I’m 72 and don’t work, so will I have to pay the new National Insurance levy for social care? Steve Webb replies
I’m 72 years of age, a non worker and pay no National Insurance. I live only on the state pension.
After the first year of increased NI contributions which I presume I will not have to pay, will I be liable to pay the new care tax that will be introduced?
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Tax rise: Will I have to pay the new National Insurance levy for social care? (Stock image)
Steve Webb replies: The Prime Minister recently announced a big tax increase to generate extra money for the NHS and social care.
But it takes some time to set up a brand new tax and this probably wouldn’t be possible in time for the start of the new financial year in April 2022.
So, instead, the tax increases will happen in two stages.
For 2022/23, the Government will increase an existing tax – National Insurance Contributions – and put the money towards health and social care.
The rate of NI paid by employees, employers and the self-employed will rise by 1.25 per cent. But all the current rules around NI contributions will stay the same.
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In particular, employees over pension age will not have to pay any NI.
For 2022/23, the government also plans to increase the income tax rate on dividends by 1.25 per cent from April 2022.
It has decided to do this because the NI rise (and the new levy) do not apply to dividends and there had been criticism that those whose income comes mainly from dividends were being ‘let off lightly’ when it came to funding health and social care.
Whilst dividend income in an Isa will remain untaxed, and those with dividends below the dividend allowance will pay no extra tax, the main dividend tax rates will rise.
From April 2022, basic rate taxpayers will pay 8.75 per cent (rather than the current 7.5 per cent), higher rate taxpayers will pay 33.75 per cent and additional rate taxpayers will pay 39.35 per cent.
From 2023/24, the increase in NI on earnings and profits will be replaced by a brand new tax – a ‘health and social care levy’.
The main rate of this levy will also be 1.25 per cent but, unlike NI, it will also apply to employees over pension age.
Such employees are already charged income tax on their wages but now they will have to pay this additional 1.25 per cent levy.
As with NI contributions, the rate will only be charged on earnings above the ‘primary threshold’ which is currently £184 per week (though presumably will be slightly higher by 2023/24).
Turning now to your individual situation, although you are over pension age and potentially caught by the new levy, you say that you are a non-worker.
As the new levy only applies to earnings (and profits from self-employment) then you should not be affected.
If you happened to have significant dividend income then you would also be paying the increased income tax rate on dividends, but that doesn’t seem to be the case for you.
Finally, I should mention that if the state pension is the only income you have coming in then you may wish to consider claiming pension credit.
The main rate of pension credit this year is £177.10 per week, so if your total income is below that level you may want to consider making a claim. You can do this by calling 0800 99 1234.
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