UK and International Tax news

Bank Levy Introduction

Thursday 6th January 2011

Following two periods of consultation since June last year, the Government has now issued final legislation containing changes to the detailed design and rate of the levy. The rate for 2011 will be 0.05%, rather than 0.04%, and it will rise to 0.075% from 2012, instead of the 0.07% announced in June. This change in rate reflects changes to the detailed design of the levy, in particular extending the half rate treatment (for longer maturity liabilities) to cover retail deposits not covered by deposit insurance or guarantees, and the introduction of an allowance, rather than a threshold, for those liabilities to which the levy applies.

With these changes the levy will generate around £2½ billion of annual revenues, which is in line with the Budget estimates.

The Bank Levy is to apply to all UK bank and building society groups, foreign banks and banking groups operating in the UK and UK banks in non banking groups from 1 January 2011 onwards.

As reported in our Tax News item of 22 October 2010, the Bank Levy will be based upon the total chargeable equity and liabilities as reported in the relevant balance sheets at the end of a chargeable period.  In determining the chargeable equity and liabilities the following amounts can be excluded:  Tier 1 capital (insofar as it constitutes equity or liabilities), certain protected deposits, liabilities that arise from certain insurance business within banking groups, liabilities that back currency notes in circulation, FSCS liabilities, liabilities representing segregated client money, deferred tax liabilities, current tax liabilities, liabilities in respect of the Bank Levy, revaluation of property liabilities, liabilities representing the revaluation of business premises and defined benefit retirement liabilities.

It will also be permitted in specified circumstances to reduce certain liabilities, by netting against certain assets and by offsetting assets on the relevant balance sheets that qualify as high quality liquid assets (in accordance with the FSA definition). The reduction for high quality liquid assets will apply first to long term liabilities with any balance applying to short-term liabilities.

The Bank Levy will not be charged on the first £20 billion of chargeable liabilities (i.e. those that are chargeable to the Bank Levy after all exclusions and deductions). The first £20 billion of liabilities not charged to the Bank Levy will be apportioned between long and short maturity liabilities in accordance to the proportion of each within total chargeable equity and liabilities for a chargeable period.

If you would like further information on the above, please contact Keith Rushen on 0044 (0)20 7486 2378.

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