Tom Aston, financial services partner, comments on the Chancellor’s Budget changes to the UK bank levy.
“Today sees a significant change in UK bank taxation. There are likely to be clear winners and losers from these changes. The pain heaped on larger banking groups over the last few years is now being redistributed across the entire sector.
“Larger banks will be pleased at the abrupt change of direction on the bank levy, with rates now falling over the next six years back to levels closer to those envisaged when the tax was first introduced.
“They are also likely to welcome the fact that bank levy rates have been mapped out several years ahead – in previous budgets part of the concern has been not just the increases in this tax, but also their unpredictability.
“The move towards basing the bank levy on UK rather than global balance sheets is also helpful in removing a potential incentive for banking groups to leave the UK – even though this change is not expected until 2021.
“However, the flipside of this is the extra 8 per cent tax rate on bank profits from 1st January 2016. Whilst some banks may see this as a price worth paying for the bank levy reductions, this change taken with those in other recent budgets will mean that some banks pay a very high effective tax rate indeed on their profits in the next few years.”
“Whilst some relief is provided by a £25 million annual exemption, many smaller and challenger banks who were not previously liable for the bank levy, will be impacted by the new bank profit surcharge.”
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Simon Chan, KPMG Corporate Communications
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