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ACCA Strategic Professional · Advanced Taxation (UK) · Income tax: income from employment

Sanjay is a higher rate taxpayer employed by Ardent Ltd. He has asked about the cap on income tax reliefs, which applies to certain reliefs he claims, such as qualifying loan interest, when his income is £100,000. Which statement about the cap is correct under the tax tables?

Unlisted reliefs are capped at the higher of £50,000 or 25% of income. For Sanjay, with income of £100,000, 25% is £25,000, so the higher figure of £50,000 applies. The cap is therefore £50,000, not the lower figure or the pension annual allowance.

  1. AReliefs subject to the cap are limited to the higher of £50,000 or 25% of income, so for Sanjay the cap is £50,000Correct
  2. BReliefs subject to the cap are limited to the lower of £50,000 or 25% of income, so for Sanjay the cap is £25,000
  3. CReliefs subject to the cap are limited to 25% of income only, so for Sanjay the cap is £25,000
  4. DReliefs subject to the cap are limited to £60,000 in line with the pension annual allowance

Explanation

The tax tables state that, unless otherwise restricted, reliefs are capped at the higher of £50,000 or 25% of income. With income of £100,000, 25% is £25,000, so the higher figure is £50,000. The lower-of version reverses the rule, and the pension annual allowance is unrelated to this cap.

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