Mind the gap in the social care cap

Last week the government announced reforms to social care, increasing National Insurance and Dividend Tax. National Insurance increases will be applied across the United Kingdom, but it’s not yet been confirmed whether the new social care cap is to be adopted in Wales, Scotland, and Northern Ireland. The information below applies only to people living in England at present.


New cap on care costs

The government has announced a new cap on the amount of care costs people will pay in their lifetime, should they require care in England. This cap is set at £86,000 and will start from October 2023.

Anyone entering care from this date onwards will be subject to the cap and anyone in care before this will not be.

Whilst imposing a cap is good news on the face of it, the devil is in the detail – as is often the case with these types of announcements. There are three levels to the amount a person needs to contribute to their care, depending on the number of assets (including their home) that they own:


Those with total assets worth over £100,000

Full fees must be paid. If contributing towards care costs causes the value of a person’s remaining assets to fall below £100,000, they are likely to be eligible for some financial support.


Those with total assets between £20,000 and £100,000

Their local authority is likely to fund some of their care. People in this bracket will be expected to contribute towards the cost of their care from their income. However, if that is not sufficient, they will contribute no more than 20% of their chargeable assets per year. If contributing towards care costs causes the value of a person’s remaining assets to fall below £20,000, they would then continue to pay a contribution from their income but nothing further from their assets.


Those with total assets less than £20,000

They will not have to pay anything for their care from their assets.


What does it cover?

The maximum that a person will have to pay over their lifetime towards personal care costs will be £86,000 because of the new cap. Once the £86,000 cap is reached, local authorities will pay for all additional eligible personal care costs. No-one will need to contribute from their income towards these care costs. People may choose to “top up” their care costs by paying the difference towards a more expensive service, but this will not count towards the cap.

However, people may still need to contribute towards their care costs from their income.

Here’s that devilish detail: the cap only covers the cost of health care and does not account for “daily living costs”. This means food, accommodation, and energy bills. Care homes don’t usually itemise these costs, so it is hard to know how much this could be on top. Think about how much you spend on these things and it’s clear to see how the headline cap amount isn’t quite so generous as it first seems.


How will this be funded? 

To help pay for this cap and to help the NHS clear backlogs created by the Pandemic, the Prime Minister has announced two tax increases from April 2022:

  • Additional National Insurance (NI) contributions of 1.25% on all employees and employers
  • Additional 1.25% tax on dividends from investments drawing from businesses

NI is paid by those during their working life and stops when they reach State Pension age. However, from 2023 this additional contribution will continue to be paid by those who stay in work after their State Pension age.

From April 2023, this extra payment will become a separate tax on earned income – the Health and Social Care Levy.

If you would like to read further information, this BBC news article provides a good summary.

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