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Prime Minister Boris Johnson Cabinet Meeting
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PM hikes national insurance to pay for health and social care

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The Prime Minister announced a 1.25% increase in national insurance from April 2022 to stem the post-Covid health and social care crisis. In doing so, he broke a manifesto promise not to raise core taxes.

7th Sep 2021
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Speaking in the House of Commons this afternoon, Boris Johnson announced a new 1.25% health and social care levy on earned income, with dividend rates increasing by the same amount. 

Johnson said the levy would fix the long term problems of health and social care that have been “cruelly exposed by Covid”. However, the announcement breaks the government’s manifesto pledge to freeze the rates of NIC, VAT and income tax.

The hike in national insurance comes into effect next April and Johnson expected the hypothecated levy to raise almost £36bn for health and social care over the next three years. 

The 1.25% health and social care levy will be a separate tax to income tax and national insurance. 

The levy means that people starting care from October 2023 would not pay more than £86,000 over their lifetime (not including accommodation) and those with assets of less than £20,000 will not make any contribution. In what is going to create further headaches for advisers, the amount of help given to anyone with assets between £20,000 and £100,000 will be means tested.

How the levy will be funded

The levy will be shared between individuals and businesses, but Johnson reasoned that “everyone will contribute according to their means, including those above state pension age”.  

He continued: “Those who earn more, will pay more. Because we’re increasing the dividends tax rate we will be asking better off business owners and investors to make a fair contribution too.” 

The PM confirmed that the highest earning 14% will pay around half the revenues and no one earning less than £9,568 will pay. He claimed that 40% of all businesses will pay nothing at all.

The NIC increase is on both employers and employees, so as Richard Murphy pointed out on Twitter, “The real increase is 2.5% and employers will recover their share by reducing pay increases just as the lowest paid are going to see big increases in the cost of living.”

Why not income tax?

Before Johnson’s announcement the opposition and some within the PM’s own party had argued against the measure, asking why the government decided against increasing income tax or capital gains tax instead. The prime minister defended opting for the national insurance option. 

“Income tax isn’t paid by businesses so the whole burden would fall on individuals, roughly doubling the amount that the basic taxpayer could come to expect and the total revenue from CGT amounts to less than £9bn this year.”   

Responding to a question from Labour shadow chancellor Rachel Reeves about imposing a tax on jobs, Rishi Sunak said no NICs were payable by those employing people under the age of 21, nor apprentices up to the age of 25, “nor on people who are going to be employed in new freeports”.

Faced with the unexpected sight of NI making national headlines, AccountingWEB reader Adam Murphy asked on Any Answers whether the government will address directors NI for small companies.

Rather than simplifying the tax system, critics have branded this afternoon’s announcement as increasing its complications. “Creating an entirely new tax to fund health and social care. A massive and unnecessary increase in complexity. Achieving nothing that could not have been done within existing income tax and NI systems,” said Institute of Fiscal Studies director Paul Johnson

‘Short-sighted attack’ 

It is also expected to be another blow to sole directors. Rebecca Seeley Harris said the 1.25% tax increase on share dividends as well as NICs at 1.25% was “particularly unfair on the very same directors who were denied help during the pandemic, who are being targeted to pay for the recovery”.

Seb Maley, the CEO of Qdos, called it a “short sighted attack” on the self-employed. 

“Raising NICs and dividend tax is a move that directly impacts millions of people working for themselves - people who have arguably been hit the hardest by the pandemic. Once again, it seems that the smallest businesses are bearing the brunt of tax reform. Yet still, it will be the flexibility, dynamism and skills of the independent workforce that the government needs most to speed up the economic recovery. 

“The national insurance tax hike will hit employers too, pushing up the costs of hiring workers on the payroll. It goes without saying that this could stifle employment growth.”

Raising more concerns Praveen Gupta, national head of tax at Azets, questioned the impact the increase will have on younger people “at a time when the unemployment rate among under-25s is already rising”, and small businesses as they rebuild from the pandemic.

“For SMEs, there is now even more of a need to focus on NI strategies, such as salary sacrifice measures that could provide businesses and individuals with tax savings,” he said. 

Further pressure on payroll

The government’s national insurance increase ironically comes during national payroll week and after 18 months of furlough claims, today’s announcement will put further strain on payroll professionals.  

“Whilst technology will allow payroll teams to implement this change efficiently, it is inevitable that this announcement will put pressure on payroll professionals who will be relied upon by employees, clients and businesses to understand the cost impact of these new measures,” said Samantha Johnson, policy lead at the CIPP. 

“This a timely example on national payroll week of how important the payroll industry is to support the UK economy in delivering these new measures, whilst helping to guide individuals and businesses to understand what it means to them."

Replies (77)

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By Paul Crowley
07th Sep 2021 16:48

So just a new tax on workers and employers
Nothing on the rich and famous

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Replying to Paul Crowley:
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By paulwakefield1
07th Sep 2021 17:52

Tax the rich but why should being famous attract a tax charge?

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By Charlie Carne
07th Sep 2021 18:50

I initially had no problem with today's announcement of a 1.25% increase in NI and dividend tax, but then I discovered that, from April 2023, this will be levied as a discrete tax (oops, sorry, my bad: it's a LEVY, not a tax; silly me!), potentially eligible for its own thresholds that may start by mirroring those for NI, but which a future chancellor could easily alter so that it has its own, third set of thresholds (IT, NI and new levy, each with a potentially unique set of thresholds!). Additionally, many small businesses pay no employer's NI as this is often covered by the annual £4,000 employment allowance. But have the Treasury announced whether the employers' contribution to this levy will qualify for employment allowance offset (apparently it will for 2022/23 as it’s just an increase to NI, but what about from 2023/24 when it is separated from NI)? Why can successive governments not resist complicating everything, just for a short-term political game of pretending that it’s neither tax, nor NI, but some sort of hypothecated 'levy' instead! Why does the OTS not take a stand on all of this nonsense?

Oh and, by the way, the idea of partially hypothecating a tax is nonsense. If it is fully hypothecated (like the BBC licence fee), then this has some merit. But the annual NHS budget is now around £200 billion, while this levy will only raise approx £12 bn (around 6% of the total budget). If the Health Secretary asks the Chancellor for an increase in his budget to £x bn, the Chancellor will simply respond that the NHS gets £12 bn from the levy, so it only needs an additional £x-12 bn from the general tax pot. So, in realty, partial hypothecation offers no real protection to the overall budget.

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Replying to charliecarne:
By coops456
08th Sep 2021 09:56

My thought precisely - so much for tax simplification! Typical political obfuscation.

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Replying to charliecarne:
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By neiltonks
08th Sep 2021 10:22

The government document that goes with the announcement says "the Employment Allowance, which discounts the smallest businesses’ employer NICs bills by up to £4,000, will also apply to the Levy"

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Replying to charliecarne:
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By SKAL
09th Sep 2021 16:58

"NHS budget is now around £200 billion" for a population of circa 66m - staggering ratio

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By memyself-eye
07th Sep 2021 19:00

National payroll week?

How sad is that.

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Replying to memyself-eye:
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By LW64
08th Sep 2021 12:08

Assume you aren't a payroll expert then.
Look up the CIPP, you might even learn something.

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Replying to LW64:
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By memyself-eye
08th Sep 2021 17:05

Wrong assumption - I 'assume' you relish the subject.

How sad.

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Replying to memyself-eye:
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By LW64
09th Sep 2021 08:38

Wow, good morning to you too.
Actually I run a large payroll accurately under the many hundreds of ever changing pieces of legislation and am MCIPPdip.
Not sad at all.
An under-rated fundamental skill.
Try having staff paid incorrectly and see how long they stay in any business.

I hope for your sake that you work with cardboard boxes rather than people.

Have a great day :)

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Replying to LW64:
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By Hugo Fair
09th Sep 2021 12:07

I think it's the National .. Week part that's sad (to me anyway) - not the Payroll part.
I'm supposed to be an 'expert' in all aspects of Payroll, but don't require validation from others (or indeed a sense of self-worth) via some faux celebration.
Nevertheless I'd be interested in working with cardboard boxes (whose behaviour is consistent and predictable) if you have a payroll for me to run where they are the employees?

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By AdamMurphy
08th Sep 2021 07:28

I’d expect social care to receive vety little of this. Whatever you give the NHS gets gobbled up. I did weekend work at a vaccine centre for six months and saw terrible waste. If that was replicated elsewhere it would be eye watering

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Caroline
By accountantccole
08th Sep 2021 09:22

Office of tax simplification taken the week off then?

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By lesley.barnes
08th Sep 2021 09:28

"The levy means that people starting care from October 2023 would not pay more than £86,000 over their lifetime (not including accommodation)"

The devil will be in the detail - £86k over their lifetime for living in a care home wouldn't go very far. it would probably last two and a bit years in the North and at lot less in the South. If Boris is saying the £86k is for the care package only and accomodation is still billed then it isn't much different than happens now. The only difference would be that the cost of the carers would be included in the £86k.

My mum spent the last 8 years of her life in a care home. The NHS provided nursing care from District Nurses or the NHS paid the home if they had in house nursing care. Anything that you could get from the NHS outside of the home was provided in the Home. The money that mum paid covered her accommodation, food and the carers. Anything above that such as Clothes, toiletaries, chiropody. hairdressing, spending money etc had to be provided by us.

It sounds like the care home owners could charge what they like for the accomodation part. Maybe it isn't such a good deal after all.

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Replying to lesley.barnes:
ghm
By TaxTeddy
08th Sep 2021 10:16

Apparently the £86k cap only relates to medical care - it doesn't cover accomodation fees.

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Replying to lesley.barnes:
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By bobsto12
08th Sep 2021 10:38

My mother is in a home with an amount of nursing care and my perception is most of the cost is accomodation so these changes won't make much difference. She does have to pay for the nursing care at present,you have to apply to have the state pay if you are a private funder and only the most extreme cases get it (a terminally ill quadraplegic perhaps).

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Replying to bobsto12:
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By lesley.barnes
08th Sep 2021 11:11

This is true, to get the NHS to pay for nursing care you have to go through the continuing healthcare system. It is so difficult to get the funding, the NHS don't want to fund it and do everything they can to avoid it. The payment to the home is about £65 a week and it is reviewed on a regular basis. Mum got her £65 a week two week before she died.

Thinking about this mum's care plan required her to have one qualified carer to help with personal hygiene, medication and general monitoring. She spent most of her waking time in the residents lounge. The rest of the costs were associated with accomodation, meals, cleaning staff, reception staff, kitchen staff, entertainment and housekeeping such as laundry.

I think the extra money that is generated will disappear into funding the shortfalls in the NHS caused by Covid and be distributed from there.

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By matthew pennifold
08th Sep 2021 09:42

Nothing on class 4 ?

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Replying to matthew pennifold:
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By Open all hours
08th Sep 2021 10:20

Yet

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Replying to matthew pennifold:
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By colinhigginson
08th Sep 2021 10:33

matthew pennifold wrote:

Nothing on class 4 ?


According to the official document it will apply to the self employed also.
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Replying to colinhigginson:
By Silver Birch Accts
08th Sep 2021 13:58

and working pensioners......

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By Michael C Feltham
08th Sep 2021 09:53

Balancing income against expenditure is fundamentally the same whether it's a family, a company or a nation state.
However, with Governments they are addicted to profligacy and wasting other people's hard won income.

What the Government ought to be doing is to generate a long term plan and, after the blather from all Me Dave, et al, about austerity and we are all in this together, Government simply continued to spend vast amounts whilst the taxpayer struggled.

Before taxing pensioners (particularly those still working simply because they cannot afford to live, decently), a raft of measures need primary attention. Such as Foreign Aid, Social Security payments to the idle and shiftless shirkers, vast sums of cost spent on illegal migrants, instead of blocking them from arriving in the first place and so on.

The NHS has been a political football since Thatcher: who also, let's remember was the politicians who closed local authority care homes and opened up the activity to her beloved markets. And many scamsters piled in. For example, what did Duncan Bannatyne know about the provision of health care etc for the elderly? Nada.

In any case, one could only have any confidence in this ploy, if the money raised were to be ring fenced; rather than dropped into the central government budget so it can be wasted; again.

For example, how much of the vast annual sum raised by Government on road usage (Fuel Duty plus VAT), RFL etc, is actually spent on road building and maintenance? Not much...

Personally, I have zero confidence in The Bozo and his cabal of idiots and self-enrichment experts; the scams pulled over Personal Protection Equipment are the tip of the iceberg. Then we have the Capita lot, taking billions for their track and trace junk which didn't work and so on...

The OBR and etc have been awfully quiet over this! I wonder why?

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Replying to Michael C Feltham:
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By 0098087
08th Sep 2021 10:38

Without doubt we have the most incompetent government since Eden

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Replying to 0098087:
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By Michael C Feltham
08th Sep 2021 12:12

Couldn't agree more!

In fact, I was reading, a week or so ago, a book, which covered the awful period in the 1930s, where idiot politicians utterly refused to accept Hitler was re-arming and ready for war.

IMHO, the sate of Britain, today, is worryingly similar. We face a war; over currency and resources.

Bozo and his cabal of fools haven't a wee clue over stable fiscal policy. Where it will go horribly awry, is when global rates for Sovereign Risk borrowing rise significantly: and the UK will be mainly paying interest and not be able to afford to pay down capital on the national debt.

I also believe, as post WWII, we need a re-introduction of Super Tax, short term, on all those (I will not say earning 'cos a majority of them are not earning their cash; they are taking the P! The likes of the Linekers, footballers and etc) with obscene annual pay packets.

Bozo, of course, is only interested in pleasing the voters in his vain hope of re-election. Such hope lies between Stanford Lee Hope, The Cape of Good Hope and Bob Hope!

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Replying to Michael C Feltham:
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By GDavidson
08th Sep 2021 17:10

What I don't understand is what happened to the £350 million a week that we save from leaving Europe. Hopefully that will now be spent on fixing pot holes in roads, sinking migrants' boats in the channel and gassing badgers.

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By Mr J Andrews
08th Sep 2021 10:01

A Landlord with 10 four bedroom properties let out to nurses , minimum wage earners and first job ex students with crippling loans can see the fairness, wisdom and relief of Johnson's tax hike [ aka social care levy ] and praise the P.M. for his wisdom.
The 40 tenants will accept this tax hike without thinking why did Johnson not increase the tax rate on property income . { Anybody remember the days of Investment Income Surcharge ? }
All very Conservative stuff. Another ill thought out whim. Load of b######s.

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Replying to Mr J Andrews:
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By Ian McTernan CTA
08th Sep 2021 11:26

Are you sure you are in tax at all?
Clearly no concept of the huge tax rises on landlords over the last few years (Section 24, hello!) and well as all the other costs being heaped upon them, not to mention tenants who have been able to ignore paying, etc.

Minimum wage earners will see very little rise.

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Replying to Ian McTernan CTA:
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By graydjames
08th Sep 2021 18:43

How staggeringly arrogant to assume that someone with a different view about the fairness of taxation should be accused of ignorance.
Look at the thanks - currently 7 to 1. And that in a forum likely to be right-wing biased. Mr J Andrews hits it on the head for me - an FCA and CTA of 44 years experience.

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Replying to Ian McTernan CTA:
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By graydjames
08th Sep 2021 18:43

Sorry posted twice in error.

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Replying to Ian McTernan CTA:
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By Mr J Andrews
09th Sep 2021 09:51

Yes Ian. Twice as long as you I believe. You may recall we spoke some years ago briefly - our mutual support for the British Legion ?

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By Open all hours
08th Sep 2021 10:25

Apart from window dressing and the opportunity for future rate and threshold manipulation why do we need another new tax ?

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Replying to Open all hours:
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By johnjenkins
08th Sep 2021 10:36

Especially as the £36B collected over 3 years will not cover the £40b needed to get rid of the backlog in NHS. So another new tax IS needed so that it can increase in line with what is needed in the health care. Wasn't that what NI was for in the first place all those years ago. So if NI is supposed to cover all our health and retirement needs then surely the rate should be set at what is needed. So, exactly, why do we need a new tax?

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By mkowl
08th Sep 2021 10:29

I can accept that we need to fund the NHS more, the levy whatever you want to call it, is sort of reasonable that those on average earnings will pay around £20 per month more. A lot of people x £20 per month is on balance a reasonable contribution. What the noise should be about is that rental profits are exempt, other savings income is, capital gains is. Apparently it wouldn't raise much in comparision. True but it would be a contribution from the wealthiest in our nation, so why is this exempt. Well the obvious answer is still cronyism of course. The opposition parties should focus on this. What about a 10% levy on residual funds left in drawdown pensions, why isn't the 1.25% applied to annuities and drawdown, especially if the triple lock is only for one year. Again the obvious answer is the demograhic and their voting patterns

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Replying to mkowl:
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By bobsto12
08th Sep 2021 10:41

I'm glad you're not prime minister!

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Replying to bobsto12:
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By mkowl
08th Sep 2021 11:42

bobsto12 wrote:

I'm glad you're not prime minister!

Tbh i would be better and more equitable than the current one - lining the pockets of cronies at our expense. But if you are happy with that

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Replying to mkowl:
By Silver Birch Accts
08th Sep 2021 14:01

do you really believe that the Triple Lock will be restored, no neither do I.

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By Husbandofstinky
08th Sep 2021 10:36

The usual, ridiculous and over complicated slight of hand method in raising taxes.

I do not deny that taxes need to rise but just keep it simple and call it what it is.

Personally I am in favour of removing the triple lock (back to double) and raising income tax rates or VAT, effectively spreading the burden amonst the populous.

Including the grey vote!

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By lh3f9764bg1g
08th Sep 2021 10:34

I wouldn't object to:-
1. NIC's on EARNED income for those over State Retirement age (if they carry on working then how would it not be fair? - after all their income goes up (State Pension) and their NI contributions cease
2. NIC's on Rental Profits (applied in the same way - as if they were business profits) - I really can't see the logic whereby those with what are effectively businesses aren't NIC'd like everybody else.

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Replying to lh3f9764bg1g:
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By AdamMurphy
08th Sep 2021 10:57

Both of those are logical. Hence why not happening.

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Replying to AdamMurphy:
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By lh3f9764bg1g
08th Sep 2021 11:31

I hear what you are saying and I know that logic is not their forte but, but, but they need the money . . . . . these two ways would help a lot and they are relatively non-controversial. How's it not fair to take NIC's from somebody still in a job? And why on earth would it not be fair that people who are effectively running businesses (rental businesses) should pay NIC like everybody else running a business. Who would complain? Not me! I truly wonder whether they actually bounce around some of these ideas when they are discussing the issue and, if they do, what possible reasons do they come up with to instead go down the usual route of punishing the normal 5/8th as usual.

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Replying to lh3f9764bg1g:
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By Ian McTernan CTA
08th Sep 2021 11:29

If they treat rental income as business income then it opens up a whole new area and affects a lot of treatments.
Rental income currently suffers from Section 24, so you'd need to scrap that before bringing in your NIC on rental income.

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Replying to Ian McTernan CTA:
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By lh3f9764bg1g
08th Sep 2021 11:42

I don't know whether the concept of Section 24 would have o be abandoned altogether . . . . . . it could be incorporated in a different way. As we know - there's often different rules for different scenarios that don't always apply across the board. I never thought Section 24 to be anything approaching fair anyway. I agree with you that making rental income become business income would mean changes - but it'd still be a heck of a sight more logical than what they are doing. They'd probably, for example, have to contain the loss relief to the way that it is currently allowed (specifically not allowed against other income) but such things are easily achievable. I, personally, think that the fact that there's no NIC on rental profits is a weird anomaly and quite unfair.

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Replying to lh3f9764bg1g:
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By Michael C Feltham
08th Sep 2021 12:29

The main change being Gideon's removal of 100% interest costs being chargeable would have to be reversed.

He only did this, in any case, to try and massage perception against Buy To Let investors, to please generation rent.
Neatly ignoring that many invested in property as personal pension return rates were so poor. If rental income were to be moved to Schedule D and treated as Business Income, then this would open a can of worms!

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Replying to Michael C Feltham:
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By lh3f9764bg1g
09th Sep 2021 13:13

Yup . . . . the Gordy Brooon/Tony Bliar decision to change the treatment for the Tax relief on Share Dividends had such an affect on personal pension plans that people were discouraged away from same (they had been the investors choice for retirement planning up to that point) and instead the smart money moved towards acquiring rental properties. This has not worked out too badly for the people who acquired those properties but, oh boy, has it not had a bad affect on the housing market?!?! Talk about unforeseen consequences! I'm sure Big Gordy did not intend to so damage the prospects of working people but that's exactly what has happened. Trouble was . . . . . he saw the low hanging fruit, could not resist and did not war-game the consequences.

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By 0098087
08th Sep 2021 10:37

Where did £350m a week brexit dividend go? Oh yer there wasn’t one

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Replying to 0098087:
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By AdamMurphy
08th Sep 2021 10:56

But people are getting blue passports again, so all's good (insert rolling eyes emoji)

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By Ammie
08th Sep 2021 11:00

The funds raised will end up in the same black hole as Gordon Browns efforts to achieve a similar move did.

Perhaps the UK needs better managers of the money raised as it still appears that financial management behind the scenes is sloppy, inefficient, wasteful and misdirected at best.

The overall cost of living is prising wider the social divide and will ultimately add more burden to the benefits purse, what then more rises? Rises are fine if they solve or alleviate the problem but they never appear to do so. HM Government need to have a rethink and try a different move.

Boris is winging it and he'll pay for it, (pardon the pun), in the long run.

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By Ian McTernan CTA
08th Sep 2021 11:36

This country has turned into a bunch of whingers, who constantly criticise everything and yet offer no other realistic solution.
Boris has offered a solution, having bit the bullet. We should be praising him for taking the hit and offering a solution when for 40 years everyone else has been avoiding it, knowing it is potentially a vote loser.
Labour's usual reaction is to offer no alternative but try and score political points and throw out some soundbites.

Yet to hear any workable alternative from anyone. (the usual attacks on landlords aside- from people who are clearly not working with any).

Is it a perfect solution? No. But it's either this or continue to ignore the crisis.

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Replying to Ian McTernan CTA:
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By mkowl
08th Sep 2021 11:50

I accept that point, we and our families all benefit from the NHS and it needs more funding. The question for me is the lack of equitable status in what income streams are being targetted and the exemption of rental profits / capital gains. I have suggested above a 10% levy on residual pension funds. So if the pot was 600k left to beneficiaries, that would drop to 540k. You know what still not a bad outcome. More controversial I would put a 5% levy on all estates - above 100k - and disregard all BPR and APR reliefs in making that calculation. Quid pro quo I would exempt the main residence from IHT. So a few options there. Notwithstanding absolutely that the money should be spent as efficiently as possible, not just here but across Govt and there is huge emphasis on how this care is provided in terms of quality and regulation

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Replying to Ian McTernan CTA:
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By lh3f9764bg1g
08th Sep 2021 11:53

I agree. It least he has posited some sort of a solution. It's not the solution I would have gone for - not entirely anyway as I think at least some of the money could have been raised from different "customers" - but still. Somebody is going to have to pay it and he and Richy Rich are at least addressing the issue at considerable personal political risk to themselves.

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