In short
In conveyancing, client money includes the buyer's deposit and completion funds, deposits held as stakeholder, mortgage advances held for the lender, sale proceeds and money held to pay stamp duty land tax. All of it must be held in client account under the SRA Accounts Rules, paid out only for its purpose and only when the client's own funds have cleared, and protected by verified payment instructions.
Key takeaways
- Conveyancing client money includes purchase funds, deposits held as agent or stakeholder, mortgage advances, sale proceeds, redemption money and money held for stamp duty land tax.
- Rule 5.3 forbids paying out more than is held for that client, so completion money must not be sent until the buyer's and lender's funds have cleared.
- Each mortgage lender sets in Part 2 of the UK Finance Mortgage Lenders' Handbook how long its advance may be held before completion and how it must be returned if completion is delayed.
- Stamp duty land tax must be paid, and the return delivered, within 14 days of the effective date of the transaction, usually completion.
- The SRA advises firms to tell clients they will never change bank details by email and to verify any change by a separate method before sending money.
Why conveyancing puts the most pressure on client account
Residential and commercial property work moves the largest sums through a law firm's client account, in the shortest time, between the most parties. A single purchase can involve money from the buyer, an advance from a lender, a transfer to the seller's firm, a redemption payment to the seller's lender, a payment to HMRC and fees to the Land Registry and search providers, much of it on one day. Every movement must be recorded on the right ledger, on the day, under the SRA Accounts Rules.
That combination of value, speed and volume makes conveyancing a high-risk area for shortages, debit balances and payment fraud, and means a conveyancing firm will rarely fall within the low-balance exemption from the SRA accountant's report.
The kinds of client money in a property transaction
Each kind of money in a transaction is held for a particular person and purpose, and the rule that applies follows from that. Getting the classification right at the start decides which ledger it sits on, who must give instructions to release it and who is owed any interest.
The table sets out the usual categories on a residential purchase and sale.
| Money | Held for | SRA rule | Released when |
|---|---|---|---|
| Buyer's deposit and balance funds | The buyer client | 2.1(a) | On exchange or completion, on the client's instructions |
| Deposit held as stakeholder | Both buyer and seller until the contract decides | 2.1(b) | On completion, or as the contract provides |
| Mortgage advance | The lender, usually also a client | 2.1(a) or 2.1(b) | On completion, under the lender's instructions |
| Sale proceeds | The seller client | 2.1(a) | After redemption and agreed deductions, promptly to the seller |
| Redemption money for the seller's lender | Held to pay the seller's lender | 2.1(a) | On completion, to discharge the mortgage |
| Stamp duty land tax money | The buyer, to pay HMRC | 2.1(a) | Within 14 days of completion |
| Fees and disbursements on account | The client until billed | 2.1(d) | After a bill is sent, for the exact sum |
Deposits and stakeholder money
On exchange of contracts the buyer pays a deposit, and the contract states whether the seller's firm holds it as stakeholder or as agent for the seller. A stakeholder holds money for both parties and may release it only when the contract allows, usually on completion. An agent for the seller holds it for the seller and may use it as the seller directs, for example towards the seller's own related purchase. Rule 2.1(b) of the SRA Accounts Rules names money held as agent or stakeholder as client money.
Because a stakeholder holds for two people, the deposit should sit on its own ledger or be clearly marked, and the firm must check the contract before releasing it. Interest on stakeholder money is governed by the contract and by rule 7, which our guide to solicitor client account interest explains.
Mortgage advances
Where the firm acts for the lender as well as the buyer, the advance is held on the lender's instructions. Most residential lenders use the UK Finance Mortgage Lenders' Handbook, whose Part 1 sets general instructions and whose Part 2 sets each lender's own requirements. Two Part 2 answers matter for client account: how long the advance may be held before it must be returned, and how it must be returned if completion is delayed.
The periods are short and vary by lender. Among the entries we reviewed they ranged from one working day or 24 hours to three working days. A firm that requests funds too early, or does not track the return deadline for each advance, risks breaching the lender's instructions and holding money with no proper reason. The advance should be booked to the matter's ledger on the day it arrives, with its return date recorded.
Completion day
On completion day the firm sends the balance of the price to the seller's firm, and on a sale receives it, redeems the seller's mortgage and pays the seller. Rule 5.3 allows a payment only if enough money is held for that specific client, so the buyer's balance funds and the lender's advance must both have cleared before money leaves. Sending completion funds on the strength of a promise that the client's money is on its way creates a debit balance and a breach.
After completion, stamp duty land tax must be dealt with quickly: under sections 76 and 86 of the Finance Act 2003 the buyer must deliver a land transaction return, and pay the tax, within 14 days of the effective date of the transaction, which is usually completion. Any money left on the ledger once everything has been paid, such as a small surplus from a redemption statement, must be returned promptly under rule 2.5.
Worked example: a purchase ledger from exchange to closure
A 40-partner conveyancing firm acts for a buyer and the buyer's lender on a £425,000.00 purchase with a £340,000.00 mortgage advance. The client pays a £42,500.00 deposit before exchange and, before completion, a further £56,510.00 covering the rest of the price, stamp duty land tax, disbursements and the firm's fees. The lender's advance arrives the day before completion.
The completion payment of £382,500.00 is released only once the ledger shows £396,510.00 of cleared funds. The tax is paid to HMRC within the 14-day period, the firm bills and transfers its fees, and the ledger closes at zero. Each line is on the ledger the day it happens, so the next reconciliation needs no adjustment for this matter.
| Date | Entry | Receipt (GBP) | Payment (GBP) | Ledger balance (GBP) |
|---|---|---|---|---|
| Exchange minus 2 days | Deposit funds from buyer | 42,500.00 | 42,500.00 | |
| Exchange | Deposit sent to seller's firm | 42,500.00 | 0.00 | |
| Completion minus 3 days | Balance funds from buyer | 56,510.00 | 56,510.00 | |
| Completion minus 1 day | Mortgage advance from lender | 340,000.00 | 396,510.00 | |
| Completion | Balance of price sent to seller's firm | 382,500.00 | 14,010.00 | |
| Completion plus 3 days | Stamp duty land tax paid to HMRC | 11,250.00 | 2,760.00 | |
| Completion plus 5 days | Registration and search disbursements paid | 600.00 | 2,160.00 | |
| Completion plus 5 days | Bill sent: £1,800 fees plus £360 VAT; billed sum transferred | 2,160.00 | 0.00 |
Payment fraud controls
Conveyancing funds are a frequent target of criminals who intercept or imitate email to change the bank details for a payment. The SRA's cybercrime guidance advises firms to tell clients they would never change their bank details by email, to require a password, identification or a verbal or written confirmation before acting on changed instructions, and, if money is lost, to report the loss to the SRA. Money lost from client account in this way must be replaced immediately under rule 6.1.
The controls that work are procedural and must apply every time, including late on a busy completion day. Bank details for every payee are confirmed by a separate method using contact details from the file, not from the email asking for the change.
| Control | What it stops |
|---|---|
| Client care letter states the firm will never change its bank details by email | Clients sending money to a fraudster's account |
| Call-back on a number from the file before acting on any change of payee details | Payments to an account substituted by a fraudster |
| Written authorisation from the client for a change to their own account details | Sale proceeds diverted on a false instruction |
| Two-person release for completion payments above a set limit | Single-person error or misuse |
| Release only against a ledger showing cleared funds | Debit balances and use of other clients' money |
| Same-day posting of every receipt and payment | Differences that hide a loss until the next reconciliation |
Reconciliation pressure at completion
Five weeks between reconciliations is the legal minimum. For a firm completing dozens of transactions a week it is far too long: a misposted advance or a completion payment sent on the wrong matter can sit unnoticed through several more completions. Most conveyancing firms reconcile daily or at least weekly, and review every ledger with a balance more than a few days after completion. Our guide to client account reconciliation shows the three-way check in detail.
Leaving money on a ledger after completion also carries a separate risk. The SRA's banking facility warning notice says that holding money after a transaction has completed risks breaching rule 3.3 as well as the duty to return money promptly, and residual balances are among the breaches reporting accountants find most often. Our guide to SRA Accounts Rules breaches covers residual balances.
Safeheld reconciles client money every day for regulated firms, works every difference to its cause and keeps the record auditors ask for, and is extending that work to law firm client accounts. If your firm holds conveyancing client money under the SRA Accounts Rules, talk to us about SRA client money.
Frequently asked questions
Is a conveyancing deposit client money?
Yes. Under rule 2.1 of the SRA Accounts Rules, money held for a client, or held as agent or stakeholder, is client money and must be held in client account.
What does it mean to hold a deposit as stakeholder?
The firm holds the deposit for both buyer and seller and may release it only as the contract provides, usually on completion.
How long can a solicitor hold a mortgage advance before completion?
It depends on the lender. Each lender sets its own period in Part 2 of the UK Finance Mortgage Lenders' Handbook; the periods are often one to three working days.
Can a solicitor send completion money before the client's funds clear?
No. Rule 5.3 allows a payment only if enough money is held for that client, so sending funds before they clear uses other clients' money.
When must stamp duty land tax be paid after completion?
Within 14 days of the effective date of the transaction, which is usually completion, under sections 76 and 86 of the Finance Act 2003.
How can conveyancers prevent payment fraud?
Tell clients the firm will never change bank details by email, verify any change by phone using details from the file, and require two people to release large payments.
References
- SRA Accounts Rules
- SRA: How to reduce the risk of being affected by cybercrime
- SRA warning notice: Improper use of client account as a banking facility
- UK Finance Mortgage Lenders' Handbook (England and Wales), Part 2, question 10.10
- Finance Act 2003, section 76
- Finance Act 2003, section 86
About Safeheld
Safeheld reconciles client money every day, resolves every difference and prepares every regulatory return for sign-off, for regulated firms in the United States, the United Kingdom, the European Union, Canada, Australia, Singapore and Hong Kong. To discuss your operations, contact us at safeheld.com/contact.
This article is for general information and does not constitute legal or regulatory advice.