CFM71040 - Other tax rules on corporate finance: bank and building society dormant accounts: dormant accounts scheme

The dormant accounts scheme

Following a comprehensive consultation, the Government introduced legislation to establish a dormant accounts scheme in the UK. The Dormant Bank and Building Society Accounts Act 2008 (the Act).

The Act forms the legal framework to enable banks and building societies to transfer money in dormant bank and building society accounts to a central reclaim fund for distribution to the benefit of the community, while ensuring that the right of account holders to reclaim their money is protected. The reclaim fund assumes the legal obligation to repay account holders whose deposits are transferred to the fund. Money not required to meet repayments is passed to the Big Society Bank for reinvestment in society. The first transfers took place in 2011.

The scheme is a voluntary one. Banks and building societies may participate in the scheme in respect of some or all of their customer accounts that meet the definition of dormant for the purposes of Section 10 of the Act, which is 15 years of no customer-initiated contact.

The Act provides for an alternative scheme whereby smaller banks and building societies may transfer a proportion of their dormant account balances to the reclaim fund and the remainder to one or more charities. The charity in question must be one

• that the bank or building society considers to have a special connection with it, or
• which undertakes to apply the money in question for the benefit of members of communities that are local to the branches of the bank or building society.

Under both the main and the alternative schemes account holders will be able to continue their usual relationship with their bank or building society which will act as agent of the reclaim fund. For example, the bank or building society will deal with any claim from a customer whose account balance has been transferred to the reclaim fund or charity (in particular computing the extent of any sums owed to the customer) restoring the account balance to the customer and reclaiming that amount from the reclaim fund.

At the point the dormant account is transferred to the reclaim fund (and charities where appropriate) the bank and building society will credit to the account in question all interest due at the date of transfer. At the point of reclaim the bank or building society will compute the interest that has arisen during the relevant dormant period (i.e. from when the dormant account became a relevant dormant account (see CFM71050) to the date the repayment claim is settled) and credit that interest to the customer’s account.