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HMRC internal manual

Corporate Finance Manual

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

What is a dormant account?

When a customer has made no withdrawals or deposits in a bank/building society account for a period (usually but not always of at least a year) and has not contacted the bank, the bank will write to the customer for confirmation that the account should remain open. If no reply is received after a stated period, the bank will treat the account as dormant.

Once dormant, no further statements are issued. The customer can reactivate the account by contacting the bank. Where the customer does not have full details of the bank and account number, the British Bankers’ Association Dormant Account Unit will deal with enquiries.

What the bank or building society does

Where there is real doubt that funds in a bank account will ever be claimed by the customer, some banks have a policy of crediting the sum appropriated to the profit and loss account. Banks have procedures for identifying these amounts, usually when the account has been dormant for at least 3 years. The period of dormancy may vary depending on the balance outstanding in the account.

The bank must still maintain records so that the money can be returned to the customer (or executor) on a claim. If the sum is subsequently paid to the customer the bank will make a corresponding debit.

Some banks, however, do not regard amounts in dormant accounts as profit and therefore do not credit these sums to the profit and loss account.

An unclaimed balance is a loan relationship of the bank. Under the loan relationships rules in FA96, profits on loan relationships are taxed as they accrue in the accounts provided those accounts are prepared in accordance with Generally Accepted Accounting Practice. The credits are therefore taxed in the year they are taken to the profit and loss account.

What the bank or building society does: UK GAAP post FRS 26 and IFRS

Under FRS 26 and IFRS, financial liabilities such as dormant accounts can only be derecognised from the balance sheet when they are extinguished. An extinguishment can only arise if the debtor either settles the liability or is legally released from its obligations to the creditor. Therefore, dormant accounts can no longer be credited to the profit and loss account.