What are the changes to National Insurance (NI) to cover Health & Social care?
From April 2022:
The Prime Minister announced on 07/09/2021 there will be an increase in tax from April 2022 to cover the shortfall in funding for the NHS due to the pandemic, and to cover social care funding. As of April 2022, the extra tax will be as follows:
- 1.25% tax increase on employees national insurance
- 1.25% tax increase on employers national insurance
- 1.25% tax increase on class 4 self-employed national insurance
- 1.25% increase on dividend tax
For April 2022 to March 2023 working pensioners will not be affected by this tax rise because they do not pay national insurance.
From April 2023:
From April 2023 the extra tax will be shown as a Health & Social Care Levy rather than added to national insurance. From this date working pensioners will also have to pay the extra 1.25% tax where their income is above £9568. This tax will not affect rental income. Shares held in ISA will be exempt from this tax levy.
How much extra tax will I have to pay?
A basic rate taxpayer earning £24100 would be paying an extra £180 on national insurance.
Who will not be affected by the extra tax charge?
Anyone earning less than £9568 will not be affected by this levy. Rental income is also not affected by this levy.
How much money is the government hoping to raise with this levy?
The government is hoping to raise 36 billion pounds over the next 3 years. The money will help towards back log costs of the Covid 19 pandemic, future expected costs of the pandemic within the NHS, and Social Care. At the time of making the announcement the figures were 80% of the extra money raised will go to the NHS and the remainder will go to Social Care funding. The announcement included statements that NHS waiting lists are rising to 13 million people, being 1 in 4 people on the waiting list within 3 years. Due to the pandemic 300000 people are currently on a NHS waiting list which is longer than 1 year. The Secretary of State for Health announced this money would help fund 9 million more health checks/scans etc. The waiting lists would be tackled and reduced and better residential care for the elderly.
Does this mean the elderly will not have to pay anything towards social care?
This by no means results in every elderly person having free and full access to social care. Limits will be set on how much you can be expected to pay for social care. From October 2023, no one will be expected to pay more than £86000 for social care for their lifetime.
A person with assets worth less than £20,000 will not pay any contribution towards social care. Where you have assets between £20,000 and £100,000 you will be means tested for state support. However, this £86000 does not cover the “Hotel” costs of social care such as living accommodation or food, so individuals will still have to find this money. Also, the £86000 is only calculated against the fee the local council calculate an individual needs for funding, and not what the individual or their family considers acceptable quality of care.
Tom is going into social care and his council calculates his funding at a basic residential home will cost £1000 per week. His family are not happy with the quality of the residential home the council have considered so they decide to home Tom in a higher quality home which costs £2000 per week. The £1000 that the council calculated will go towards the £86000 cap Tom has to pay but the other £1000 will not be considered towards the cap. The £1000 considered by the council will also only consider the cost of care and not the accommodation itself or food as this is considered a cost for every individual and not a care cost.
Will I have to sell my home to cover my social care?
If you have assets worth more than £20000 then you will be paying towards your social care. If social care funding is going to cost £86000 + any additional cost for a higher quality care home + living cost + food per person, you either need to have cash in the bank or value in other assets to cover the cost, or equity in your home. The government announced that rather than having to sell your home, you can place a charge on your home which means you owe the council that money and after death your home will be sold, and the charge cleared. This is called a ‘deferred payment’.
Is there an insurance I can take out to cover my social care?
At the time of writing this blog there is no insurance but the Government will be working with the financial services to discuss the possibility of creating insurances that you can take out to cover individuals.
Will the social care cap be backdated to help those already in care?
The cap will NOT be backdated to help those already in care.
What steps can I take now, to help with social care funding later?
Make sure your home is in both your name and your spouses name so that only half the value of the assets can be considered per person.
Make sure your Will is up to date and speak to your Will advisor about placing assets etc in trust for your children.
Consider the possibility of renting out the family home to bring in an income to cover some of the costs rather than selling it immediately. If your home was sitting empty and could bring in a net income after tax of eg £500 per month this would be £6000 per year which would go some way in helping to fund some of the costs. This way if the home still has to be sold after death to cover the remaining costs, at least there will still be some equity left in the home to pass on to your children.