What is the new Health and Social Care Levy?

Category: News&Tax

To begin with, it is worth a quick reminder of the current social care position in England:

(Wales, N. Ireland and, in particular Scotland, have their own variations on the theme):

  • There is a £23,250 capital means test ceiling, above which all care costs must be met by the individual: the self-funding route.
  • For those with wealth between £14,250 and £23,250, there is a contribution from income based on an income means test.
  • In addition, there is a ‘tariff income’ contribution based on capital between £14,250 and £23,250 levied at the rate of £1 per week per £250 of capital (or part thereof) above £14,250 (equivalent to 20.8%).
  • Only if capital wealth is below £14,250 does the income means-tested element alone apply.
  • The value of an individual’s home is generally included in the capital means-test unless it continues to be occupied by a dependent, partner or relative aged at least 60.
  • NHS-funded Nursing Care (FNC) is paid directly to the care/nursing home to cover the cost of registered nursing care at a rate of £187.60 a week.
  • No means test applies to this.
  • Only in very limited circumstances will all costs be met under the NHS Continuing Healthcare (CHC) provisions.

What will change for anyone going into care?

The proposed changes announced by the Prime Minister on Tuesday are that for those entering care from October 2023:

The full fees capital means-tested limit will rise to £100,000.
‘Tariff income’ will be levied if capital exceeds £20,000.
  • The government says that the tariff will be ‘no more than 20%’, which suggests little if any change from the current £1/£250 basis.
Only income means-tested payments will apply for those with capital below £20,000.
There will be an overall cap on the amount any individual has to pay for care of £86,000.
  • The figure only covers personal care costs, not residential (aka ‘hotel’ costs).
  • The Care Act 2014, which is the framework to be used to introduce the reforms announced today, fixed the personal care cost calculation using the costs that would be assessed and paid by a local authority, not the (usually much higher) self-funding costs levied by homes (section 15).
  • The government’s main document on its changes says that it will use legislation in the Act to ‘ensure that self-funders are able to ask their Local Authority to arrange their care for them so that they can find better value care’.
  • Precisely what effect that will have in practice is unclear.

How will the Government fund this?

In 2022/23 there will be a new 1.25% ‘Health and Social Care Levy’(HSCL), levied as an increase on Class 1 (employer and employee) and Class 4 main and higher rates of National Insurance Contributions (NICs).

In 2023/24, NIC rates will revert to their current levels and the new levy will become a separate 1.25% charge which will also be paid on the earnings of employees and the self-employed over State Pension Age (currently 66).

Employers already pay Class 1 NICs regardless of employee age. The year’s delay is needed to update systems.

In addition, from 2022/23, dividend tax rates will rise by 1.25%.

NICS – Before and After

Tax Year

Employee Main/Higher Employer Self-employed Main/Higher

2021/22: NICs

12%/2% 13.8% 9%/2%

2022/23: NICs

13.25%/3.25%   15.05% 10.25%/3.25%

2023/24: NICs

12%/2% 13.8%


2023/24: HSCL 1.25% 1.25%


Main Threshold (21/22) £9,568 £8,840


Higher Threshold (21/22) £50,270 N/A


Dividend Tax – Before and After

Tax Year

Basic Rate Higher Rate Additional Rate


7.5% 32.5%


2022/23 onwards   8.75%   33.75%


Scotland, Wales, and Northern Ireland have their own care funding systems, but as NICs are not a devolved tax, their residents will have to pay the HSCL. It will be returned to the devolved nations via the usual allocation formulae.

This is a major reform, albeit based on legislation that has been on the statute book for seven years. This is a reminder that our plans need to be able to adapt to the changes going on around and regular reviews are essential.

If you want to find out more, feel free to book a free no-obligation chat here.

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