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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

Ravi, an additional rate taxpayer, earns a salary of £300,000 and has no other income. Under the rules for the cap on income tax reliefs in the ATX-UK tax tables, what is the maximum amount of reliefs (that are subject to the cap) that he can deduct in a tax year?

The cap is £75,000. Reliefs are limited to the higher of £50,000 or 25% of income, and 25% of Ravi's £300,000 income is £75,000, which is higher than £50,000.

  1. A£50,000
  2. B£75,000Correct
  3. C£300,000
  4. D£125,140

Explanation

Unless otherwise restricted, reliefs are capped at the higher of £50,000 or 25% of income. 25% of £300,000 is £75,000, which exceeds £50,000, so the cap is £75,000. £50,000 ignores the percentage alternative.

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