Advanced Taxation (UK) · Income tax: the use of exemptions and reliefs in deferring and minimising income tax liabilities

Cap on Income Tax Reliefs for ATX-UK

Updated 11 October 2026 · Fact-checked

The cap on income tax reliefs limits certain uncapped reliefs, such as trading loss relief against general income, to the higher of £50,000 or 25% of adjusted total income. You find the cap, total the capped reliefs claimed, and restrict any excess. Reliefs not covered by the cap are unaffected.

Understand Cap on Income Tax Reliefs

Income tax lets you deduct some reliefs from total income. Without a limit, a person with large income could use big reliefs, such as trading losses or interest paid, to cut their taxable income to almost nothing. The cap on income tax reliefs stops this.

The tax tables ACCA gives you say: "Unless otherwise restricted, reliefs are capped at the higher of £50,000 or 25% of income." So the cap is whichever of the two is larger. For a person with income below £200,000, 25% of income is less than £50,000, so the cap is £50,000. Above £200,000 of income, 25% is greater, so that is the cap.

The official tables state only this general cap. They do not list which reliefs it covers. From your wider syllabus knowledge, typical examples of reliefs the cap is aimed at are trading loss relief against general income, qualifying loan interest, and relief for losses on unquoted shares against income. Treat these as examples, not a complete list. Do not assume every relief is capped, and do not assume a particular relief is outside the cap without a reason. Use the question wording and your syllabus notes to decide which reliefs are inside the cap.

The income used for the 25% test is adjusted total income. Think of it as total income less the gross amount of personal pension contributions, measured before deducting the capped reliefs. So the 25% test looks at income before the reliefs it is limiting. If a question gives you an income figure to use, use that figure.

Any relief refused because of the cap is not always lost. A trading loss, for example, can often be carried forward against future profits of the same trade. Always say so in your answer, because it is a planning point examiners reward.

Key rules to remember

Cap on income tax reliefs: Cap = higher of £50,000 and 25% × adjusted total income; From the ACCA tax tables. It applies unless a relief is otherwise restricted.
Break-even income: 25% × income = £50,000 when income = £200,000; Below £200,000 the cap is £50,000. Above it, the cap is 25% of income.
Relief allowed: Relief allowed = lower of (capped reliefs claimed) and (cap); Excess over the cap is disallowed in the year. Check whether it can be carried forward.

How to solve Cap on Income Tax Reliefs questions

Use this order for any question where a person claims large reliefs against income.

1Identify which claimed reliefs are subject to the cap, such as trading loss relief against general income or qualifying loan interest, and which are not.
2Work out total income and the adjusted total income figure for the 25% test, following the data in the question.
3Calculate 25% of adjusted total income and compare it with £50,000. Take the higher as the cap.
4Total the capped reliefs claimed in the tax year and compare with the cap.
5Deduct the lower of the reliefs claimed and the cap from total income. Leave the excess out.
6Recompute net income after the restricted relief, then work out adjusted net income and test it against the £100,000 personal allowance limit. The allowance is reduced once it exceeds £100,000 and is nil at £125,140 or more. Then compute taxable income and tax on the revised figures. Do not confuse adjusted net income (the allowance test) with adjusted total income (the cap test).
7State what happens to the disallowed excess, for example a carry forward of a trading loss, and comment on planning.

Quickest way: Cap check in under a minute

When to use it: Use when a question gives a large loss or interest claim and you need to know fast whether the cap applies.

If income is below £200,000 the cap is £50,000. Compare reliefs with this figure straight away.
If income is above £200,000, take 25% of it as the cap.
If capped reliefs are within the cap, write one line saying so and move on.
If they exceed it, deduct only the cap amount and note the excess carried forward.

Common mistakes in Cap on Income Tax Reliefs

Applying the cap to every relief.
Students remember "reliefs are capped" and do not separate caught reliefs from others.
Fix: List the reliefs claimed and apply the cap only to those the question or your syllabus knowledge treats as reliefs deducted from income that are subject to the cap, such as loss relief against general income and qualifying loan interest. Do not assume every relief is capped.
Using £50,000 when 25% of income is higher.
Students memorise £50,000 as the cap.
Fix: Always calculate 25% of income and take the higher figure. It matters once income exceeds £200,000.
Using the wrong income figure for the 25% test.
Students use taxable income after reliefs, or net income.
Fix: Use the adjusted total income figure, measured before the capped reliefs, and follow any figure the question gives.
Forgetting the excess can be carried forward.
Students stop once the relief is restricted.
Fix: Add a sentence on carry forward of any trading loss against future profits of the same trade, and explain the effect on tax.
Ignoring the effect on the personal allowance.
Students restrict the relief but keep the earlier income figure for allowance purposes.
Fix: After restricting the relief, recompute adjusted net income and test it against the £100,000 personal allowance limit. The allowance is nil at £125,140 or more.

Worked examples

Example 1

In 2025/26 Kiran has total income of £120,000 before reliefs. This is also her adjusted total income for the cap test, and she makes no pension contributions or Gift Aid donations. She claims trading loss relief against general income of £70,000, which is subject to the cap and is not restricted by any other rule. Calculate the amount of loss relief she can use against her income in 2025/26, her income after relief, and say whether her personal allowance is affected.

Show the solution

25% × £120,000 = £30,000.
The higher of £50,000 and £30,000 is £50,000, so the cap is £50,000.
Loss claimed is £70,000, which exceeds the cap.
Relief allowed = £50,000.
Excess £70,000 − £50,000 = £20,000 is not relieved against income this year.
Income after relief = £120,000 − £50,000 = £70,000.
Adjusted net income is £70,000, which is below the £100,000 limit, so the personal allowance of £12,570 is available in full.

Answer: Kiran can use £50,000 of loss relief, leaving income of £70,000. Her personal allowance is not restricted. The £20,000 excess is disallowed against income and, as a trading loss, is normally carried forward against future profits of the same trade.

Example 2

Marcus has adjusted total income of £400,000 for 2025/26. He claims £90,000 of reliefs that are subject to the cap. What relief is allowed and what is his income after relief?

Show the solution

25% × £400,000 = £100,000.
The higher of £50,000 and £100,000 is £100,000, so the cap is £100,000.
Reliefs claimed of £90,000 are below the cap.
Full relief of £90,000 is allowed.
Income after relief = £400,000 − £90,000 = £310,000.

Answer: The cap is £100,000, so the full £90,000 is allowed and income after relief is £310,000.

Exam tips

Write the cap formula at the top of your working. Show both £50,000 and 25% of income so the marker sees the comparison.
Name the reliefs that are inside the cap before you apply it. This earns marks for knowing the scope.
Always say what happens to any excess. A carry forward point is a common mark.
In planning requirements, point out that timing claims across years can keep reliefs within the cap.
Use only the figures in the question and the tax tables, and show workings to the nearest £.

Practice questions from Income tax: the use of exemptions and reliefs in deferring and minimising income tax liabilities

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.

ACCA Applied SkillsCap on Income Tax Reliefs

Cap on Income Tax Reliefs: frequently asked questions

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

It limits certain reliefs to the higher of £50,000 or 25% of income. The ACCA tax tables state this limit. It applies unless a relief is otherwise restricted.

When does 25% of income beat £50,000?

When income exceeds £200,000, because 25% of £200,000 is £50,000. Below that level the cap is £50,000. Always compute both and take the higher.

Which reliefs are subject to the cap?

The official tables give only the general cap and do not list the reliefs. From the wider syllabus, typical examples are trading loss relief against general income, qualifying loan interest and losses on unquoted shares. Treat these as examples, and check the question wording and your notes to decide which reliefs are caught.

Is relief lost if it exceeds the cap?

Not always. A trading loss that cannot be used against income can normally be carried forward against future profits of the same trade. State this in your answer.