: Always compute both figures and take the higher.

  • Applying the cap to Gift Aid or pension contributions.

    Students think the cap covers all reliefs.

    Fix: Remember these have their own mechanics: Gift Aid extends bands and pensions use the annual allowance.

  • Choosing the lower of £50,000 and 25% of income as the cap.

    Confusing a limit with a floor.

    Fix: The cap is the higher figure. £50,000 acts as a minimum cap.

  • Applying the cap to the personal allowance.

    The personal allowance is also deducted from income.

    Fix: The personal allowance is not a capped relief. Deduct it after the capped reliefs.

  • Deducting the full loss when it exceeds the cap.

    Students do not check the cap once they have the loss figure.

    Fix: Compare the loss with the cap every time before deducting it.

  • Taking 25% of income after the reliefs have been deducted.

    Students use whatever income figure is nearest, without checking which one the test uses.

    Fix: Base the 25% on adjusted total income, which is income before the capped reliefs.

Worked examples

Example 1

Ravi has total income of £180,000 for 2025–26 before reliefs. He has a trading loss of £70,000 that he claims against general income. Calculate the loss relief allowed against his income and the income left after relief.

Show the solution
  1. The loss relief against general income is a capped relief.
  2. 25% of income = 25% × £180,000 = £45,000.
  3. The cap is the higher of £50,000 and £45,000, which is £50,000.
  4. The loss claimed is £70,000, which is above the cap.
  5. Relief allowed = lower of £70,000 and £50,000 = £50,000.
  6. Income after relief = £180,000 − £50,000 = £130,000.

Answer: Loss relief allowed is £50,000, leaving income of £130,000. The excess £20,000 cannot be used against general income through this claim. It remains unrelieved and is available to carry forward against future profits of the same trade.

Example 2

Mina has total income of £320,000 before reliefs. She claims £90,000 of capped reliefs. Find the cap and the relief allowed.

Show the solution
  1. 25% of income = 25% × £320,000 = £80,000.
  2. The cap is the higher of £50,000 and £80,000, which is £80,000.
  3. Reliefs claimed are £90,000, which is above the cap.
  4. Relief allowed = lower of £90,000 and £80,000 = £80,000.

Answer: The cap is £80,000, so relief of £80,000 is allowed and £10,000 is restricted.

Exam tips

  • Show both cap figures. The method mark depends on comparing £50,000 with 25% of income.
  • Read the question for the kind of relief. If it is Gift Aid or a pension contribution, the cap does not apply.
  • Use the cap in objective test questions as a quick two-step check, then pick the lower of reliefs and cap.
  • Make clear in constructed response answers what happens to the excess relief and say it is restricted.
  • The £50,000 and 25% figures are in the tax tables provided, so you do not need to memorise them, but you must know how to apply them.

Practice questions from The scope of income tax

Cap on Income Tax Reliefs in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Cap on Income Tax Reliefs: frequently asked questions

What is the cap on income tax reliefs in TX-UK?

It limits certain otherwise unlimited reliefs. The cap is the higher of £50,000 or 25% of income, unless the relief is otherwise restricted.

Which reliefs are capped?

The main examples are trading loss relief against general income and qualifying loan interest. Gift Aid and pension contributions are not part of this cap.

When does 25% of income beat £50,000?

When income is above £200,000. At £200,000 both give £50,000, and above that 25% is larger.

Is the cap in the tax tables given in the exam?

Yes, the rate and allowance tables include the cap on income tax reliefs. You still need to know how to apply it and which reliefs it affects.