Last night MPs voted for the NIC increase named the Health and Social Care Levy which is designed to pay for increased NHS budget and the rising Social Care costs of an ageing population. The increase is 1.25% for both employees and employers, and the self-employed. This starts from April 2022 as an increase in NIC rates.
Then from April 2023, NIC will return to its current rate, and the extra tax will be collected as a new Health and Social Care Levy. This levy - unlike National Insurance - will also be paid by those over the state retirement age who are still working.
To capture those who have investment incomes the dividend rate tax is to be increased by the same 1.25%. From April 2022 the following dividend tax rates will apply:
What does this mean for the tax landscape over the next few years?
We have all been anticipating increases in tax rates to pay for the costs of the pandemic. We first saw this with the Corporation Tax changes announced in March this year. Some had suggested a wealth tax and various pushes for Capital Gains Tax to be raised back up to income tax rates.
In my view, this new NIC levy takes away the likelihood of more serious tax rises on income tax, Capital Gains Tax or even the wealth tax. Pushing this levy through early frees up the Chancellor to maintain the main tax rates at current levels going into the next budget and so retain the loyalty of the Tory MPs. Some good pre-election maneuvering.
What tax changes can we expect over the next few years?
I would now expect the chancellor will be persuaded by HMRC to continue the clampdown on tax avoidance and closing various loopholes which are exploited by the rich asset owners. There also could be a drive to implement proposals made in policy documents to increase the inheritance tax take by limiting some reliefs such as the seven-year potentially exempt transfer rule, maybe by reducing this to a five-year rule and tinkering with business asset relief's generally to try and increase the tax take without headline tax rate changes.
It will be interesting to see how this new NIC levy settles in over the next six months and what, if anything, the Chancellor announces in the Autumn Budget review on October 27th.
In the meantime, my enduring advice to clients is to continue with good tax planning for Inheritance Tax and Capital Gains Tax and ensuring the reliefs and allowances are fully utilised whilst they are still available.
If you would like assistance with personal or business tax planning please contact us.