There was some good news for nearly 1.5 million working pensioners in the Chancellor’s mini-budget on 23 September: Kwasi Kwarteng announced that the Health and Social Care Levy (HSCL) would be cancelled. It would have been a new tax from April 2023 of 1.25% on earnings above £242 a week – and pensioners would have paid this new levy even though they do not pay National Insurance Contributions.
It would have cost a pensioner earning £20,000 an extra £93 over the year. The levy, which of course applied to younger people as well, was intended to raise £17 billion a year towards the NHS and the cost of a new social care policy. The Government will now borrow the extra money it needs for those things.
The levy only applied to earnings. But people with dividend income also had some good news. Higher rates of tax on dividends that began this year will be reversed from 2023/24. Taxpayers with dividends worth more than £2,000 a year that were not held in an Isa will pay less tax from April. See table:
Pensioners in England, Wales and Northern Ireland who pay income tax will also benefit from the cut in the basic rate of tax from 20% to 19%. That change was due to begin in April 2024 but has been brought forward a year. No change in Scotland has yet been announced.
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Someone with an income of £20,000 a year will save £74.30. However, all taxpayers are paying extra tax because the personal tax allowance has been frozen since 2021/22 at £12,570. If that had gone up with inflation, basic-rate taxpayers would have saved £78 this tax year and an estimated £320 in 2023/24. For most people that would more than wipe out the savings from the latest tax cuts.