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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

Omar has total income of £150,000. He has trading losses to set against general income of £45,000 and pays interest qualifying for relief of £10,000. Ignoring any other restriction, what amount of these reliefs is restricted by the cap on income tax reliefs?

£5,000 is restricted. Twenty-five percent of £150,000 is £37,500, so the higher figure of £50,000 is the cap. Total reliefs of £55,000 exceed the cap by £5,000, which cannot be relieved against income in that year.

  1. A£Nil
  2. B£5,000Correct
  3. C£17,500
  4. D£7,500

Explanation

25% of £150,000 is £37,500, which is below £50,000, so the cap is £50,000. Reliefs total £45,000 + £10,000 = £55,000. The excess is £55,000 − £50,000 = £5,000. £Nil wrongly uses 25% as the cap, and £17,500 is £55,000 − £37,500.

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