As the government announces plans to break its manifesto pledge by raising taxes to fund improvements to social care, we outline how you can take back control.
The government’s decision to raise national insurance to pay for a major social care overhaul will add hundreds of pounds a year to tax bills for British workers.
It’s a controversial move as it breaches the Tory’s 2019 manifesto to not raise income tax, VAT or national insurance. It’s also seen as dishonest by some as the rise will disproportionately hit younger and lower paid workers.
Former prime minister John Major has described the rise as 'regressive', while previous chancellor Philip Hammond declared the idea of asking young workers to 'subsidise older people who've accumulated wealth during their lifetime and have a property... has got to be wrong'.
Workers earning between £9,564 and £50,268 a year pay 12% in national insurance - and 14% on anything above. The self-employed pay lower rates.
The 1.25% rise - which will kick in from April 2022 - means someone earning £30,000 will pay an extra £255 a year in tax. For people earning £50,000 a year, their current contribution will increase by £505, while those earning £75,000 a year will pay an extra £818.
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From April 2023 national insurance will revert to its current rate and the 1.25% will appear as a standalone social care levy on people's payslips. There is also a new 1.25% dividend tax rise on the table.
From October 2023 nobody will ever pay more than £86,000 for social care costs, the government has claimed.
Anyone with assets between £20,000 and £100,000 will receive means-tested help from the state - currently if you have assets of more than £23,250 you are not eligible for any state support. The aim is to end a system which forces thousands to sell their homes to pay for care each year.
The cost of getting old
Care costs have soared in recent years. The average care home stay lasts two and a half years and costs £86,710 for residential care, according to data provider Laing Buisson.
If you are concerned about care costs, and are over 55 and own your home, you could consider equity release to pay for them.
Equity release lets you access the cash tied up in your home tax free. This option allows you to withdraw a loan gradually and only incur interest on the money you receive.
Alternatively, if you have some time on your side you could start saving with a stocks and shares individual savings account (ISA). As with any big financial goal, the earlier you start to save, the easier it is. A longer time frame allows you to take some investment risk too, because your investments will have the chance to ride out any stock market volatility.
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Based on a conservative estimated investment return of 4.5% a year, to achieve a pot of £85,000 in 30 years you need to save £130 a month. If you have 20 years to save you need to set aside £240 a month.
However, if you only have 10 years before care costs become a possibility, you need to save a heftier £586 a month.
Remember, the annual allowance lets you invest £20,000 tax-free in an ISA and no income tax or capital gains tax is payable on the investment returns.
There is also the option of a self-invested person pension (SIPP), which allows you to save up to £40,000 per year in a tax-free wrapper.
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