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ACCA Applied Skills · Taxation (UK) · The use of exemptions and reliefs in deferring and minimising income tax liabilities

Dev has total income of £150,000. He has reliefs of £45,000 that are subject to the cap. Which statement is correct?

Dev's £45,000 of reliefs is fully available. The cap is the higher of £50,000 or 25% of his £150,000 income, which is £37,500, so the cap is £50,000 and his reliefs fall below it.

  1. ARelief is restricted to £37,500 because the cap is 25% of income
  2. BRelief of £45,000 is fully available because it is below the £50,000 capCorrect
  3. CRelief is restricted to £5,000, being the excess of income over the cap
  4. DRelief is fully available only if the reliefs are below 25% of income and also below £50,000

Explanation

The cap is the higher of £50,000 and 25% of £150,000, which is £37,500. The higher figure is £50,000, so reliefs of £45,000 fall within the cap and are deducted in full. Restricting relief to £37,500 wrongly uses 25% of income, the lower figure, as the cap.

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