What does the new health and social care levy mean for me?

The government has announced a new health and social care levy. Katie Royals takes a look at what it will mean for you in practice.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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The government has announced plans to introduce a new health and social care levy in a bid to address the funding crisis in the sector. This essentially involves tax increases for workers, entrepreneurs and investors. But, what does it mean for you? Read on to find out.

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What is the new health and social care levy?

The new health and social care levy will add a 1.25% increase to National Insurance and tax on share dividends from April 2022.

From 2023, it will become a separate tax on income.

Prime Minister Boris Johnson said this will raise £36 billion for health and social care frontline services in the next three years and be the “biggest catch-up programme in the NHS’ history”.

This tax does break the Conservative Party’s 2019 election manifesto pledge. However, the Prime Minister argued that a “global pandemic was in no one’s manifesto”.

How much extra tax will I pay?

How much extra tax you pay as a result of the changes will depend on how much you earn and whether you receive any dividends from share income.

If you earn £20,000 annually, this tax year you will pay £1,251 in National Insurance. Under the new levy, you will pay an extra £130.

Workers earning £30,000 a year will pay an extra £255 on top of the £2,451 they already pay.

Employees paid £50,000 annually currently pay £4,851 a year in National Insurance. Under these proposals, their contributions will increase by £505 per year.

Currently, you will only need to pay extra tax if you are required to pay National Insurance.

Therefore, any employee aged 16 or over and earning more than £184 a week or self-employed people with profits of more than £6,515 a year will pay the tax.

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What about my share dividends?

The tax on share dividends is also set to increase by 1.25% under the new health and social care levy.

You start paying tax when you earn more than £2,000 in dividends in a single tax year. Basic rate taxpayers currently pay a 7.5% tax on their dividends. Therefore, once this rises by 1.25% to 8.75%, if you earn £5,000 in dividends in a year, you’ll pay an extra £37.50.

The amount higher rate taxpayers will pay will rise to 33.75%, while additional rate taxpayers will pay 39.35% on dividend income.

The health and social care levy currently won’t apply to dividends received in a Stocks and Shares ISA. Currently, you can put up to £20,000 into an ISA tax free every year.

What if I need social care?

The new levy will also impact you if you need social care – providing you live in England. Scotland, Wales and Northern Ireland have their own arrangements for social care. They will each receive an extra £2.2 billion a year as a result of the new levy.

Social care costs will decrease for a lot of people. From October 2023, no one starting care in England will be forced to spend more than £86,000 over their lifetime.

For reference, the average cost of residential care in the UK is £33,792 a year. If you require nursing care, the average rises to £42,624.

Those with fewer assets are unlikely to have to pay £86,000, even if they receive social care for a long time.

Under the new proposals, anyone with assets of less than £20,000 will have their care costs fully covered by the state, while those with less than £100,000 will have their costs subsidised.

Could I lose my home?

One key concern about social care is people having to sell their homes to pay for their care costs. If you have at-home care, you will not need to move out to help cover the costs. Those moving into residential care will be subject to a financial assessment.

Your home will not be included in your social care financial assessment if your partner or spouse still lives in it. Equally, it will not be counted if a relative aged either over 60 or under 18 lives in the house, or there is a disabled relative living in the property.

If your property is going to be included in the permanent care home means test, the council must ignore it for the first 12 weeks of your care. This is to give you space to decide what you want to do with your property. You can opt to enter into a deferred payment agreement with your local council. This essentially means the council will recover the cost of your fees once you’re deceased.

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