Social care plans for England: not all they seem

By March 8, 2022LinkedIn
Female caregiver with elderly male client

The long-awaited details of funding new social care plans for England have been released – with associated UK-wide tax rises.

The funding of social care has been a subject with which governments of every hue have struggled. A Royal Commission on Long Term Care reported back in 1999 and since then there have been many other reports, papers and reviews. In the interim social care has become a devolved responsibility, with each constituent part of the UK running its own slightly different scheme.

In 2014, legislation was passed establishing a framework for care in England but, after an election, the government decided it would not be implemented. Seven years later, in September 2021, that abandoned structure now forms the basis for the new English social care regime recently announced by the Prime Minister. Further details emerged in mid-November, clarifying the original statement.

The scheme’s key features are:

  • Start date The new regime will only apply in England from October 2023. Any care costs incurred before then are ignored.
  • Fee cap A cap of £86,000 (index-linked) on the total care costs you must pay from your own resources will be introduced. This will cover only your personal care costs, not the so-called ‘hotel costs’ of care, which are set at a flat £200 a week. One government example demonstrating the cap’s operation suggested it would be triggered after 40 months in care – longer than the average stay in a care home.
  • Capital limits The upper capital limit above which you must meet all your care costs (until the fee cap is reached) will rise from the current £23,250 to £100,000. However, the corresponding lower capital limit, below which you are not required to use savings or the value of your home to meet care costs, sees a much smaller uplift, from £14,250 to £20,000.
  • Income tariff If you have capital between £20,000 and £100,000 you will be required to make an ‘income tariff’ contribution from that capital, which will be £1 a week for each £250 of capital over £20,000. For example, if you have capital of £80,000, you could have to contribute £12,000 in the first year (20% of [£80,000 – £20,000]).

Although the changes are a couple of years away and apply in England only, the tax rises will begin from next tax year and operate throughout the UK.

  • All the main and higher rates of National Insurance Contributions (NICs) for employers, employees and the self-employed will rise by 1.25 percentage points.
  • In 2023/24 the NIC increases will be replaced by a new Health and Social Care Levy at a 1.25% rate. This will also be payable by the employed and the self-employed above state pension age; currently they do not pay NICs.
  • From 2022/23 the tax rates on dividends will also increase by 1.25 percentage points, making the highest rate of dividend tax 39.35%.

Despite the large tax rises, the changes to the social care regime could still leave you having to meet all your social care costs, something that you should consider building into your retirement planning.

If you are interested in discussing the above with one of our experienced financial planners, please get in touch here.

The value of tax reliefs depends on your individual circumstances. The Financial Conduct Authority does not regulate tax advice and tax laws can change.