I am 72 years old, a non-worker and do not pay any national insurance. I live only on state pension.
After the first year of the increased NI contribution, which I believe 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 Hike: Will I Have to Pay the New National Insurance Levy for Social Care? (stock image)
Steve Webb replies: The prime minister recently announced a major tax increase to generate additional money for the NHS and social care.
But setting up a new tax takes some time and it probably won’t be possible until the start of the new fiscal year in April 2022.
So, instead, the tax hike will happen in two phases.
For 2022/23, the government will raise an existing tax – the national insurance contribution – and keep the money for health and social care.
The rate of NI to be paid by employees, employers and self-employed will increase by 1.25 percent. But all the current rules around NI contributions will remain the same.
Steve Webb: How to Ask Former Pensions Minister Questions About Your Retirement Savings Check Out the Box Below
No NI will have to be given especially to the employees above the age of pension.
For 2022/23, the government also plans to increase the rate of income tax on dividends to 1.25 percent with effect from April 2022.
It decided to do so because the NI increase (and the new levy) does not apply to dividends and has been criticized for funding health and social care ‘mildly’ for those whose income comes primarily from dividends. was being abandoned. .
While dividend income in an ISA will not be taxed, and those with dividends less than the dividend allowance will pay no additional tax, the main dividend tax rates will increase.
From April 2022, basic rate taxpayers will pay 8.75 per cent (instead of 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 new tax – a ‘health and social care levy’.
The core rate of this levy will also be 1.25 per cent, but unlike NI, it will also be applicable to employees over the age of pension.
Such employees are already levied income tax on their salary but now they will have to pay this additional 1.25 per cent levy.
With NI contributions, the rate will only be charged on income above the ‘primary limit’ which is currently £184 per week (though possibly slightly higher by 2023/24).
Now turning to your personal situation, although you are over pension age and potentially caught by the new levy, you say you are a non-worker.
Since the new levy only applies to earnings (and gains from self-employment), you shouldn’t be affected.
You may also be paying an increased income tax rate on dividends if you have significant dividend income, but that doesn’t seem to be the case for you.
Lastly, I should mention that if state pension is the only income you are coming in then you can consider claiming pension credit.
The prime rate for the pension credit this year is £177.10 per week, so if your total income is below that level you may want to consider claiming it. You can do this by calling 0800 99 1234.
Ask Steve Webb Pension Questions
Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.
He’s ready to answer your questions, whether you’re still saving, in the process of stopping work, or messing with your finances in retirement.
Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner in the actuary and consulting firm Lane Clark & Peacock.
If you have any questions to ask Steve about his pension, please email him at [email protected]
Steve will do his best to respond to your message in an upcoming column, but he won’t be able to reply to all or communicate privately with readers. Nothing in their answers is regulated financial advice. Published questions are sometimes edited for brevity or other reasons.
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If Steve is unable to answer your question, you can also contact the Pension Advisory Service, a government-backed organization that provides free help to the public. TPAs can be found Here And its number is 0800 011 3797.
SteveReceives a number of questions about E State Pension Forecast and COPE – Contracted Out Pension Equivalent. If you’re writing to Steve on this topic, he answers a specific reader question. Here. This includes several of Steve’s earlier columns about the state pension forecast and contract, which may be helpful.