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HM Treasury has published a technical note fleshing out the cap on unlimited income tax reliefs announced on 21 March.
It confirms that the cap will apply only to reliefs that are currently unlimited and that it will be set at 25% of income or £50,000, whichever is greater.
A consultation document on the detail of the policy, including the implications for philanthropic giving, will be published in the summer, to be followed by draft legislation later in the year.
The reliefs affected are loss reliefs that can be claimed against total income, qualifying loan interest relief and reliefs for charitable giving. There will also be a number of smaller reliefs which are currently uncapped that will be affected.
The following will not be affected:
- structural credits that acknowledge double taxation, such as foreign and dividend tax credits and notional tax on life insurance gains;
- reliefs that are already capped such as pension tax relief, front-end enterprise and seed enterprise investment scheme income tax relief, venture capital trusts and the cultural gift scheme;
- computational reliefs which determine only how income from a particular source is calculated;
- relief for carrying losses forwards or back against profits of the same trade.
The new business investment incentive for resident non-domiciled individuals is not affected, as it relieves income that would not otherwise be brought to the UK and so would not be taxable in the UK.
There will be a new definition of income for the purposes of calculating the reliefs individuals are able to claim. As some reliefs, e.g. gift aid, reduce the tax liability in a different way, the self assessment return will calculate the amount of relief to make it equivalent to those reliefs that offset income.
The cap will not impact on the tax reclaimed by charities under gift aid. However, the grossed up donation will be taken into account when assessing whether a taxpayer has reached the cap.
