BKLM331105 - Chargeable equity and liabilities: excluded equity and liabilities: protected deposits: exemption from the charge

Paragraph 29 of Schedule 19

The exemption from the charge to the bank levy for protected deposits reflects the greater stability of deposits covered by a guarantee or insurance scheme and also takes a proportionate approach to addressing a 'double levy' imposition where banks are liable to contribute to such schemes or guarantees.

Protected deposits are those deposits covered by a statutory or State-run guarantee or insurance scheme even where those schemes extend beyond deposits made by individuals.

Any remaining deposits (except for deposits from financial institutions and financial traders) that are not protected deposits under paragraph 29 are treated as 'non-protected deposits'. Under paragraph 76 of Schedule 19 these non-protected deposits will be subject to the half rate in the same way as longer maturity liabilities.

Deposit

Deposit has the meaning given by article 5(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI2001/544), ignoring the exclusions in articles 6 to 9AB for the purposes of paragraph 29, except when considering deposits under The Financial Services Compensation Scheme (see BKLM331450).

Protected deposits

There are three types of protected deposit.

A deposit is 'protected' to the extent that it is covered by the Financial Services Compensation Scheme (FSCS) under FSMA00/S213.

In addition deposits are also protected to the extent that they are covered by other statutory guarantee or insurance schemes which operate outside the UK and are comparable with the FSCS scheme. An overseas insurance scheme is regarded as comparable if the purpose of that scheme is the same or is comparable to the purpose of the FSCS.

The third category of protected deposits are those explicitly guaranteed by a non-UK, State-run guarantee or insurance scheme, that is, one run by a national government which guarantees to compensate depositors for losses on their deposits.

Exempt amount

For chargeable periods ending on or before 31 December 2014, the exempt amount of scheme deposits, in the case of the FSCS and comparable overseas schemes, was the higher of either:

  • the amount of the deposit insured
  • the amount of the deposit by reference to which the premium or fee in respect of the scheme is computed, or
  • the amount of the deposit by reference to another amount.

For chargeable periods ending on or after 1 January 2015, the exempt amount of scheme deposits is the amount of the deposit insured. This means that the excluded sum is the amount of the deposit that is protected by the scheme. Banks should not exclude deposits above the level of the scheme cap, even where they pay a premium on those deposits.

Beneficiary accounts

Beneficiary accounts are types of accounts where the depositor is not absolutely entitled to the deposit. Examples of such accounts include trustee accounts, Junior ISAs, solicitors’ client accounts, wealth management cash aggregator accounts and pension scheme accounts. Beneficiary accounts are included in the FSCS tariff base, although this is not relevant to whether amounts in beneficiary accounts are protected deposits for chargeable periods ending on or after 1 January 2015.

The amounts deposited in beneficiary accounts are not ‘protected deposits’ unless, and only to the extent that, the bank can provide a reasonable calculation of the amounts that are covered by the FSCS.

Beneficiary accounts may include ineligible deposits and any calculation should remove those amounts as they cannot be protected deposits. The calculation should identify and distinguish between beneficiary accounts where the FSCS looks at coverage levels at the deposit account level (e.g. the trustee of discretionary trusts) and where the FSCS looks at the underlying beneficiary or pension member (e.g. Junior ISAs and personal pension schemes). It is expected that, in calculating the amount of protected deposits, banks will have obtained unique account identifier information of the person eligible for FSCS protection, including deposit amounts allocable to that person. Those allocable amounts should be limited so that the applicable FSCS coverage levels are not exceeded on a single customer view basis that takes account of other deposits by that beneficiary with the bank (or other group banks sharing a banking licence).

An example of a beneficiary account that is not a protected deposit is an undesignated general client account deposit by a firm of solicitors where the bank does not have visibility as to who the underlying clients are, or the amounts allocated to each of those clients. An example of a protected deposit could include a Junior ISA provided the bank is aware of the identity of the child and can trace other bank accounts of the child to ensure they do not exceed the total limit of £85,000.

Comparable schemes to the FSCS

See BKLM331110 for more details.