Teach Secondary Issue 14.3

“Plan for the new tax year” Are teachers under increasing financial pressure? Generally speaking, the tax burden is rising across the board and inflation seems to be persistently higher than the Bank of England’s target inflation rate of 2%. This is something that impacts everyone in the country – and of course, teachers are captured within this. Howare frozen tax thresholds amidst rising costs impacting teachers? The tax year runs fromApril to April, with the start of the new tax year being when a number of allowances and reliefs are refreshed. However, a number of personal tax thresholds have been frozen until 2028. By not increasing the value of tax thresholds (‘freezing’ them) the government is able to increase taxable income without increasing the tax rates themselves. This phenomenon is known as the ‘fiscal drag’ – when tax thresholds don’t rise with inflation or wage growth, thus dragging people into paying tax at a higher rate – and is a way for governments to raise additional revenue. The main result of this is that more people pay more tax as their income increases, even if their purchasing power hasn’t actually improved. For teachers already earning a certain amount, a pay rise could potentially push them into a higher rate tax bracket. What financial planning options are there for teachers in that position? If a pay rise takes you into a higher rate of tax, then contributing to a personal pension may help to reduce your taxable income. Depending on your contribution, you could benefit from 40% tax relief on your pension contribution, whilst not paying 40% tax on your income. Contributing to a personal pension can also be helpful if you’re in receipt of Child Benefit and your taxable earnings are above the £60,000 threshold at which you begin to lose a portion of your payments. Paying into a personal pension could put your income below that threshold, ABOUT GLEN: Glen Roberts is a Regional Manager at Wesleyan Financial Services Contact us: Visit: wesleyan.co.uk/finances-teach-secondary Call 0800 980 0520 (lines are open Monday to Thursday: 09:00 – 19:00, Friday: 09:00 – 17:00) 30 SECOND BRIEFING Tax treatment depends on individual circumstances and may be subject to change in future. For support or guidance on understanding your financial position, speak to a Specialist Financial Adviser at Wesleyan Financial Services by visiting wesleyan.co.uk/teachers ; charges may apply, though you won’t be charged until you have agreed on the services required. Q&A Glen Roberts of Wesleyan Financial Services discusses what teachers should be mindful of ahead of the new tax year enabling you to receive the full amount of Child Benefit again. What allowances during the tax year should teachers be aware of? Many teachers and education leaders use Individual Saving Accounts (ISAs) as a tax-efficient way of saving. The maximum amount you can currently contribute to an ISA annually is £20,000, though this allowance resets each year and doesn’t roll over. Due to the tax relief received on pensions, the government also limits how much you can contribute to a personal pension. This ‘Annual Allowance’ (AA) – the maximum that can be saved within pensions each tax year without being charged tax – is currently £60,000, plus any unused AA from the previous three tax years, or 100% of your gross earnings for the tax year, less any other contributions you’ve made. Contributions to the Teachers’ Pension Scheme (TPS) paid from your salary don’t represent the pension input amount, since defined benefit schemes need a separate calculation to be established. How can teachers plan effectively? Ensure any additional funds you have are growing in the most tax efficient environment, so as to avoid paying any more tax than you need to. Timing is crucial – many people put off addressing their finances until the end of the tax year, meaning financial advisers and tax accountants tend to be very busy around February and March. It makes much more sense to start your planning at the beginning of the tax year, in April and May, so that you can maximise your pension and ISA contributions over the year as a whole. The income of most teachers and senior leaders in education is fairly stable and predictable. This should allow an adviser to make the appropriate calculations, enabling you to budget and allocate your funds in a way that’s comfortable and affordable to you over the full year and beyond. PA R T N E R C O N T E N T 19 teachwire.net/secondary