A major feature of the budget announced earlier this year was the Government’s announcement of a proposed cap on unlimited tax reliefs with effect from 6 April 2013.
HM Revenue & Customs and HM Treasury have now prepared a technical note on the measure which confirms that the cap will only apply to currently unlimited reliefs and that it will be set to £50,000 or a quarter of income, whichever is higher.
The relevant reliefs are qualifying loan interest relief, relief for charitable donations and certain loss reliefs that can be claimed against income. Reliefs that are already capped such as pension tax relief, enterprise and seed enterprise investment scheme income tax relief, venture capital trust relief, computational reliefs for calculating the income taxable from a particular source and structural credits such as foreign and dividend tax credits will not be affected by the measure. Carry forward or back loss reliefs against profits of the same trade are also unaffected.
The Government will be redefining income for the purposes of calculating the reliefs individuals can claim. The grossed up amount of a donation made under the gift aid scheme will be taken into account when assessing whether an individual has reached the cap. Any part of the donation above the cap will not attract tax relief and, as is the case now, the donor will have to have paid sufficient tax to fund the tax claimed by the charity.
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