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ACCA Applied Skills · Taxation (UK) · The comprehensive computation of taxable income and income tax liability

Which of the following statements about the cap on income tax reliefs is correct for a taxpayer with income of £240,000?

The cap is £60,000. Reliefs are capped at the higher of £50,000 or 25% of income, and 25% of £240,000 is £60,000, which is greater than £50,000, so the percentage limb sets the cap.

  1. AThe cap is £50,000 because the fixed amount always applies
  2. BThe cap is £60,000 because 25% of income exceeds £50,000Correct
  3. CThe cap is £240,000 because it equals total income
  4. DThe cap is £190,000 being income less £50,000

Explanation

25% of £240,000 is £60,000, which is higher than £50,000, so the cap is £60,000. The £50,000 option ignores the higher-of rule. The other options do not reflect any rule in the tax tables.

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