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How Budget announcements are likely to affect teachers’ finances

How Budget announcements are likely to affect teachers’ finances

Less than seven weeks after it was announced in the March 2016 Budget, the government's plans to make all schools academies by 2020 were dropped. As a teacher you'll be well aware of this significant change, but not all Budget announcements that may directly affect you make the headlines. There can also be subsequent changes to the announcements made on Budget day, so it can be hard to keep track of them in the weeks and months that follow.

We've put together a summary of changes to help you keep track of some of the key announcements from the 2015 and 2016 Budgets and the 2015 Autumn Statement that are likely to affect you as a teacher in the near future.

Savings

Personal Savings Allowance: The Personal Savings Allowance (PSA) has been introduced, meaning that there is no tax to pay on the first £1,000 of savings interest earned by basic tax rate payers, or the first £500 earned by higher tax rate payers.

This will be welcomed by the 42% of teachers we surveyed in February 2016 who told us that amongst their biggest financial regrets were: not saving enough; not saving enough for retirement; not saving early enough for retirement.

But 36% of people we surveyed told us they didn't have enough knowledge about the introduction of the PSA. So make sure you are aware of the types of savings income that can use up your PSA, to avoid accidentally exceeding it over time.

ISAs

The annual ISA subscription limit will be increased from £15,240 to £20,000 from 6 April 2017. In addition, a new Lifetime ISA will become available. From April 2017, those aged between 18 and 40 will be able to invest up to £4,000 each year, and receive a government bonus of 25% on any savings made before age 50. This is £1 for every £4 saved.

The money saved can be used:

  • as a deposit to purchase a first home, valued at £450,000 or less, or
  • to save for retirement.

This will be particularly welcomed by the 8% of London teachers under 35 that are still living at home with their parents five years into their teaching career (survey of 1,200 London NUT members, 2016).

Money taken out of a Lifetime ISA before age 60 will incur a 5% charge and will lose the government bonus so it's sensible to think about whether you will need access to some of your savings in the short to medium term.

Tax

The higher rate tax band will rise to £45,000, benefitting school leaders and head teachers in the upper teaching pay ranges.

Pensions

To ensure public sector pensions remain sustainable, employers' contributions will increase from the 2019/20 tax year.

Contributions for teachers are set to rise by more than £100m - positive news for the 38% of teachers who told us they wish they could save more for retirement but can't afford to do so. In fact, only 15% of teachers we surveyed earlier this year are planning to retire early (by 55), down from 26% in 2014 and 35% in 2011.

Teachers planning to retire early






It's important to make sure your own financial goals stay on track by understanding what the Teachers' Pension Scheme means for you based on your individual circumstances, such as your income, length of service, and when you joined the scheme.

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Capital Gains Tax


In April this year, Capital Gains Tax (CGT) reduced from 28% to 20% for higher rate tax payers, and from 18% to 10% for gains within the basic rate income tax band.

You may need to pay CGT on a range of assets that you come to sell (or otherwise dispose of) in the future, for example if you:

become the owner of a property that is not used as your main residence (through inheritance or a buy-to-let investment)

invest in shares (outside of a tax-efficient ISA)
own personal items that increase in value, and are worth £6,000 or more.

It's important to be aware that gains made on second homes and buy-to-let properties will not benefit from the new lower rates - which is equivalent to an 8% surcharge.

If you'd like to discuss any aspect of your personal or professional finances with your local Financial Consultant, call us on 0800 107 5599 and quote reference 80677 or email: financialreview@wesleyan.co.uk



Research based on a survey of 613 professionals (100 dentists, 203 doctors, 100 lawyers and 210 teachers) by Censuswide on behalf of Wesleyan, February 2016 Savings research conducted by Wesleyan, February 2016 Research based on a survey of 412 professionals (100 dentists, 101 doctors, 103 lawyers and 108 teachers) by Censuswide on behalf of Wesleyan, February 2014 Research based on a survey of 430 professionals (80 dentists, 159 doctors, 91 lawyers and 100 teachers) by Censuswide on behalf of Wesleyan, February 2011

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