UK Bank Levy: Rates and Update

Sullivan & Cromwell LLP - December 13, 2010

In his Budget statement delivered on 22 June, 2010, the Chancellor of the Exchequer announced that the UK will introduce a tax based on banks’ balance sheets from 1 January, 2011, to be known as “bank levy”. The rate of the bank levy has now been set at 0.075% from 2012, with a lower rate of 0.05% for 2011. Funding liabilities of greater than one-year maturity and certain uninsured deposits will be charged at half the rate otherwise applicable. Once fully in place this tax is expected to generate around £2.6 billion annually. Both the rates and the total amount expected to be generated are slightly increased from previous estimates. The government expects the levy to be paid by between 30 and 40 banks, building societies and banking groups.

Revised draft legislation and accompanying guidance were published on 9 December, 2010. This memorandum describes the changes made and other developments since our previous memorandum on this subject of 10 November, 2010. Generally speaking, the design of the levy is unaffected and the changes are to matters of detail.

The changes since our previous memorandum include: restoration of an exclusion for sovereign repos; rewriting of the anti-avoidance provision; introduction of various powers to amend the legislation by Treasury order; publication of details as to how the tax will be administered; and announcement that an agreement on prevention of double taxation has been reached with France.

The current status is that the revised draft legislation is open for further consultation until 9 February, 2011. The legislation will be included in the Finance Bill due to be published on 31 March, 2011 and passed into law in the summer. Theoretically the legislation could be amended at any point up until that time. However, given that the legislation will be effective from 1 January, 2011, it can be expected that the government will be reluctant to make any significant changes to the latest draft legislation. Once the legislation is passed, the ability to make certain changes by Treasury order is written in to the legislation. It has been announced that the legislation will be formally reviewed in 2013.