The Prime Minister Boris Johnson has announced the Government’s proposal to introduce a new levy to help bridge the gap in funding for social care and to support the NHS. This levy will be applied to National Insurance contributions and dividend tax.
The following is an overview of the proposals set out by the Prime Minister. Please note that the details could change prior to coming into effect.
The Proposal
The Care Reform proposal introduces a lifetime funding cap of £86,000 for any individual requiring personal care. This cap does not include “hotel costs”, such as accommodation and food. Individuals may choose to “top up” their care costs by paying the difference towards a more expensive service, but this will not count towards the cap.
The Care Reform proposal includes a new means test, to come into effect in October 2023, that will assess an individual’s income and savings in the following way:
Personal assets over £100k
- Full fees must be paid up to the lifetime cap of £86,000.
- If by contributing towards care costs, the value of an individual’s remaining assets falls below £100,000, they are likely to be eligible for some financial support.
- Once the £86,000 cap is reached, Local Authorities will pay for all eligible personal care costs.
Personal assets between £20k and £100k
- The individual’s Local Authority is likely to fund some of their personal care.
- Initially, the cost of the care will be funded by an individual’s income. Where this is not sufficient, they will contribute no more than 20% of their chargeable assets per year.
- Should their assets fall below £20,000, the individual will no longer pay for their care form their assets. However, they may still be required to contribute from their income.
Personal assets below £20k
- Individuals with assets below £20k will not have to pay anything for their care from their assets. However, they may still be required to contribute from their income.
National Insurance
The National Insurance contribution rate will increase from April 2022 by 1.25%. This will be applied to both employee, employer and self-employed rates. From April 2023, the levy will show separately on payslips as a Health and Social Care Levy.
The levy will also be applied above the Upper Earnings Level (currently 2%), which means there will be no cap on the levy. It will apply across the whole of the UK with Wales, Scotland and Northern Ireland receiving funding for care.
In contrast to National Insurance contributions, the 1.25% levy will also be payable by pensioners over State Pension age where they continue to work/earn. However, this will not be applied until the levy is separated from NIC’s in 2023/24.
From a pension perspective, assuming there are no ‘anti-avoidance’ provisions (and none are suggested in the proposals), the increase in NICs makes salary sacrifice even more attractive in terms of the optimum way for employees to make contributions to their pension. It is currently unclear however whether this option will remain once it becomes a stand-alone levy.
Dividend Tax
The Government has also confirmed that they will be increasing the dividend rate of tax by 1.25% as shown in the table below to include those business owners, who receive their remuneration via dividend income:
|
Dividend Tax Rates |
||
|
Band |
Current |
Proposed |
|
Up to £2,000 |
0.00% |
0.00% |
|
Basic Rate |
7.50% |
8.75% |
|
Higher Rate |
32.50% |
33.75% |
|
Additional Rate |
38.10% |
39.35% |
Important information
Content correct at the time of writing and is intended for general information only and should not be construed as advice.
Tax advice which contains no investment element is not regulated by the Financial Conduct Authority.
Content correct at the time of writing and is intended for general information only and should not be construed as advice.