FSCS Protection on Temporary High Balance

claire111

Hello

I will have in excess of £85k to place in a savings account for 6 months, from the sale of a property which I own but do not currently live in - it has been let and I live with my partner. I do not own any other property.


Is this my 'Main Residence' for the purposes of the Temporary High Limit of £1 million to apply ? Or not...because I don't live there ?

The FSCS website simply says ;

Certain life events could have caused a temporary high balance in your bank account, including:

Real estate transactions (property purchase, sale proceeds, equity release - relating to your main residence only);

Many thanks if anyone can advise

AnotherJoe

Why take the chance? Split it up or put it in NS&I.

bowlhead99

A life event such as selling the home in which you live, gives you a very reasonable excuse for why you suddenly have a large amount of money that you can't spread across various bank accounts - for example your bank account would simply temporarily hold a home-sized amount of money while you purchased a new place to live, and FSCS would be sympathetic.

Whereas if you as an investor in property or other real or financial assets, or as an owner of a property lettings business, choose to sell an asset - which generates a lot of cash - and have it land in your bank account and then you don't bother to spread it around to stay within the £85k FSCS guarantee limits, you are not covered for anything above the £85ks. It's simply not one of the 'life events' which the EU deposit guarantee scheme rules (and the PRA depositor protection instrument which made the regulations on the back of the EU requirement) was designed to cover.

Based on the regulations, a qualifying reason for a high balance includes:

"monies which represent the proceeds of sale of a private residential property (or an interest in a private residential property) of the depositor".

However, the definition of private residential property here:

means freehold, heritable or leasehold property (or the equivalent in another country), including land, which was, is, or is intended to become the depositor’s only or main residence

The property was not at the time you sold it, your main residence, because you had moved out of it and were letting it out. So, you would be on a hiding to nothing when trying to give FSCS your evidence that you should be compensated for more than £85k.

For others reading with curiosity (who may find this thread when searching for FSCS / temporary high balance discussions) and whose personal circumstances *could* qualify under one of the allowed criteria for temporary high balances - it is still easier to split the money up as Joe suggests - to save you the hassle of proving why you think you qualify. And perhaps more importantly, because the temporary high balance protection doesn't cover interest accrued but not credited at the time the PRA/FSCS determine the bank to be in default. You only get cover for accrued interest up to the normal £85k limit, not above.

In your case, you don't really have an excuse why you can't simply spread it into a few separate bank accounts of under £85k each within a day or two of getting the sales proceeds from your solicitor - so unfortunately that's what you'll need to do, if you want to be covered. You already know you are due to get the money soon, so you could set up the accounts already. Or use NS&I which doesn't need a FSCS because it's government backed anyway. Or, just do without the protection, as defaults don't happen very often

http://www.prarulebook.co.uk/rulebook/Media/Get/db8bc539-1fac-49e4-9601-2c78832323e4/PRA_2015_39/pdf

dales1

Many thanks for this informative repy, BH.

The FSCS website says that it covers "Real estate transactions (property purchase, sale proceeds, equity release - relating to your main residence only)" .The FSCS wording is ambiguous at face value, to people without a copy of the regulations including me and the OP, as the punctuation implies (to me at least) that the restriction "main residence only" might apply only to equity release and not to sale / purchase transactions.
In this situation, I would be asking the FSCS to clarify the situation, and also to rephrase their website (upon which ordinary people must rely).
Eg real estate transactions (re main residence only) etc.
Dales

LobsterMemory

In your situation, I'd be wondering why I didn't copy and paste the paragraph I'd just written and bang it on a email to the regulator myself

bowlhead99

dales1 wrote: »

The FSCS wording is ambiguous at face value, to people without a copy of the regulations including me and the OP, as the punctuation implies (to me at least) that the restriction "main residence only" might apply only to equity release and not to sale / purchase transactions.
In this situation, I would be asking the FSCS to clarify the situation, and also to rephrase their website (upon which ordinary people must rely).
Eg real estate transactions (re main residence only) etc.
Dales

Well, you are not now 'people without a copy of the regulations', as you will have found them in my link above...

The PRA said in their Statement of Policy, re Temporary High Balances (THBs), the things covered include (my underlining):

(1) Deposits relating to a depositor’s private residential property (Depositor Protection 10.2(1)) 32. The protection under Depositor Protection 10.2(1) should enable a person to claim THB protection in relation to amounts deposited in their own account or in a solicitor’s client account on their behalf. 33. The PRA considers references to ‘private residential property’ in Depositor Protection 10.2 (1) to refer to a specific residential property (ie the property is identifiable) in which the depositor resides, intends to reside or has resided as their main or only residence (as that term is understood in connection with capital tax gains purposes). The PRA does not consider that general savings for a property should fall under this category. 34. The PRA considers that land purchased with a view to constructing a dwelling would fall within this category. The depositor should provide evidence that the land has been purchased (or is about to be purchased) with a view to constructing the purchaser’s only or main dwelling. 35. The PRA considers that proceeds from the sale of a property that the depositor owned as a buy-to-let property, or that was the depositor’s investment property, should not benefit from THB protection. Similarly, the PRA considers that funds held by a depositor in preparation for the purchase of second home, a holiday home, or any other investment property (which will not be the depositor’s only or main residence) should not be protected. 36. For the avoidance of doubt, the PRA does not consider that THB claims falling under this category should be restricted to the purchase price of the property. For example, the PRA expects that amounts falling under category 10.2(1)(a) could include deposits for anticipated stamp duty and associated fees.

In the last couple of years the FSCS has dumbed down and simplified their FAQ web pages which attempt to summarise the regulations for consumers. This is like what the HMRC did when absorbing their content into the overall gov.uk website. Unfortunately - as with many of these efforts which attempt to make legislation somewhat less impenetrable -the trade off of accessibility is that not every scenario is spelled out and explored to the extent we might like.

So, on the FSCS website when talking about what a temporary high balance is, it mentions that certain life events could cause you to have a balance that's temporarily higher than usual, including "Real estate transactions (property purchase, sale proceeds, equity release - relating to your main residence only)" and goes on to describe evidence you may be able to use to claim for your balance in the event of failure when you have a balance as a result of such a life event, depending on the exact circumstances.

However, when you decide to dispose of an investment asset in your property lettings business and hold the cash to consider potentially investing in something else, that isn't one of those unavoidable life events where the financial services industry should take on your risk, and for the FSCS to cover it would likely not be in line with the EU directive which mandated the improvements in deposit guarantee schemes to make 'temporary high balances' a thing, a few years back.

One could debate whether the commas are useful or confusing - perhaps if they had been semicolons you would see them as separate clauses with the clarification on main residence only appearing to apply to equity release. However, the commas are merely there to indicate you can pause to breathe between the three types of two-word property transaction, while the 'main residence' applies equally to all. They should probably have put "relating to your main residence" outside the brackets when they did the last website update to add that clarification some months back.

Lawyers drafting contracts prefer to ignore commas where possible to avoid any mis-leading, while lay-people prefer to see as many commas and as much sentence-shortening as humanly possible otherwise they find the text too dry and scared off by a perception that it's written in 'legalese'.

As you suggest, you or OP could ask the FSCS to clarify, if the amount of money was going to be so important that you were hoping to rely on their protection and you recognised that the wording might be thought of as ambiguous. Especially if there are other factors (e.g. it was once my main residence within CGT definitions, so I've resided there, but has not been for some time and I was someone elses' landlord, without moving back in before I sold it). The onus would *always* be on the depositor making a claim, to put their case that it ought to be covered, and FSCS will decide whether they want to pay out.

So if for some reason you want to keep the money in one place (and not worry about having accrued interest covered, only the temporary high balance itself be covered) you should ask FSCS to clarify the regulations to which they are subject, in relation to your specific facts, and then you would know where you stand.

xylophone

Why not put it in NS&I and stop worrying?
https://www.nsandi.com/why-save-with-us

claire111

Gosh thanks for so many helpful comments in the middle of the night !

I think I will contact the regulator to clarify for a number of reasons...

Its a largish sum of money so I would need 5 separate accounts to cover it and the difference in interest between NS&I at 1% and the highest paying instant access at 1.45% is to much for me to ignore. Also there won't be be 5 accounts offering the highest rate.

I did live in the house for 8 years and became an accidental landlord when I moved in with my partner.

Special thanks to Bowlhead for such a comprehensive reply !

sal_III

There are more than 5 accounts offering 1.45% and above if you count short notices and 1 year fixes.

I wouldn't trust an e-mail reply from the regulator to protect my money if the s**t hits the fan and you actually need payout from the FSCS.

Spreading the money between accounts has the added benefit of protecting you against fraud, hacks account freezes, bank snafus etc.