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

Nadia has total income of £320,000 for the year. Ignoring any other restriction, what is the maximum amount of income tax reliefs she can claim without being restricted by the cap on income tax reliefs?

The maximum is £80,000. The cap is the higher of £50,000 or 25% of income, and 25% of £320,000 is £80,000, which is greater than £50,000. So £80,000 of reliefs can be claimed before the cap restricts them.

  1. A£50,000
  2. B£80,000Correct
  3. C£64,000
  4. D£270,000

Explanation

The cap is the higher of £50,000 or 25% of income. 25% × £320,000 = £80,000, which exceeds £50,000, so the cap is £80,000. £50,000 ignores the percentage limb, and £64,000 wrongly takes 20%.

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