National Insurance and Dividend Tax rate changes
Yesterday the PM set out the Government’s plans for social care in England and how they will be funded.
Quick Reminder of Current Social Care Position in England
- £23,250 capital means test ceiling, above which all care costs must be met by the individual, the “self-funding route”.
- For those with wealth below £14,250, no contribution is required.
- For those with wealth between £14,250 and £23,250, a contribution is required based on the level of individuals income/capital (put simply).
- Value of an individual’s home is generally included in the capital means-test, unless it continues to be occupied by a dependant, partner or relative aged at least 60.
- NHS-funded Nursing Care (FNC) is paid direct to care/nursing home to cover cost of registered nursing care at a rate of £187.60 p/week. No means test applies to this, everyone gets it.
New Rules for those entering care from October 2023
- £100,000 capital means test ceiling.
- For those with wealth under £20,000, no contribution is required.
- For those with wealth between £20,000 and £100,000, a contribution is required based on level of income/capital, but cap will apply.
- Value of an individual’s home is generally included in the capital means-test, unless it continues to be occupied by a dependant, partner or relative aged at least 60.
- For those with wealth above £100,000 full fees must be paid but overall cap on the amount any individual has to pay for care of £86,000; also formula used to calculate cost of personal care has been fixed.
To fund the changes
- 1.25% Health and Social Care Levy, levied as an increase on National Insurance Contributions (NIC); this will be introduced next tax year 2022/23.
- 1.25% dividend tax rate increase. Added to the existing rate of tax.
Summary
The new plans aim to tackle persistent unfairness in the social care system, and once implemented, should directly benefit 150,000 people.
The new means test ceiling is nearly 4x the current limit and helps ensure those with the least are protected.
Also, on the face of it, the new cap on care fees (£86,000) would appear to provide some security that loved once that need care will no-longer face unpredictable and unlimited care costs, however, the cap only applies to personal care costs, not residential (or hotel) costs. No assistance is provided to cover the (usually much higher) self-funding costs of residential care –the most expensive part! In answer to this the Government have said that individuals can ask their Local Authority to arrange “better value care” for them.
The Government expects net revenue from new Levy and increased dividend tax to be around £12 billion per year; £11.4m from Levy, £0.6m from dividend. Additional and Higher rate taxpayers will end up footing the bill.
Interestingly, under the new levy, the NIC rates will be introduced next tax year (2022/23) but then revert back to current levels in the following tax year (2023/24) and the new levy will become a separate 1.25% charge. Why do this? … to make sure manifesto pledges are met! If you remember, the Government promised not to raise the rate of the three main taxes (income, VAT and NICs). By introducing a separate tax they are not “raising” the rate of existing taxes, i.e. NICs.
Finally, it is expected that Additional and Higher rate taxpayers will contribute over 70% of the revenue from the dividend increase in 2022/23 and are quoted as saying the tax increase is “a highly progressive way to raise revenue”. Progressive… I don’t like the sound of that, and how do they get away with raising taxes as per their manifesto pledge,… well… it’s not one of the main three taxes! Mic drop.
Source: Record £36 billion investment to reform NHS and Social Care – GOV.UK (www.gov.uk)