Everyone, particularly those in the squeezed middle, needs to plan ahead. Here independent financial advisor Gordon Tate tells you how to make the most of the allowances available to youIt has been estimated that there are about 29 million tax payers in the UK and of these, nearly 2 million are earners who generate an income of £50,000 a year or more.
This means that 93% of tax payers earn less than £50,000 (Wikipedia).
We can therefore deduce that only a small percentage will be able to find true financial freedom. This kind of freedom is nothing but a dream for the majority; nearly 24% of people have an income of less than £10,000 a year.
The Coalition Government’s ambition to take people on low incomes out of the tax system took a step forward in the recent Budget: the Chancellor increased the income level at which people start to pay tax by £1,100 - another 800,000 out of the tax system.
These measures will surely help the most disadvantaged in the country. Those at the other end of the spectrum - the 7% on income exceeding £50,000 - are relatively comfortable.
The squeezed middle
The media makes much of the squeezed middle, the group that seems to bear a disproportionate burden when a Chancellor has to make unpopular cuts.
Before the Budget there was much speculation as to how the removal of child benefit would operate. The original intention was to remove it from higher rate tax payers (income exceeding £42,000).
Clearly this would have been unfair to families with a single earner: if the income exceeded £42,000 by just £1 they would lose the total child benefit, while families with two earners on £42,000 each would have kept the benefit in full.
The Chancellor's answer has been to raise the threshold so that child benefit is only effectively lost when an income reaches £60,000.
Nevetheless the middle is still being squeezed.
Age allowance for seniors
Another group being pressed further are those who are entitled to what is known as the age allowance.
People aged 65-74 and those 75 or over enjoy a tax free allowance of £10,500 and £10,660 respectively, as long as the level of income does not exceed £25,400.
Where income exceeds the £25,400 the amount of age allowance is clawed back by £1 for every £2 of extra income until it reaches the standard personal allowance of £8,105.
The Budget announced that those who attain the age of 65 after 5 April 2013 will not benefit from the higher tax-free allowance.
Those who are already entitled to the extra tax-free income will retain it but the age allowance will be frozen and replaced by the standard personal allowance when it matches the level of the higher figure.
People who find themselves in these groups therefore have the greatest need to nurture everything that they have accrued.
Benefits of planning
Financial planning can go a long way to improving your financial position. Good financial advice can make do and mend resources that have not received the attention they deserve.
The results are often surprising.