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This publication is available at https://www.gov.uk/government/publications/limit-on-income-tax-reliefs-hs204-self-assessment-helpsheet/hs204-limit-on-income-tax-reliefs-2018
This helpsheet explains the limit for 2017 to 2018 and later years, for individuals claiming certain Income Tax reliefs. It’ll help you understand how the limit on reliefs works, and so complete your Self Assessment Return.
1.1 Limit on Income Tax reliefs
From 6 April 2013 the total amount of certain Income Tax reliefs that can be used to reduce your total taxable income is limited to £50,000, or 25% of your adjusted total income, if higher.
The limit applies to the aggregate of the relevant reliefs claimed for a tax year, and is calculated separately for each tax year in which a relief is given effect. This limit applies in addition to other provisions that restrict the amount of relief that can be used to reduce your total taxable income for the year.
2. How the limit works
2.1 Limited reliefs
The main reliefs subject to this limit are:
- trade loss relief against general income and early trade losses relief - claimed on the self-employment, Lloyd’s underwriters or partnership pages
- property loss relief (relating to capital allowances or agricultural expenses) - claimed on the UK property or foreign pages
- post-cessation trade relief, post-cessation property relief, employment loss relief, former employees deduction for liabilities, losses on deeply discounted securities and strips of government securities - claimed on the additional information pages
- share loss relief, unless claimed on Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) shares - claimed on the capital gains summary pages
- qualifying loan interest - claimed on the additional information pages
If you’ve claimed any of the above reliefs against your general income and the total amount exceeds £50,000, then you could be affected by the limit. The amount of relief that can be set against total income, in the following boxes, may be restricted:
- SA103S Self-employment (short) pages boxes 33 and 34
- SA103F Self-employment (full) pages boxes 78 and 79
- SA103L Lloyd’s underwriters pages box 56
- SA104S Partnership (short) pages boxes 22 and 23
- SA104F Partnership (full) pages boxes 22 and 23 and box 39
- SA105 UK property pages box 42
- SA106 Foreign pages box 31
- SA101 Additional information pages ‘Other tax reliefs’ boxes 5 and 6
- SA108 Capital gains summary pages box 12 and box14
The following example illustrates how the limit’s calculated.
Phil has a total income of £70,000 in 2017 to 2018 and makes a trading loss in that year on one of his businesses of £60,000.
The maximum amount of relief Phil can set against his total income for 2017 to 2018 is £50,000 as this is the greater of £50,000 and 25% of his income. The remaining £10,000 loss can be carried forward.
2.2 Order of relief
The limit applies to the total of reliefs and loan interest payments in the tax year. Where there are multiple relief claims you’ll need to decide which reliefs to set against income in a tax year, and which to carry forward or back, as appropriate.
Joan has a total income of £170,000 in 2017 to 2018. She has a property loss, relating to capital allowances of £75,000 and a business trading loss of £85,000 (total losses £160,000).
Because of the limit, only £50,000 of Joan’s losses (this is the greater of £50,000 and 25% of her income) can be set against her income of 2017 to 2018.
As Joan’s losses exceed her limit, and as it’s more likely that her property business will make a profit the following year, she chooses to carry forward the full £75,000 property losses.
She can set £50,000 of the business trading losses against her income in the 2017 to 2018 tax year with the remaining £35,000 losses being carried forward to the following year.
Where the total of losses and loan interest payments exceeds the limit, it can be beneficial to have the maximum possible loan interest payments set against income in the given tax year. This is because these payments can’t be carried forward or back and they would otherwise be lost.
Paul has a total income of £90,000. His share of partnership trading losses is £49,000. He has also paid £6,000 interest on a business loan.
Only £50,000 of his combined losses and loan interest can be used to reduce his taxable income.
Paul therefore specifies that the full £6,000 loan interest is to be relieved first. Only £44,000 of his partnership trading loss is then used. The remaining £5,000 of these losses is carried forward to set against partnership profits.
Had he specified that the £49,000 partnership trading losses is relieved first he could only have used £1,000 of the loan interest and the balance would have been lost.
There are circumstances where excess loan interest, which has been paid for the purposes of a partnership trade or profession can’t be relieved because it exceeds the individual’s income for the year. This may be carried forward to subsequent tax years as a trade loss and offset against future profits of the same trade. However, where loan interest relief can’t fully be given because of the limit on reliefs, it can’t be carried forward as a trade loss.
2.3 Exceptions to the limit
The limit doesn’t affect the amount of trading losses which may be claimed against capital gains.
Certain reliefs are not subject to the limit on Income Tax reliefs:
- overlap relief claimed on
- trading losses used against profits of the same trade
- property losses used against profits of the same property business
- share loss relief on EIS and SEIS shares claimed on SA108 Capital gains summary pages box 13 and box 15
3. Adjusted total income
3.1 My adjusted total income
Generally, you only need to work out your adjusted total income if your total income is over £200,000.If your total income is below £200,000 the limit on Income Tax reliefs will always be £50,000.
Use Working Sheet 1 to calculate and confirm your adjusted total income and revised limit.
3.2 Remittance Basis Charge
Where the Remittance Basis Charge (RBC) applies to someone resident but not domiciled in the UK (see SA109 Notes Residence, remittance basis etc) you should add your nominated foreign income into your total income for the year.
Working out the revised limit on Income Tax reliefs is a bit more complicated as any increase in the limit may require more income to be nominated to produce the correct RBC. In turn this could increase the limit on Income Tax reliefs and so require more income to be nominated. Your tax adviser should be able to assist you with this calculation.
Use Working Sheet 2 to help you keep track of your losses and how they can be allocated.
Online forms, phone numbers and addresses for advice on Self Assessment.