From April 2022 the government will introduce a new 1.25% levy on both earned income and on employers' wage bills to raise funds for the NHS and adult social care.
In order to bring the money in as quickly as possible, for the first year the levy will be applied through a temporary hike in National Insurance contributions of 1.25%, and then, from April 2023 it will become a separate item and appear on payslips as a new health and social care levy.
Currently National Insurance is not paid by people who are over State Pension Age but still working, however, from 2023 it will be paid by working adults including those over their State Pension Age. In 2023 the separate levy will also apply to those who are still in work over the State Pension Age.
The Levy is being introduced to alleviate the costs associated with adult social care and to offset the increase in spending incurred by the NHS resulting from the Covid-19 crisis.
Presently individuals need to fund social care themselves if they have £14,000 in savings or assets (including housing wealth). From October 2023 this will rise to £20,000.
The amount an individual spends on their care is to be capped at £86,000 and any costs above this will be met by local councils.
In addition anyone with assets between £20,000 and £100,000 will be eligible for some means-tested support.
The cap however only applies to the cost of care and not to other costs, such as food and accommodation.
From April 2022 the government will also increase the rate of tax paid by individuals who receive income from dividends paid through shares by 1.25%. However, shares held in Individual Savings Accounts (ISAs) are not subject to the dividend tax.