Residential conveyancing is the single largest source of client money movement for most high-street law firms. A single transaction can see tens of thousands of pounds pass through your client account in a matter of days. Get the handling wrong, and you face SRA intervention, a qualified accountant's report, and potential reputational damage.

This guide walks through the practical steps a solicitor must take when handling client account money during a residential conveyancing transaction. It covers the rules on deposit retention, exchange and completion procedures, the five-week reconciliation requirement, and common pitfalls that lead to regulatory breaches.

Why Client Account Discipline Matters in Conveyancing

The SRA Accounts Rules exist to protect client money. In conveyancing, the sums involved are often the largest financial transaction your client will ever make. A deposit of £40,000 on a £400,000 house is not unusual. Mishandling that money even briefly can trigger a report to the SRA.

Rule 8.3 of the SRA Accounts Rules requires you to reconcile your client account at least every five weeks. For a conveyancing-heavy practice, that means your ledgers must be accurate to the penny at all times. A single unreconciled item can cascade into a compliance headache.

We have seen firms where a trainee solicitor inadvertently transferred client money from the wrong file. That is a breach of Rule 3.1 (client money must be held in a client account). The SRA takes a dim view of such errors, even if no client suffered a loss.

The Deposit: When Does Client Money Become Yours?

The most common point of confusion in conveyancing is the deposit. A buyer pays a deposit, typically 5% to 10% of the purchase price, to their solicitor. That money is client money. It belongs to the buyer until exchange of contracts.

At exchange, the deposit becomes the seller's money, but it is still client money. The buyer's solicitor must hold it in the client account until completion. Only at completion does the deposit become the seller's money outright, and the solicitor can transfer it to the seller's office account (or onward to the seller's solicitor).

Worked example: Buyer A pays a £25,000 deposit to their solicitor, Jones & Co. Jones & Co holds it in the client account. At exchange, Jones & Co must transfer the deposit to the seller's solicitor, Smith & Partners. Smith & Partners holds it in their client account until completion. At completion, Smith & Partners releases the deposit to the seller's office account. Each step must be recorded in the client ledger.

If you are acting for both buyer and seller (which is permitted in limited circumstances, such as a connected transaction), the deposit must still be held in the client account until completion. You cannot treat it as your own money at any stage.

Exchange and Completion: The Critical Transfers

Exchange of contracts is the moment when the deposit becomes the seller's money. The buyer's solicitor must transfer the deposit to the seller's solicitor. This transfer is a client account to client account transfer. It must be recorded as a debit on the buyer's client ledger and a credit on the seller's client ledger (if you act for both).

Completion is the final stage. The buyer's solicitor must transfer the balance of the purchase price (the deposit plus the mortgage advance plus any additional funds from the buyer) to the seller's solicitor. This is typically done by CHAPS transfer. The seller's solicitor then releases the net proceeds to the seller, after deducting their fees and disbursements.

Worked example: Buyer B purchases a house for £300,000. They paid a £30,000 deposit. The mortgage lender advances £240,000. Buyer B must provide the remaining £30,000. At completion, the buyer's solicitor transfers £270,000 (the £240,000 mortgage plus the £30,000 balance) to the seller's solicitor. The seller's solicitor then releases the deposit (£30,000) plus the balance (£270,000) to the seller, less their fees of £1,500 and SDLT of £5,000. The seller receives £293,500.

Each of these transfers must be recorded in the client account ledger. The five-week reconciliation must show that the total of all client account balances matches the total of all client ledger balances. Any discrepancy is a red flag.

Residential Conveyancing Money and the Five-Week Reconciliation

Rule 8.3 requires you to reconcile your client account at least every five weeks. For a conveyancing practice, this is non-negotiable. You must reconcile the client account balance on the bank statement against the total of all client ledger balances.

Many firms reconcile monthly, which is best practice. The five-week rule is the maximum interval. If you have a high volume of transactions, weekly reconciliations are safer. A single missed reconciliation can lead to an SRA investigation.

Worked example: Your firm holds client money for 15 conveyancing files. The total client account bank balance is £450,000. The total of all client ledger balances is £449,850. The difference is £150. That is a discrepancy. You must investigate and resolve it before the next reconciliation. If you cannot, you must report it to the SRA.

Common causes of discrepancies include bank charges deducted from the client account (which must be transferred from the office account to cover them), interest credited to the client account (which must be allocated to the correct client), and timing differences on CHAPS transfers.

Client Account Discipline: Practical Steps for Conveyancing Solicitors

1. Segregate Client and Office Money Rigorously

Rule 3.1 says client money must be held in a client account. You cannot mix client money with office money. That means no transfers from client to office account without a proper bill or transfer authorisation. Every transfer must be recorded with a clear narrative.

2. Use a Dedicated Conveyancing Ledger

Most practice management systems allow you to create a separate ledger for each conveyancing file. Use it. Each file should have its own client ledger showing all receipts and payments. Do not pool client money across files.

3. Record All Transactions Promptly

When a client pays a deposit, record it immediately. When you transfer the deposit at exchange, record it immediately. When you complete, record the final transfer. Delays in recording lead to reconciliation errors.

4. Reconcile Frequently

Do not wait five weeks. Reconcile weekly. If you have a high volume of transactions, reconcile daily. The time spent reconciling is far less than the time spent dealing with an SRA investigation.

5. Train Your Team

Every fee-earner and paralegal handling conveyancing must understand the client account rules. A trainee solicitor who transfers money from the wrong file is a compliance risk. Provide regular training on the SRA Accounts Rules.

Common Pitfalls in Conveyancing Client Account Handling

Pitfall 1: Using Client Account as a Banking Facility

Some clients ask you to hold money in your client account for convenience. For example, a buyer might pay the full purchase price into your client account weeks before completion. That is client money, and you must hold it in the client account. But you cannot use your client account as a banking facility for non-transactional purposes. If the money is not related to a specific transaction, you should not hold it.

Pitfall 2: Failing to Pay Interest on Client Money

Rule 7.1 requires you to pay client money interest when it is "fair" to do so. The test depends on the amount held and the length of time. For a conveyancing deposit held for two weeks, interest is usually de minimis. But if you hold a large deposit for several months (for example, in a delayed completion), you may need to account for interest.

Pitfall 3: Not Reconciling Before Completion

Do not complete a transaction without reconciling the client account first. If you transfer money out of the client account without knowing the exact balance, you risk overdrawing the account. That is a breach of Rule 3.3 (client account must not be overdrawn).

Pitfall 4: Treating Client Money as Your Own

You cannot use client money to pay your own expenses. Even if you have a bill outstanding, you must transfer the exact amount from the client account to the office account only after issuing a proper bill. Do not dip into client money to cover office account shortfalls.

When to Involve Your COFA

Your Compliance Officer for Finance and Administration (COFA) is responsible for ensuring your firm complies with the SRA Accounts Rules. If you identify a discrepancy, a potential breach, or a situation where client money has been mishandled, inform your COFA immediately.

The COFA must report material breaches to the SRA. A single instance of client money being held in the office account (even for a few hours) is a reportable breach. The SRA will want to know what happened, why, and what steps you have taken to prevent recurrence.

For more on the COFA role, see our COFA fundamentals guide.

Practical Example: A Full Conveyancing Transaction

Let us walk through a complete residential conveyancing transaction from the buyer's solicitor's perspective.

Client: Mr and Mrs Smith
Purchase price: £350,000
Deposit: £35,000 (10%)
Mortgage advance: £280,000
Balance from client: £35,000

Stage 1: Pre-exchange
Mr and Mrs Smith pay £35,000 into your client account. You record this as a receipt on their client ledger. The client account balance increases by £35,000.

Stage 2: Exchange
You transfer the £35,000 deposit to the seller's solicitor's client account. You record this as a payment on the Smiths' client ledger. The client account balance decreases by £35,000. The Smiths' client ledger now shows a zero balance (for the deposit).

Stage 3: Pre-completion
The mortgage lender sends £280,000 to your client account. Mr and Mrs Smith send £35,000 (the balance). Your client account now holds £315,000 for the Smiths. You record both receipts on their client ledger.

Stage 4: Completion
You transfer £315,000 to the seller's solicitor's client account by CHAPS. You record this as a payment on the Smiths' client ledger. The client ledger balance returns to zero.

Stage 5: Post-completion
You issue a bill to the Smiths for your fees (£1,500) and disbursements (SDLT of £5,000, search fees of £300). You transfer £6,800 from the client account to the office account (the bill amount). The client ledger shows a debit of £6,800. The Smiths then pay you £6,800 from their own funds (or you deduct it from any residual balance, if applicable).

Throughout this process, you must reconcile the client account at least every five weeks. In practice, you should reconcile after each stage.

Final Thoughts

Client account handling in residential conveyancing is straightforward in principle but demanding in practice. The rules are clear: client money belongs to the client, must be held in a client account, must be reconciled regularly, and must be transferred only on proper instructions. The consequences of getting it wrong are severe.

If you are unsure about any aspect of the SRA Accounts Rules, or if you have identified a potential breach, speak to a legal-sector-specialist accountant. We can help you review your procedures, implement robust controls, and prepare your annual accountant's report.

Contact us for a confidential discussion about your firm's client account handling.