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Future Bank Levy changes

15 September 2017

Introducing a Reduced rate

From January 2017 the bank levy rate is 0.17% but this will be reduced to 0.10% from January 2021. Liabilities that are due to mature over one year are charged at only half these rates as they are deemed to be inherently less risky, and the rate applied to them will reduce to 0.05% in 2021.

Reduced scope

Currently the bank levy is charged on the global balance sheet of UK banking groups and building societies, including overseas subsidiaries and branches. This has been to ensure that a fair measure of the exposure of the banking group to the UK economy could be determined.

However, for periods of account ending or after 1 January 2021 the bank levy will only be calculated on UK equities and liabilities. This will mean that banking groups which have UK headquarters and overseas operations will only have to include UK resident entities and sub-groups, excluding any equity and liabilities that are attributable to overseas branches of UK entities. 

The revisions will also include a new deduction for certain loss absorbing instruments issued by overseas subsidiaries when a group is calculating their chargeable equity and liabilities. 

From 2018, there will be other changes and administration simplifications including provisions surrounding nomination of a member who will be responsible for meeting the bank levy’s obligations.

Background on current Bank Levy

Since January 2011, banks and building societies have been subject to a bank levy which is charged on certain liabilities and equity. Banks are only liable to pay the levy to the extent their chargeable liabilities exceed £20bn.

The levy is calculated on total aggregated liabilities and equity excluding: 

  • Tier 1 capital
  • Insured retail deposits
  • Repos secured on sovereign debt, and 
  • Certain policy-holders liabilities of retail insurance businesses within banking groups.

Notwithstanding the proposed reduction in scope and in rate, it should be remembered that since 1 January 2016, a new corporation tax surcharge of 8% has been levied on the profits of banking companies with an annual group allowance of only £25m. A far wider population of entities is, therefore, currently paying the surcharge than the bank levy. 

If you would like advice or guidance on how to manage to impact of the changes announced in the Winter Draft Finance Bill 2017 to 2018 please get in touch.

Read more on the Draft Finance Bill