Unlimited tax reliefs to be capped next year

From next income tax year (the tax year 2013/14), as has been well publicised, the government have proposed that otherwise uncapped reliefs against taxable income will be restricted to £50,000 or if greater 25% of income, per annum.

HM Treasury (HMT) recently put some flesh on the proposal, but there remains a lack of clarity on many practical points. The recent announcement also states that the Government are exploring with the philanthropy and charity sectors ways to ensure the change does not significantly impact on charities which depend on large donations.

The three tax reliefs most likely to be affected by the change are:

Loss reliefs that can be claimed against total income
Relief for loan interest paid when this is given against total income
Charitable giving

However the change is not restricted to these reliefs only – any currently uncapped relief will be affected. HMT and HMRC are finalising the detail of the operation of this restriction “over the next few months”. A consultation document will be published in the summer.

HMT have not at this stage invited representations. Based on the detail we now have we are working with our clients to assess the likely impact. Some business reliefs may be affected in capricious ways, and we have identified that a vital detail on the operation of the restriction on tax relief for charitable giving has not been covered.

Substantial areas of uncertainly remain regarding how this restriction will apply. The volume of protest – particularly on the third sector – to the proposal may yet provoke the government to make significant changes. We shall keep you updated on the practical developments.