Squeezing The Middle - Tax is the Clue

1941: Ladies in Retirement - Vidor

We have heard discussion about the squeeze on middle-Britain, with politicians being typically vague at defining what they mean by middle-Britain. My guess is that it is anyone that has an income between £30,000 and £250,000 - yes quite a range I know, but in the big scheme of things, probably representative of who is actually paying the most taxes to HMRC. Anyone with declared earnings under £30,000 is paying 20% unless they are over 65 and caught out by the age allowance trap (which is where the additional, age-related personal allowance is gradually reduced back down at a rate of 50% for every £1 of income over £24,000 in 2011/12).

So by way of a "heads up" from April, the scheduled changes to the tax system that will most likely effect you are as follows:

1. The standard personal allowance rises from £7,475 to £8,105

2. The age related allowance 65-74 rises from £9,940 to £10,500

3. The age related allowance 75+ rises from £10,090 to £10,660

4. The age related reduction trigger rises from £24,000 to £25,400

So if you are retired and you can adjust your income to £25,400 you will be better off. You can only "adjust" your income if you have assets that produce income that you can turn on and off, which probably means that you have had some very good financial planning advice. This would involve use of ISAs and using capital gains as income and so on.

Sadly, whilst the standard personal allowance rises, the band on which basic rate tax is levied is reduced from £35,000 to £34,370. Also don't forget that if your declared income is £100,000 or more you begin to lose your personal allowance anyway. The good news? well the 50% tax rate will remain unchanged on any income over £150,000 - if indeed this is good news.

If you would like to have a look at a little more detail, here is the link to the HMRC tables for 2012/13.

DT