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How The Cap on Income Tax Reliefs Affects You

Coins_TaxAgility-Accountants-LondonLast year the Chancellor announced the government was intending to introduce a cap on currently unlimited income tax reliefs, due to take effect from the tax year 2013-14. This cap has now been put into place, with HMRC having since published guidance on the new rules.

The cap has been set at either £50,000, or 25% of your adjusted total income for the current tax year (whichever is the greater number).

Who’s Affected by The Cap on Income Tax Reliefs

Though it has been stated by HMRC that the main reliefs affected by the new cap will be “…trade and property loss reliefs that can be relieved against general income and qualifying loan interest relief,” you can expect to be affected at some level, large or small, if you are currently using unlimited reliefs to reduce the amount of your total income liable to tax.

The reliefs subject to the new cap are:

  • Trade Loss Relief against general income, available for losses made by an individual carrying on a trade, profession or vocation.
  • Early Trade Losses Relief available to an individual in the first four years of their trade, profession or vocation.
  • Post-cessation Trade Relief available for (qualifying) payments or events within seven years of the permanent cessation of the trade.
  • Property Loss Relief against general income, available for property business losses arising from capital allowances or agricultural expenses.
  • Post-cessation Property Relief available for (qualifying) payments or events within seven years of the permanent cessation of the UK property business.
  • Employment Loss Relief available in certain circumstances where losses or liabilities arise from employment.
  • Former Employees Deduction for Liabilities available for payments made by former employees for which they are entitled to claim a deduction from their total income in the year in which the payment is made.
  • Share Loss Relief on non-Enterprise Investment Scheme (EIS) and non-Seed Enterprise Investment Scheme (SEIS) shares available for capital losses on the disposal (or deemed disposal) of certain qualifying shares.
  • Losses on Deeply Discounted Securities available only for losses on gilt strips and on listed securities held since at least 26 March 2003.
  • Qualifying Loan Interest available for interest paid on certain loans. These include loans to buy an interest in certain types of company, or to buy an interest in a partnership.

Unaffected Income Tax Reliefs

The cap on income tax reliefs will not apply to charitable reliefs, such a charitable donations, gift aid, relief for gifts of land and shares, Payroll Giving, and Community Investment Tax Relief.

Initially the government intended on applying the cap to charitable reliefs, however thanks to huge opposition from charities themselves, and the vast media coverage that came about as a result, the government did a u-turn, quickly announcing their new intention to leave charitable reliefs unaffected.

Other unaffected reliefs are those that are already subject to a current cap, such as relief for pension contributions and investments made under the Venture Capital Trust regime, the Enterprise Investment Scheme, and the new Seed Enterprise Investment Scheme. Also unaffected are deducted items when arriving at the profits from any particular source, such as the expenses incured in a property business, trading expenses, and ‘structural credits’ used to prevent double taxation (such as double tax relief on foreign income, tax credits on dividend income, and relief for notional tax on life insurance gains).

The cap will also not apply to business premises renovation allowances (BPRA).

Capital Allowances and Tax Exempt Items

Your capital allowances and tax exempt items remain unaffected unless these items create a loss once their worth is deducted from the profits of your business. In this scenario, relief for these losses will be subject to the new cap.

Still Have Concerns?

If you still have concerns about how the cap on income tax reliefs affects you personally, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary no obligation meeting to discuss your personal taxation concerns.

This blog is a general summary. It should not replace professional advice tailored to your specific circumstances.

 

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