Boris Johnson announces 1.25% national insurance increase
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Speaking to MPs, he said from next April, a new UK-wide “health and social care” levy would be created on earned income, with this standing at 1.25 percent. As well as this, he added divident rates would increase “by the same amount”.
“This will raise almost £36billion over the next three years, with money from the levy going directly to health and social care across the whole of our United Kingdom,” the Prime Minister said.
Earlier today, it was reported that a new tax rise on shareholder profits would be unveiled, to raise billions of pounds.
Cabinet sources had said people with stocks and shares will still be allowed a personal allowance before a new tax hike kicks in, meaning the only profitable market speculators would be affected, according to The Sun.
A source told the publication: “It’s not just NICS coming today but a far broader taxation package that will potentially raise billions.”
Boris Johnson is delivering his social care announcement in the House of Commons today (Image: SKY NEWS / GETTY)
Reportedly, the Prime Minister and Chancellor Rishi Sunak will hope the decision will offset claims that a raid on workers’ wages is unfair.
Today, Mr Johnson confirmed people would need to make the new contributions even if they had reached state pension age.
Steven Cameron, Pensions Director at Aegon commented: “The Government’s plans to increase employer and employee NI by 1.25 percent to pay for the state’s share will no doubt continue to prove controversial, with accusations of younger often lower paid workers paying a disproportionate share of the costs of care for today’s elderly, many of whom seem comparatively wealthy.
“Choosing to collect the extra funding through NI rather than income tax may make sense for the NHS boost but for social care looks more like spin. But using NI as the collection mechanism ensures businesses also contribute.
“Extending the additional care premium to those with earnings above state pension age removes what would otherwise have been a glaring generational inequity.”
He added: “Furthermore, the surprise addition of 1.25 percent to dividend taxes will ensure those with investment income will also contribute even if they have no earned income.”
Commenting on today’s announcement, Will Hale, CEO of the UK’s leading equity release adviser Key said: “There is no simple answer to the social care debate but with 12.5 million over-65s in the UK, we need to tackle this issue sooner rather than later.
“While today’s announcement that we will see a 1.25 percent increase in national insurance contributions is unlikely to be popular, it will be less of a bitter pill to swallow if we see a real improvement in how people can expect to access and receive the care they need via the NHS and in later life.
“The devil will be in the detail and even with these changes, it is important to remember that older people will still need to make a substantial contribution towards paying for their own care.
“We know that choice is important and that three-quarters of over-55s would like to receive care and support in their own homes. Savings, pension income and housing equity all have a role to play in supporting people as they use their own assets and the available state support to meet their needs in later life.”
How dividends are taxed
A person may get a dividend payment if they own shares in a company.
Some dividend income can be earned each year without paying tax, and tax is not paid on any dividend income that falls within the Personal Allowance – meaning the amount of income one can earn each year without paying tax.
Tax year – Dividend allowance
6 April 2021 to 5 April 2022 – £2,000
6 April 2020 to 5 April 2021 – £2,000
6 April 2019 to 5 April 2020 – £2,000
6 April 2018 to 5 April 2019 – £2,000
6 April 2017 to 5 April 2018 – £5,000
6 April 2016 to 5 April 2017 – £5,000
However, for dividents before April 6, 2016, the rules are different.
National Insurance increase: Boris Johnson announced an increase of 1.25 percent (Image: EXPRESS)
How to work out tax on dividends
How much tax paid on dividends above the dividend allowance depends on one’s Income Tax band.
Currently, prior to the levy coming into force, the rules stand at:
Tax band – Tax rate on dividends over the allowance
Basic rate – 7.5 percent
Higher rate – 32.5 percent
Additional rate – 38.1 percent