RegulationApr 5 2012

Treasury previews rules limiting income tax relief

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HM Treasury has given advisers a preview of what they can expect from new rules limiting the amount of income tax relief individuals can claim.

Ahead of draft legislation later this year, HM Treasury has revealed what income tax reliefs are likely to be capped and confirmed VCT and pension reliefs will not be hit.

The principal reliefs affected are loss reliefs that can be claimed against total income, qualifying loan interest relief and reliefs for charitable giving.

This cap will apply only to reliefs that are currently unlimited and will be set at 25 per cent of income or £50,000, whichever is greater.

An individual with an income of £4m will still be able to give £1m to charity - or offset £1m of income against their business losses – and still get full tax relief for that £1m.

As summarised by FTAdviser’s Regulation Tracker, a number of smaller reliefs, which are currently uncapped, will also be affected.

The following reliefs 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;

• the new business investment incentive for resident non-domiciled individuals.

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