ACCA Strategic Professional · Advanced Taxation (UK) · Legitimate tax planning measures
Priya has income of £300,000 for the year and wants to make use of income tax reliefs that are subject to the cap on income tax reliefs, with no other restriction applying. What is the maximum amount of such reliefs she can deduct in the year?
The maximum is £75,000. Capped reliefs are limited to the higher of £50,000 or 25% of income. With income of £300,000, 25% gives £75,000, which exceeds £50,000, so £75,000 is the applicable cap.
- A£50,000
- B£75,000Correct
- C£300,000
- D£25,000
Explanation
Unless otherwise restricted, reliefs are capped at the higher of £50,000 or 25% of income. 25% × £300,000 = £75,000, which is higher than £50,000. The £50,000 option wrongly treats the fixed figure as the cap regardless of the taxpayer's income.
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