The Government is to introduce an upper limit on individual income tax relief. From 6 April 2013 the maximum relief will be £50,000, or 25% of income, whichever is greater. This will only apply to reliefs which are not currently limited, such as interest relief, or loss relief; capped reliefs such as EIS or VCT will not be impacted.
Whilst this is intended to mitigate against what the Government view to be artificial or excessive income tax deductions, the provision could (like many other anti-avoidance provisions) have unintended consequences. The Government has said that it will consult to limit the impact of the measure on charitable donations, but the provisions would also restrict relief on investment into trading companies and partnerships, (and even loans to pay inheritance tax).
If the provisions restrict relief on investments made before the rules are introduced, it would effectively be retroactive, which could force investors to exit from investments earlier than anticipated.
This runs counter to the Government’s intention to encourage the entrepreneurial, aspirational, taxpayer.