Dormant Accounts Scheme

Frequently Asked Questions

On this page:

All references to 'bank' include references to 'building society'

1. What is the scheme designed to achieve?

The scheme is designed to enable banks to transfer money held in dormant accounts for reinvestment in the community whilst retaining the account holders' rights to repayment.
(which after a transfer will be exercised against the reclaim fund).

2. How is reinvestment in the community achieved?

Participating banks will transfer, with the agreement of the reclaim fund (which is to be regulated by the Financial Services Authority), the balance of dormant accounts to the reclaim fund. The reclaim fund will retain sufficient funds to meet its expenses, comply with FSA financial resource requirements and meet repayment claims. The reclaim fund is obliged to transfer surplus funds to the BIG Lottery Fund for distribution for 'social or environmental' purposes.

Small banks (those with total assets of less than £7 billion for the most recent financial year for which accounts are available) may participate in this scheme and also in an alternative scheme whereby they transfer a proportion (agreed with the reclaim fund) of a dormant account balance to one or more charities which the bank considers to have a special connection with it or to a charity which undertakes to use the money in question for the benefit of members of communities that are local to the branches of the bank.

3. How will account holders rights to repayment be maintained?

A bank or building society may only transfer dormant account balances (or proportions of balances) to the reclaim fund if the latter consents to the transfer. Once a transfer has been made, the bank or building society's liability to repay the account holder is extinguished. Instead, the customer has a legally enforceable right to repayment from the reclaim fund. It is anticipated that account holders will be able to continue their usual relationship with their bank or building society which will act as agent of a reclaim fund for the purpose of meeting repayment claims.

4. Is participation in the scheme compulsory?

No. The UK scheme differs significantly from similar arrangements in other countries, as legislation will enable but not compel the banking sector to participate. The industry is committed to supporting the scheme and is taking the lead on selecting or setting up the reclaim fund and putting in place strong reuniting initiatives.

5. What is a dormant account for the purposes of the scheme?

An account is dormant at a particular time if it has:

  • been open throughout a period of at least 15 years
  • during that period, no transactions have been carried out in relation to the account by or on the instructions of the holder of the account

6. What is meant by the 'balance of the account'?

The balance of a person's account is the amount owing to that person in respect of that account after interest due and fees/charges payable have been taken into account.

So:

  • the bank must credit to the dormant account all interest due on all or any part of that account before that it is transferred to the reclaim fund or to one or more charities
  • on a repayment claim, the customer has against the reclaim fund whatever right to payment of the balance the customer would have against the bank if the transfer had not happened

7. Does the crediting of interest to the dormant account in anticipation of its transfer to the reclaim fund give rise to any reporting obligations under section 17 TMA 1970 or any tax deduction obligations under section 851 ITA 2007?

No. The reporting obligations and tax deduction obligations are switched off where the interest is credited to a dormant account the balance of which is to be, or has been, transferred to an authorised reclaim fund (and to one or more charities as appropriate).

Even if the balance of the account has yet to be transferred, the fact that the credit of interest is made in anticipation of such a transfer means that the reporting and deduction obligations will not apply to that crediting of interest.

8. Does the crediting of interest to the dormant account before it is transferred to the reclaim fund give rise to any reporting obligations under section 17 TMA 1970 or any tax deduction obligations under section 851 ITA 2007?

If the crediting of interest is made in anticipation of the transfer of the dormant account to the reclaim fund then the reporting and tax deduction obligations will not apply.

If the crediting of interest is not made in anticipation of the transfer of the dormant account to the reclaim fund then the reporting and tax deduction obligations will apply. This will be the case even if the account has been open throughout a period of at least 15 years and during that period no transactions have been carried out in relation to the account by or on the instructions of the holder of the account.

9. If any interest were to be credited to the dormant account after the balance of that account has been transferred to the reclaim fund would such a credit trigger the reporting obligations under section 17 TMA 1970 and the tax deduction obligations under section 851 ITA 2007?

No. Both the reporting and tax obligations are switched off when the dormant account is to be, or has been, transferred to the reclaim fund and are only switched back on again when a repayment claim in respect of that account is settled.

10. Are separate reports required under sections 17 and/or 18 TMA 1970, at prescribed dates for repayment claims?

Separate reports are not required

11. Where a form R85 is held for the relevant dormant account prior to the transfer of the account balance to the Reclaim Fund, how will this affect the repayment claim and reporting under section 17 TMA 1970? Will the original form be required by HMRC at any point?

Form R85 has enduring effect unless it is cancelled by the investor or HMRC. So if a repayment claim is made, interest must be paid gross and reported as such on the section 17 TMA return (along with the R85 indicator).

'Original' forms R85 may be audited on the bank premises by HMRC auditors as now so the bank will need to retain the form R85 (or a copy of it ) while the account is in the Reclaim Fund.

12. Is the date of payment to the account holder the payment point for reporting purposes under S.17 TMA 1970?

Yes.

13. Are dormant ISAs included in the scheme?

A cash-only ISA could fall within the definition of a dormant account (see q5 above) and could therefore be transferred to the Reclaim Fund.

14. What happens to the tax-free status of the ISA when it is transferred to the Reclaim Fund?

The account will remain tax-free.

15. What about reporting dormant ISAs when they are in the Reclaim Fund?

The ISA manager will not need to include dormant ISAs transferred to the Reclaim Fund on their ISA report.

16. What happens when a repayment claim is made to the Reclaim Fund in respect of a [former?] ISA?

The balance held in the Reclaim Fund can, if the investor wishes, be reinstated within the ISA wrapper with the ISA manager. The balance reinstated will not count as a subscription to the ISA for the year in which the repayment claim is made. ISA reporting will switch back on when the claim is made if the ISA is reinstated. Once reinstated, the investor can begin subscribing to the ISA again and can make withdrawals or transfers in accordance with the normal ISA rules.

17. Are dormant Child Trust Funds (CTFs) included in the scheme?

No. To be dormant there must have been a 15 year period of inactivity on the account. This cannot apply to a CTF as there will be a payment into the CTF at age 7 and the account will mature at age 18 so there is no possibility of there being 15 years of inactivity.