Last Tuesday the Prime Minister announced a package of measures to boost the NHS and the care system.
The details of how this will affect care costs are not yet clear, but the key point is that no-one should need to pay more than £86,000 over their lifetime.
- People with assets under £20,000 will have all care costs paid for
- Those with assets up to £100,000 will need to pay part of the cost each year, subject to the lifetime cap
- Those with assets over £100,000 will have to pay in full, until they reach the cap
This is to be paid for by two tax changes:
A 1.25% increase in dividend tax rates
From April 2022, the tax rates on dividends will be 8.75%, 33.75%, and 39.35%. The £2,000 tax-free allowance is unaffected.
A new Social Care levy at 1.25%
The Social Care levy is a new tax which will sit alongside National Insurance. It will be payable by employers, employees, and the self-employed on all income that is subject to NICs.
Because it’s not National Insurance it won’t be subject to quite the same rules, and in particular it will be payable by those above state pension age. It will however have some of the same reliefs, such as those for employing apprentices.
The levy will come into effect from April 2023. From April 2022 to March 2023, NI rates will go up by 1.25% as a temporary measure – this has much the same effect, except that those above pension age won’t be affected.
The overall effect is that employees, the self-employed, and company shareholders will all be paying a little more tax on their income. There is a double hit for jobs, as both the employer and the employee will be paying 1.25% each.
Bringing a new tax into existence in just 18 months is going to be a challenge for HMRC, who are already struggling with the pandemic reliefs and trying to bring Making Tax Digital into effect. For taxpayers it should be a little simpler (apart from finding the extra cash), but employers will need to ensure that their payroll systems can deal with it properly.
We will be following developments closely, and will let you know as matters progress. In the meantime, if you have any questions about the changes do please get in touch.