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ACCA Strategic Professional · Advanced Taxation (UK) · Tax advantages and disadvantages of alternative courses of action

Under the rates provided for the ATX-UK exam (Finance Act 2025), which statement correctly describes the cap on income tax reliefs?

The cap on income tax reliefs is the higher of £50,000 or 25% of income, unless the relief is otherwise restricted. A taxpayer therefore gets at least £50,000 of capped reliefs, and more if 25% of their income exceeds that amount.

  1. AUnless otherwise restricted, reliefs are capped at the higher of £50,000 or 25% of incomeCorrect
  2. BUnless otherwise restricted, reliefs are capped at the lower of £50,000 or 25% of income
  3. CUnless otherwise restricted, reliefs are capped at a fixed £50,000 whatever the level of income
  4. DUnless otherwise restricted, reliefs are capped at 25% of income with no monetary floor

Explanation

The tax rates and allowances state that, unless otherwise restricted, reliefs are capped at the higher of £50,000 or 25% of income. The 'lower of' option reverses the test. The fixed £50,000 and the 25%-only options each omit one limb of the cap.

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