188体育

From 6th April 2013 there is a limit to the total amount of income tax reliefs that can be used to reduce your total taxable income for the year. The limit is 拢50,000, or 25% of your 鈥渁djusted total income鈥� if higher. For more details on this including information on which reliefs are restricted please refer to help sheet (HS204).

If you pay the Remittance Basis Charge (RBC) the nominated (and any deemed nominated) foreign income should be added into the total income for the year for the purposes of calculating the limit on expenses.

Example 1

You have 拢2,000,000 UK source income, claiming reliefs subject to the limit of 拢600,000, and claiming the remittance basis with liability to the 拢30,000 remittance basis charge.

Based on the UK income without the nominated income the reliefs would be limited to 拢500,000 leaving 拢1,500,000 in charge to tax. The UK income fully occupies the basic and higher rate bands so it is necessary, to produce a tax increase of 拢30,000, to nominate 拢66,667 of income as this will be taxed at the additional rate of 45 per cent to produce a tax increase of 拢30,000. The 拢66,667 is added to the UK source income for the purpose of calculating the relief limit giving you a relief limit of 拢516,667 (25 per cent of 拢2,066,667).

In rare circumstances the increase in the relief will impact on the marginal tax rates applicable to the calculation of the RBC. This is because the increase in the relief limit affects the calculation of nominated income. In these cases, a calculation loop can emerge as illustrated in the next example:

Example 2

You have 拢200,000 UK source income, claiming reliefs subject to the limit of 拢100,000, and claiming the remittance basis with liability to the 拢50,000 remittance basis charge (note 1).

Based on the UK income without the nominated income the reliefs would be limited to 拢50,000 leaving 拢150,000 in charge to tax. The UK income fully occupies the basic and higher rate bands, so in order to produce a tax increase of 拢50,000, it is necessary to nominate 拢111,112 of income which will be taxed at the additional rate of 45 per cent. The 拢111,112 will also be added to the UK source income for the purpose of calculating the relief limit.

When the 拢111,112 nominated income is added to the 拢200,000 UK income the relief limit is increased to 拢77,778 (25 per cent of 拢311,112). The increased limit results in 拢27,778 of the nominated income, which was taxed at 45 per cent falling into the higher rate band (40 per cent). The additional tax generated by the nomination is now;

拢27,778 @ 40% = 拢11,111

拢83,334 @ 45% = 拢37,500

Total 拢48,611

As the nomination no longer creates a tax liability of 拢50,000 the nominated income must be increased to 拢114,198 to ensure the correct amount of tax is collected that is, 拢27,778 @ 40% = 拢11,111 plus 拢86,420 @ 45% = 拢38,889, for a total of 拢50,000.

That in turn increases the relief limit to 拢78,550 (25 per cent of 拢314,198) which reduces the tax yield on the nominated income to 拢49,961.60, resulting in a further increase to the nomination being required and so on.

This calculation can continue in a permanent loop. But in most cases after four calculations the variation is insignificant. The nominated figure of income for the relief limit should be taken at the fourth calculation and rounded-up to the next whole pound.

The calculation will be performed in the Self Assessment system in which the appropriate nominated income figure will be used.

Note 1: The 拢50,000 RBC was applicable for the 2012-2013 until 2014-2015 tax years.