What the Healthcare Tax Hike Means for Landlords
Most landlords have escaped the national insurance healthcare and social levy hike – but corporate landlords could face a higher tax bill. Landlords do not pay national insurance contributions (NICS) on rents as letting property is considered an investment rather than a business.
But workers on the payroll, the self-employed, investors and landlords will pay £13.8 billion extra in tax over three years to help fund Prime Minister Boris Johnson's 1.25 per cent healthcare and social levy.
The sting in the tail for landlords is anyone drawing more than £2,000 a year in dividends as a company director or shareholder will pay more tax as well.
Landlords paying Class 2 or Class 3 NI are not affected by the levy.
The Treasury reckons 40 per cent of company directors and shareholders will pay extra tax from next April. The levy is not an either/or hike for working landlords who invest to boost income. They will pay 1.25 per cent extra NICS through their day-job payroll and the dividend tax if they operate their property business as a limited company.
Health care tax hike impact on dividends
First, the healthcare and social levy change the tax rate on dividends for everyone by adding 1.25 per cent to the current rates:
|Tax band||Current dividend tax rate||New dividend tax rate|
|Source: AJ Bell|
Then, the rate is applied to the amount of dividends drawn in the tax year:
|Tax band||Tax paid on £5,000 dividend at the current rate||Tax paid on £5,000 dividend at the new rate||Extra tax|
|Tax paid on £10,000 dividend at the current rate||Tax paid on £10,000 dividend at the new rate|
|Tax paid on £20,000 dividend at the current rate||Tax paid on £20,000 dividend at the new rate|
Source: AJ Bell
What is the healthcare and social levy?
The healthcare and social levy is a temporary, two-year tax grab to raise cash for modernising the National Health Service and other social care bodies.
The levy will start in April 2022 and be replaced by a new levy in April 2023 to raise cash for the NHS and care for the elderly. The government wants to raise £12 billion a year from the levy by April 2023.
"The plan for health and social care will lead to a permanent increase in spending. It would be irresponsible to meet these costs through higher borrowing, particularly in record borrowing and debt, to fund the economic response to COVID-19. The government has therefore decided to increase taxation," said a Treasury spokesman.
The policy aims to cap the amount of money anyone pays for care in retirement to £86,000 – which equates to the average cost of spending three years in a care home.
How the healthcare and social levy works
Currently, anyone with assets of more than £23,250 has to pay for social care without any cap on costs. This has seen many families struggling financially to pay care costs without selling the family home.
The new program means anyone with assets of less than £20,000 will see their lifetime care costs covered by the state. Those with assets of more than £20,000 but less than £100,000 will pay their care costs on a sliding scale. Although the details are awaited, the government has suggested people in this bracket will not pay more than 20% of the value of their assets each year. Once their assets have dwindled to less than £20,000, they stop paying for care.
If you have assets of more than £100,000, you must meet all fees until your net worth tumbles below £100,000 and you fall within one of the two above categories.
Tax landlords instead of workers says, Starmer
Labour leader Sir Kier Starmer is determined to oppose the levy but has produced little to show a working plan. At a conference, Starmer told local council bosses that workers will pay more and probably still need to sell their homes to pay for care in retirement.
"This is an unfair plan that doesn't work. And who is left with the bill? It's working people. It's especially low earners and young people who have already borne the brunt of the economic impact of the pandemic," he was to say. Starmer added that
"the money could have been raised by taxing the incomes of landlords, and those who buy and sell large quantities of financial assets, stocks shares". Criticising the Prime Minister, he went on to say:
"a private landlord renting out multiple properties is left not paying a penny more in tax, and their hard-working tenants must pick up the burden".
The health and social care levy was backed in Parliament by MPs last week and is due to return to Westminster later this month for another vote.
Subscribers get full access to exclusive content, including forms, articles and discounts, plus our time saving Tenancy Builder tool.
Signup for our free weekly digest and get the latest news and guidance straight to your inbox (some content requires a paid subscription).
View Related Handbook Page
A well-rounded resource for residential property investors navigating the complexities of income tax, capital gains tax, and inheritance tax. Make informed decisions with this detailed guide