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Budget 2012: Osborne introduces cap on income tax relief

by William Robins on Mar 21, 2012 at 13:52

Budget 2012: Osborne introduces cap on income tax relief

The government is to introduce a cap on income tax relief for anyone claiming more than £50,000 a year.

Chancellor George Osborne said the government would introduce a limit on all uncapped income tax reliefs, in a bid to raise an estimated £720 million by 2016 -17.

For anyone seeking to claim more than £50,000 of reliefs, a cap will be set at 25% of income. 

It has been introduced to target the practice of setting-up loss making businesses purely to claim tax relief.

'This will increase effective tax rates and help ensure that those with the highest incomes pay a fairer share,' the government said in the Budget.

The limit will include, but not be restricted to:

  • Loss reliefs against total income
  • Qualifying loan interest
  • Gift Aid and Charitable gifts of land and shares

Osborne said the measure would not be extended to those reliefs that are already capped. The government said it would seek to ensure the cap did not impact on charities that rely on large donations and there would be measures to protect philanthropic giving.

The move follows the confirmation by the chancellor there will be no cut to pensions tax relief.

8 comments so far. Why not have your say?

Paul Howard

Mar 21, 2012 at 14:26

So does the cap Cover Pensions, VCT's, EIS etc?

What schemes offer uncapped relief?

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Julian Sunley

Mar 21, 2012 at 14:27

"Chancellor George Osborne said the government would introduce a limit on all uncapped income tax reliefs" - can I have a list of these then please as I'm confused!

Otherwise a very good Budget in my humble opinion....

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Mar 21, 2012 at 15:06

As always, searching between the lines will go on for some time. However, on the face of it, a positive and sensible budget with the exception of the failure to tackle the fuel burden.

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Mar 21, 2012 at 15:10

Pensions, EIS, VCTs are all capped and are not affected. its just the reliefs set out in the article

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Paul Howard

Mar 21, 2012 at 15:16

Taxagent - thats what I thought....

....and so if they aren't caught - exactly how much tax is involved (the removal of Sideways Loss Relief reduced the loss reief method )?

I suppose Property Investors could easily receive relief of £50K pa + though.

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Market Man

Mar 21, 2012 at 16:25

EIS and VCT aren't affected. Buried in the notes it says that the legislation will apply to 'reliefs that are currently unlimited'. EIS and VCT are both already limited. The Chancellor even mentioned EIS in his speech alongside pensions which he contrasted with the reliefs he's trying to cap.

It seems BPRA could be affected..

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Mar 22, 2012 at 11:33

> For anyone seeking to claim more than £50,000 of reliefs, a cap will be set at 25% of income. <

Other sources say relief capped at £50k, not just 25% of income? http://www.bakertilly.co.uk/budget2012/private-clients/New-cap-on-income-tax-relief.aspx

Puts an end to offshore bond top-slicing if so.

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Mar 22, 2012 at 17:05

my mistake, relief not capped at £50k, offshore bonds unaffected given new top rate of 45% I believe

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