YOUR MONEY

Funding Social Care – National Insurance and the New Health & Social Care Levy

The Government has announced an increase in national insurance contributions and dividend tax rates from April 2022. This will be a temporary one-year increase before a new health and social care levy is introduced in April 2023.

The tax changes, revealed by the Prime Minister on 7 September 2021, aim to raise £12 billion a year to be spent on the NHS and social care across the UK.

How will it be paid for?

National Insurance Contributions (NICs) will increase by 1.25% for one year only for employees (Class 1) and employers (Class 1A and 1B) and the self-employed (Class 4) from 6 April 2022.

From 6 April 2023, the increase will become a separate tax - the ‘Health and Social Care Levy’ – and NIC rates will return to their 2021/22 levels.

The Levy will also apply to individuals above State Pension age who are still in work with employment income or profits from self-employment above £9,568.

Self-employed individuals will be required to report the NIC increase through their 2022-23 tax return in January 2024 and report the new Levy for 2023-24 in January 2025.

The rate of income tax which is paid by individuals who receive dividend income from shares will also increase by 1.25% from April 2022. The £2,000 dividend allowance will remain.

The increase will see an employee on £20,000 a year pay an extra £130. Someone on £50,000 will pay £505 more.

What will you have to pay for social care?

Currently anyone in England with assets over £23,250 must pay for their care in full.

The UK Government has outlined its new reforms in its policy paper: Build Back Better: Our plan for health and social care. These propose introducing a new means test from October 2023. It should be noted that the measure received only a narrow majority backing from MPs and may be assessed before completing its passage through Parliament. Under the plan:

  • The maximum that a person will have to pay over their lifetime towards personal care costs (not including food and accommodation) will be £86,000. Below that level the amount they pay reduces until they have less than £14,250, at which point the state pays for their care if they qualify.
  • If a person’s total assets are over £100,000, full fees must be paid. If by contributing towards care costs, their remaining assets fall below £100,000, they may be eligible for financial support. Once the £86,000 cap is reached, the state will pay for care costs.
  • If a person’s total assets are between £20,000 and £100,000, they are likely to receive funding for some of their care. They will have to contribute towards the cost from their income, but if that is not enough, they will contribute no more than 20% of their chargeable assets per year.
  • If a person’s total assets are less than £20,000, they will not have to pay anything for their care from their assets but may still need to make a contribution from their income.

The Government says its measures, including the new Levy, will put the NHS on a sustainable footing, deliver an affordable solution to social care and provide a world class health and social care system fit for the 21st century.

By
Paul Underwood, Director
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