It was announced today (after much speculation) that some new measures would be brought in as part of the new care funding solution for England, despite manifesto pledges to the contrary.
Let's take a look at what we know so far.
Health and Social Care Levy
This is the name given to what is effectively an additional tax that will be introduced, to help fund the government's plans for social care. Initially, this will be applied by increasing the Class 1 and Class 4 National Insurance (NI) rates for the 2022-23 tax year. The rates will increase by 1.25% across the board, including for Employer's NI (in effect a 2.5% NI increase if you include both employee and employer NI).
From 2022-23 onwards, NI rates will revert back down to their current level, but an equivalent new separate levy, to be shown as a separate line on payslips, known as the Health and Social Care Levy (HSCL) will be introduced. This allows the government to effectively start collecting the levy via the NI system while computer systems are updated to accommodate the new levy.
Crucially, once the new HSCL is introduced, it will also apply to the earnings of employed and self employed individuals over the State Pension Age, currently 66. Presently, such individuals do not pay NI, although their employers do already pay employer NI.
Dividend Tax
The increase has also been extended to dividend tax rates, which will increase again by 1.25% across the board. This is in addition to the previously announced increase to Corporation Tax for businesses, which will impact small business owners.
Social Care Costs
To sweeten the deal, a number of changes have at last been introduced in respect of care costs (the legislation to do so was implemented 7 years ago, but no changes were actually made at the time).
The capital means test threshold will rise from £23,250 to £100,000; this is the point above which an individual is expected to pay for their care themselves. Currently, an individual is still expected to make a contribution to their care while their capital is above £14,250; once capital is below this level, only the income means test applies. This lower limit of £14,250 will increase to £20,000.
In other words, individuals will still be expected to contribute if they have capital of over £20,000, so the £100,000 limit being mentioned in the headlines doesn't mean you avoid making any contribution to care costs if you "only" have capital of £100,000; below this level you will receive tapered support until your capital is depleted to £20,000.
There will be an overall cap on the amount an individual has to pay for care, of £86,000. As ever, this headline belies the detail. We've all heard the stories of care fees of £6,000/week and upwards; the cap does not refer to this. It only applies to the cost of the personal care itself; the cap does not apply to board and lodgings, or the so-called "hotel" element of the cost.
Furthermore, the Care Act 2014 specified the personal care cost calculation, and it is this that will again be used as the basis for the cap; not the (likely much higher) cost actually levied by a care home to a self-funding individual. So in real terms, the care cap is not as generous as it first seems, and unsurprisingly, on rough calculations it looks like an individual would need to be in a care home well beyond the average stay duration before they benefit from the cap.
One positive move however is that individuals who are self funding will be able to ask their local authority to arrange the care, such that hopefully it will be better value for the individual. The effect of this in practice of course remains to be seen.
Comment
If the many conversations I've had since the start of the pandemic are anything to go by, I don't think tax rises will come as a great surprise to many; even if the increases are not directly related to repaying the various support schemes that were introduced during the crisis. It hasn't escaped notice that further tax rises this parliament have not been ruled out, but again I don't think this will be much of a shock.
Whilst tax rises are never good news, the cost of providing care is extremely high and naturally this has to be met from somewhere, of course. It therefore seems there is a certain inevitability about these announcements. We will of course continue to monitor the detail as things develop.
If you are affected by the issues here and would like to discuss how it might impact upon your Financial Planning arrangements, please do get in touch.
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