The cap on unlimited income tax reliefs

Since 6 April 2013 an individual cannot deduct more than £50,000, or 25% of their adjusted total income if that is higher, in a tax year for a defined group of income tax reliefs that were previously unlimited, mainly losses set against general income and qualifying loan interest. The rule is in section 24A of the Income Tax Act 2007. Reliefs outside the list, such as losses set against profits of the same trade, charitable reliefs and EIS income tax relief, are not affected.

What is the cap and where does it come from?

Finance Act 2013 inserted section 24A into the Income Tax Act 2007 (ITA 2007) with effect from 2013 to 2014. It limits certain deductions made at Step 2 of the income tax calculation in section 23, the stage where reliefs are deducted from total income to arrive at net income.

The test in section 24A(3) to (5) is simple: amount A (the limited reliefs claimed for the year, less any excluded parts) must not exceed amount B, which is £50,000 or, if more, 25% of adjusted total income. The explanatory notes to the Finance Act 2013 describe the aim as making sure those on higher incomes cannot use reliefs excessively. They also record that the measure was not introduced to address tax avoidance, although it reduces the scope for it.

Which reliefs fall within the cap?

Section 24A(6) lists the limited reliefs:

• trade loss relief against general income (section 64)
• early trade losses relief (section 72)
• post cessation trade relief (section 96)
• property loss relief against general income (section 120)
• post cessation property relief (section 125)
• employment loss relief against general income (section 128)
• share loss relief (Chapter 6 of Part 4)
• qualifying loan interest relief (Chapter 1 of Part 8); see our guide to relief on loans to invest in a partnership or company
• deduction for liabilities relating to former employment (section 555 ITEPA 2003)
• losses on strips of government securities and on listed securities held since 26 March 2003 (sections 446 and 454(4) ITTOIA 2005)

HMRC’s helpsheet HS204 sets out where these appear on the return: for example boxes 33 and 34 of the short self employment pages, box 42 of the UK property pages, boxes 5 and 6 of “Other tax reliefs” on the additional information pages, and box 12 of the capital gains summary pages.

Which reliefs are outside the cap?

Section 24A(7) takes some deductions out of the calculation even though they are made under a listed relief:

• relief attributable to business premises renovation allowances
• trade or property losses set against profits of the same trade or property business
• share loss relief on shares that carry EIS relief, SEIS relief or social investment tax relief

An exclusion for losses attributable to overlap relief was removed from 2024 to 2025 by the Finance Act 2022, following basis period reform.

Other reliefs are outside the cap simply because they are not on the list. The explanatory notes record that the government specifically excluded charitable reliefs after engaging with the charity sector. Pension contributions are not limited reliefs either; instead, contributions paid under relief at source or relieved on a claim are deducted in working out adjusted total income, which lowers the 25% figure. And the investment reliefs for the Enterprise Investment Scheme, SEIS and VCTs are tax reductions at Step 6 of the calculation (section 26 ITA 2007), not Step 2 deductions, so section 24A does not touch them.

HS204 also confirms that the limit does not affect trading losses claimed against capital gains.

How is adjusted total income calculated?

Section 24A(8) sets out four steps:

1. Start with total income for the tax year.
2. Add back any payroll giving deductions.
3. Deduct the gross amount of pension contributions paid under relief at source.
4. Deduct any pension contributions relieved under net pay arrangements as excess relief or relieved on a claim.

In practice the higher limit only bites for large incomes. HS204 says you generally only need to work out adjusted total income if your total income is over £200,000, because below that the limit will always be £50,000. That follows from the arithmetic: 25% of £200,000 is £50,000.

Adjusted total income is not the same as adjusted net income, which drives the personal allowance taper and the High Income Child Benefit Charge. Gift Aid, for instance, reduces adjusted net income but is not one of the adjustments in section 24A(8).

How does the cap work when losses are carried back?

HS204 explains that the limit applies to the total of limited reliefs claimed for a tax year and is calculated separately for each tax year in which relief is given effect. A loss carried back to an earlier year therefore uses up the cap of that earlier year, alongside anything else already claimed there. The Finance Act 2013 transitional rules confirm the limit also applies where losses made in 2013 to 2014 or later are carried back to an earlier year.

The cap restricts only how much is used now. A trading loss that cannot be set against general income because of the cap is not lost; it can be carried forward against profits of the same trade, which is itself outside the cap.

Which relief should you use first?

Where limited reliefs exceed the cap, you decide which to set against income and which to carry forward or back. HS204 gives the key planning point: loan interest cannot be carried forward or back, so if it is squeezed out by the cap it is lost. Example 3 in the helpsheet shows a taxpayer with £49,000 of partnership losses and £6,000 of loan interest relieving the interest first, using £44,000 of the loss and carrying £5,000 forward. Doing it the other way round would have wasted £5,000 of interest.

The same logic applies to choosing between losses: carry forward the loss that is most likely to be absorbed by future profits of the same business, which HS204 illustrates with a property loss.

A worked example

Illustration only. Alex has total income of £300,000 in the tax year and pays gross personal pension contributions of £20,000 under relief at source. Alex’s new business makes a £120,000 trading loss, and Alex claims sideways relief against general income.

Step	Amount
Total income	£300,000
Less gross relief at source pension contributions	(£20,000)
Adjusted total income	£280,000
25% of adjusted total income	£70,000
Cap (greater of £50,000 and £70,000)	£70,000
Loss relieved against general income this year	£70,000
Loss carried forward against future profits of the same trade	£50,000

If Alex also had qualifying loan interest, it would share the same £70,000 limit, and it would usually make sense to relieve the interest first.

What mistakes do people make with the cap?

• Forgetting that a carry back claim counts against the cap of the earlier year, which may already be partly used.
• Applying the cap to losses set against profits of the same trade, which are excluded.
• Treating EIS, SEIS or VCT income tax relief as capped. These are tax reductions, not Step 2 deductions.
• Using adjusted net income instead of adjusted total income to work out the 25% figure.
• Relieving losses first and letting loan interest fall away, when the interest cannot be carried.
• Assuming the cap affects claims to set trading losses against capital gains. HS204 says it does not.

For the wider rules on reliefs and income bands for the year, see our UK tax rates and thresholds for 2026 to 2027.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

• How to work out your income tax step by step
• Share loss relief against income
• Rental losses: how they can be used
• Can my company’s losses reduce my personal tax
• Loss relief restrictions for non active traders

Sources

• legislation.gov.uk: Act 2007 c. 3, section 24A
• legislation.gov.uk: Act 2013 c. 29
• GOV.UK: Hs204 limit on income tax reliefs 2026
• legislation.gov.uk: Act 2007 c. 3, section 26
• GOV.UK: Child benefit tax charge

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.