I have savings in the UK arm of the Bank of Cyprus, is my money safe from the Cyprus bailout tax?
Adam Uren, of This is Money, says: Savers in Cyprus have been rocked by the news that the 10billion euro (£8.7billion) international bailout package for its ailing economy comes with the outrageous caveat that, to pay for this, a one-off tax on bank savings will be levied in exchange for bank shares.
Under the bailout's terms, people in Cyprus with less than 100,000 euros (£85,000) in their accounts would have to pay 6.75 per cent, and those with amounts over that threshold would pay 9.9 per cent.
Savings safe: Those with savings in the Bank of Cyprus UK will not be affected by the proposed Cypriot bank tax.Ordinarily, savers would be insured against such losses from their accounts under the Cyprus Deposit Protection Scheme.
However, much like the Financial Services Compensation Scheme (FSCS) in the UK, that protection is only activated in the event a bank collapses, which in this case they haven't.
The proposal - which is due to be discussed by the Cypriot parliament this week - is a huge blow for the thousands of UK expats currently living in Cyprus. It is estimated they hold around 2billion euros in banks in Cyprus, with the potential value of the levy standing at 170million euros.
Cyprus authorities say this tax will only affect accounts held on the island, so UK residents who have savings in the Bank of Cyprus UK will NOT be affected by this levy, with the bank confirming this on its website.
The other Cyprus-based bank with UK branches, Laiki Bank UK, has also confirmed savers in the UK would not be affected.
Bank of Cyprus savers should also rest assured that their savings will be protected under the FSCS should the bank collapse.
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Customers of Laiki Bank meanwhile will be protected in the event their bank goes under, but instead through the Cyprus Deposit Protection Scheme, which protects deposits of up to 100,000 euros.
Chancellor George Osborne meanwhile has said that the 3,000 British military personnel and 250 civil service staff stationed in Cyprus would be compensated by the UK Government in the event they are hit by the bank tax.
What if the Cypriot Government changes its mind and wants to target overseas accounts of Cyprus banks?The Bank of Cyprus UK is a subsidiary, and as such operates as a separate legal entity which is regulated by the Financial Services Authority and has to abide by UK rules and regulations. Essentially, it is a UK bank.
In the event the Cypriot government suddenly decides that overseas accounts are suddenly fair game, there's nothing it can do to levy the tax on UK-held Bank of Cyprus accounts.
Any decision like this would have to come from the UK government and be subject to UK law.
However, savers with Laiki Bank - which has three London branches and one in Birmingham - are not afforded the same level of protection as they are not regulated by the FSA, with its UK arm acting as a 'branch' rather than as a subsidiary.
The FSA told This is Money that in the event that overseas accounts with Laiki were subjected to the levy, it would not be able to step in as it would be the decision of the Cyprus government.
A statement on the Laiki UK website however says: 'We have clarified with the Cyprus authorities that this levy, as proposed in the draft law, will have no effect on customer deposits held with the overseas branches of Cyprus banks.
'To this extent your deposits held with Laiki Bank UK will not be affected.'