The limit on Income Tax reliefs was first announced by the Chancellor as part of the 2012 Budget and became applicable from 6 April 2013. This measure was the first time a limitation to existing reliefs had been introduced.
The cap is set at 25% of income or £50,000, whichever is the greater. The reliefs affected by the introduction of the cap are loss reliefs that can be claimed against general income, which are not currently capped. This includes reliefs such as trade loss reliefs, property loss relief, post-cessation trade relief and qualifying loan interest relief. The restriction also applies to share loss relief, unless claimed on Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) shares.
The limit applies in addition to other provisions that restrict the amount of relief that can be used to reduce total taxable income for the year. The limit does not affect the amount of trading losses which may be claimed against capital gains. Any other reliefs which do not meet this criteria are unaffected by the change.
HMRC’s guidance explains with supporting examples, how the limit is calculated, the measure of income used to calculate the limit, which reliefs are subject to the limit, and how different circumstances are treated. As the 2017-18 tax year begins to draw to a close, taxpayers should seek to ensure that wherever possible, they structure their finances so as not to be subject to the cap.