How a law firm's chauffeured car is funded.
The Ministry of Justice's plan to take the interest which law firms make on money sitting in their client accounts will destroy high street and residential conveyancing firms, critics including national firm Taylor Rose have said.
Taylor Rose would have made just £100k profit last year without the millions generated by its client account.
Solicitors Regulation Authority rules currently only require law firms to provide clients with a 'fair sum' in relation to the interest earned on client money. The loose definition leaves scope for firms to retain most, or all, of the interest via agreement with their clients.
Last year the SRA postponed a review of the arrangement, but the Ministry of Justice has proposed requisitioning 50% of the “unearned interest” generated on law firms’ individual client accounts and 75% of the “unearned interest” generated on pooled accounts, which it says it will use to shore up England & Wales' crumbling justice system.
“Law firms thrive when the system is strong, so it follows that they should contribute to strengthening justice”, Lord Chancellor David Lammy said.
In 2024, the UK200 law firms generated over £350m from client account interest, according to data provided to RollOnFriday by Taha & Co.
Conveyancing firms typically have multiple deposits for property purchases sitting in their client account at any one time, and Companies House accounts show the interest earned has become a vital income stream.
A source told RollOnFriday the scale of the issue became apparent last year when they were advising a private equity fund on the potential acquisition of a law firm. “We realised that the £5m profit was actually £3.6m and £1.4m client account interest” they said.
“This materially changes the deal, if you’re paying 8x profit, then the deal goes from £40m enterprise value to under £29m”. They said private equity investors “now offer zero multiple on client account interest, and no immediate day one payout, it is all pushed through the model as an earn-out”.
Taylor Rose’s 2024 accounts show it earned revenue of £96m, but its EBITDA (earnings before interest, taxes, depreciation and amortisation) was just £100k.
However, £7.3m was generated in client account interest, resulting in an adjusted EBITDA of £7.4m.
The impact was even greater the year before. If it had not been allowed to retain £6.4m interest thrown off by its client account, Taylor Rose would have recorded a loss of £2.7m instead of a profit before tax of £3.1m.
Ebitdayum.
A spokesperson for Taylor Rose’s parent group, AIIC Group, told RollOnFriday: “Operating profit in the years in question were heavily impacted - in common with the wider industry - by several external and strategic factors, including the market disruption following the Truss mini-budget; a cyber-attack on a third-party IT service provider that affected many firms; as well as strategic decisions such as avoiding making redundancies in the downturn and continuing to make significant investments in IT infrastructure to support our rapidly growing consultancy business”.
“These decisions have contributed to the ongoing good health and growth of the firm, which has been operating profitably since the second half of FY2024, even when excluding net client interest, and despite the fact we have increased investment in back-office functions such as IT to support the productivity and experience of our lawyers.”
Its spokesperson told ROF, “Like the rest of the industry, we generate reasonable and appropriate income from client work, made up of billing and, with client agreement, a portion of interest on safeguarded funds in line with SRA rules."
"Focusing on one income stream ignores the broader financial model of a modern law firm and the significant reinvestment we make in technology, service and infrastructure”, they said.
As it stands, Taylor Rose can still afford to provide its CEO with a private driver, although that may not win Lammy over to the law firms’ view that client account interest should stay with them.
Taylor Rose’s vacancy states that the successful applicant’s key responsibilities will include “Driving the CEO… to various locations within the UK”, “Ensuring the vehicle is clean”, and “Providing a courteous and professional experience for passengers including assisting with luggage and any errands”.
The MoJ’s plan would not only shove firms into choppy waters, possibly requiring them to axe drivers – it would also require some partnerships to drastically clip their wings.
Sheffield conveyancer Taylor & Emmet shared an operating profit of £3.5m on revenues of £22m between their seven equity partners, according to their 2025 accounts.
However, £2.75m generated in interest on client account allowed PEP to be topped up from £500k to £900k, potentially putting the partners on a par with contemporaries at top tier firms.
Client account interest has also been a salve for Blixt, the private equity backers of North West firm Slater Heelis. Its law firm asset made £680k profit on revenue of £18.5m in 2025. But an extra £1.4m in the form of client account interest allowed it to clear £2 million in profit, increasing the profit margin from under 4% to a much more respectable 11%.
Nicky Heathcote, non-executive chair of the Conveyancing Association, has criticised the MoJ proposals, stating that “Client account interest is not a spare source of funding that can be taken without consequence”.
Taylor Rose’s spokesperson at AIIC said, “Solicitors have safely safeguarded client money in ring fenced accounts for decades. Changing the long standing rules on client account interest would introduce unnecessary complexity into routine transactions and risk poorer outcomes for consumers through delays, reduced service quality and higher fees.”
“These impacts would be felt most acutely in residential conveyancing, where fees have already been driven down over many years, and could force many smaller high street firms out of business.”
Comments
72
14
Yet more “Lazy Lammy” uninformed and unresearched and couldn’t care less idiocy!
How on Earth did he ever get to become the UK Foreign Secretary?
16
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The Livid Whammy strikes again.
16
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Shhhhhh its out dirty little secret.
Why do you think the finance teams are not encouraged to move money ASAP.
103
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I don’t understand this. I’ve worked at three different firms (a national, a large international and a “silver circle” firm, so a good spread of the market) and all of them have always returned 100% of interest accrued on client account to the client.
There have been a handful of cases in my 12+ years in practice where we have kept a de minimis amount, but we otherwise have also returned it. I’m a bit surprised that law firms have been keeping interest held on other people’s money?
102
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If you have to live off client interest you really should find another career / industry.
47
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Straightforward state appropriation of private assets.
74
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Excellent initiative. The only thing better would be to give 100% of it back to the client.
72
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What, if anyone knows, is the rationale for a solicitor keeping any of the interest on an individual client account, where technical arguments relating to a pooled account (it’s difficult/expensive to identify and allocate interest individually) don’t apply ? The starting point of course is that the client funds never belongs to the solicitor, rather it’s a form of trustee, obliged to account in full to its client beneficiary for profits made from the beneficiary’s property.
92
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What right does the Government have to this money? This is straight up expropriation.
I am not against the Government/SRA saying that firms can’t keep this cash, but if they do it should go back to the client.
Also, any firm which is surviving purely off client interest should not be in business. I’d start calling recruiters if I worked at TR.
21
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It is just another tax, something this government specialises in.
24
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Tell me a business that doesn't try to engineer its financial position to pocket extra interest. I go into a supermarket and buy some food, retailer gets the cash on Day 0, the supplier won't see their cut of that money for 3 months (if they're lucky), meanwhile the interest accrues to the retailer.
How about my energy company that seems to think my usage is going to be 50% more than it has been the last 3 years meaning that my account is in huge amounts of credit (and still will be come spring when my usage will drop below their monthly estimate) all the while allowing them to collect interest on the money they've received on account.
What this issue seems to highlight is that particularly residential conveyancing has been driven to a commodity whereby often have lawyers with large case loads on very low fixed fees who aren't necessarily able to give the clients the support they would like to and barely earn a real wage.
23
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They would get more money cutting the generous MPs' expenses, golden pensions and payrises
8
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Great to hear. Law firms are a great example of hard working folks earning money from their hard labour, not through unearned capital appreciation. Clearly some lawyers' labour is not worth enough and so they revert to profiting from unearned interest. Let's make sure that interest either goes back to clients (as it would at any major law firm of good repute) or into the hands of the British public.
30
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I've been practising for nearly 20 years - we have never ever retained any interest on client funds (possibly only disbursements to cover any account costs which are negligible). I recall the old rules stating that any interest over £20 had to be accounted to the client. A client might be ok with the solicitor keeping some interest, provided it was reflected in the fee structure. [...]
14
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1. How is he 'snatching' it - surely he's just making sure the right person ie the client gets it?
2. Why on earth would a solicitor get any of the interest on someone else's money?
9
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TLS Gave Taylor Rose some house room on their website this week
“Change is the hardest thing to do in business”: innovation and evolution in law firms | The Law Society
Is "doing things in a different way" relying upon interest generated in client account to subsidise the fees that clients pay?
It almost certainly is in their letter of retainer but I wonder how many punters actually properly read them.
13
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Given the amount of SDLT paid, this is taking the piss.
Years ago when I did commercial prop, I was always under the impression that the clinet got 100% of the interest.
9
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I think state appropriation of private assets is vastly better to private appropriation of private assets. Only PE backed financially engineered commercial failures will see this as an issue.
14
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To anon at 9.34, that is precisely right as a matter of general law: sols are trustees of client money and so must account for interest on the sums they hold. But I've recently been looking at a firm's TOB as part of a case, and they provide for no interest to be paid on client account funds. Presumably, that allows the firm to hoover them up, and I expect that terms like that are fairly common.
14
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Astonishing that solicitors are taking their clients' money in this way - who in the General Public knew that this was going on? Aside from any other consideration, it is an incentive to hold on to clients' money
It sounds like it may be a 'recent' thing. When I was in the Inland Revenue 1975-84 we used to investigate taxpayers for not declaring interest and a useful question was "you sold your house last year - could you cheque the completion statement because a lot of interest can build up in a short period on such a large amount. It's easy not to notice that".
The fact that we got information from solicitors indicates that they were being honest, in those long gone days ....
12
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Don't solicitors hold these funds as trustees for their clients? I guess the interest must be disclosed to clients so it is not a 'secret profit' but it still seems rather at odds with the trustee-beneficiary relationship. Not sure why this is being reported with such a frothy anti-labour tone. Seems a sensible enough plan to me. I can't believe the entire UK law market is entirely unprofitable and supported solely by interest payments.
9
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Wow and on their own website they have the Taylor Rose Sustainability Update 2025 dated in April 2025 and now they have a vacancy for a private driver!
5
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Surely the better answer to this problem would be to cut interest rates to 0% so that nobody gets any interest at all on client deposits?
17
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I'm shocked that there are firms out there whose profitability depends so heavily on interest on client money That's not a prudent model, especially as we look to be heading toward a lower interest rate environment. We're lawyers not banks. I suggest those firms revisit their pricing models asap.
8
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There should never have been a world in which lawyers pocketing interest on client money was acceptable in the first place, less still one where law firms become financially dependent on it.
I would see the cash go into a properly ring-fenced access to justice fund (assuming the clients agree to waive it) rather than into the general slurry of the exchequer - but any law firm boss complaining about no longer being allowed to cream off this stuff needs to look in the mirror.
9
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@11.42
"But I've recently been looking at a firm's TOB as part of a case, and they provide for no interest to be paid on client account funds. Presumably, that allows the firm to hoover them up, and I expect that terms like that are fairly common."
I don't think this would be enough. Trustees are not supposed to make a "secret profit". The beneficiary has to know and approve of the trustee making any money off the trust fund.
10
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holding client monies incurs a cost to the business, either with banking charges or admin costs to account for the monies. As this is done for the clients benefit the firm should cover those costs with either the interest earned or a fee. I am interested in whether clients would prefer to have the interest returned or to be charged higher fees, or an admin fee say of 3% if of the total under management.
11
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This has always been the case, at least for the last 30 years, it's the only way conveyancing sheds make any money
6
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Charge more for conveyancing - simples.
16
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Mr Lammy's proposals will cause thousands of firms of solicitors either a) to become unviable (and perhaps go bust) with all the consequences that will have on the economy, or b) to be forced to increase fees by as much as 60% which will have other disastrous effects on an economy which is trying to achieve "growth". how will that serve justice?
I have been a partner of my firm for 40 years in a practice which just deals with property and private client work. The bank interest provides valuable monthly cash flow for the business. I have managed the firm for nearly 30 years and know how my firm's figures over the years produce a fair profit for the risk taken and without the interest we would not survive unless we were to apply a massive hike in fees. Other firms will be no different.
We are according to our bank, who represent many solicitors, generous with what we pay away which in all instances is more than the client would receive individually if he or she were to take the money to their bank and ask for a rate of interest on an "instant access account". To give an example Barclays pays about 1% instant access and we receive on our pooled account about 2.5%.
By definition a client "call "account has to be instant access.
As a result of pooling it achieves a higher rate but it costs money to the firm to manage the account and credit interest.
The majority of what is held is money passing through the account on a short term basis. We have a de minimis amount of interest of £50 and do not pay interest below that sum as per our letter of engagement.
Designated accounts are different and may be opened for any term although under the practice rules we are not permitted to be substitute bankers and the money held on client account has to be held in connection with a retainer of the firm. With designated accounts there is an enormous amount of administration and our accountants have to audit all client accounts annually at cost to us.
The interest which we retain is part of our annual profit. On that slice of income the profession pays income tax at 20%, 40% or 45% whichever is the individual partner's top slice tax rate so the government is doing very well on that basis alone. It is after 75% of the interest but will no doubt set up a department to manage its running at vast expense which will no doubt mop up as a cost the majority, if not more, of the remaining 35% interest.
The point to stress is that no client is worse off than they would be if they were to take the money off and put it in an instant access account so why should a firm not have the benefit of the money.
This is sheer madness and so typical of many politicians of any persuasion who spout nonsense without working out the unintended consequences of their actions.
20
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Knights isn't mentioned here but take a good look at their accounts and you will see an already poor profit margin look atrocious if the government goes through with this.
9
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Partner at a big firm here. We take no interest from client accounts. I once had to find two partner signatures to return 20p in interest to a pension fund worth billions.
27
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06:28hrs 17 January 2026
Also see Ampa Holdings LLP’s 2025 Accounts just filed at CH: they appear to show a receipt of £6.6m for interest received. That represents a very significant proportion of its flat y/y profit distributable among its Members and removing 75% of that would surely lead to justifiable questions about its financial sustainability, certainly as currently structured.
8
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I worked at a silver circle firm for 8 years and have now returned to Toronto. Under the rules of the law society of Ontario, if a lawyer holds client funds in trust in a pooled account, the lawyer is not entitled to the interest and never has been. The view here is that would be inconsistent with a lawyer’s fiduciary duties. Nor is the client entitled to receive the interest, since it’s impractical in a pooled account, where funds are commingled, to account to each single client for interest on their funds. Instead, the lawyer must pay the interest to a non profit created by statute which seeks to enhance access to justice, called the Law Foundation. If a client wants to receive interest, the client and lawyer arrange for a separate trust account with only that client’s funds, and they work out a fee to reimburse the latter for the hassle and expense. I never thought I’d agree with David Lammy but he is right on this.
8
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Maybe we should start charging a % of the property value like Estate Agents to rectify the shortfall?
4
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The State bar takes all interest on IOLTA trust accounts in the US.
5
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Look at Cripps - they are on the edge, salary costs almost 60% of revenue, and client interest keeping Partners in a job. No wonder they are chasing a merger!
7
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It’s the standard position in Australia that interest is shared equally between the parties (not the lawyers). I haven’t worked in the UK for a while but I find this argument funny
18
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Surely the SRA should be looking closely at the last filed Accounts of those Firms which appear to be relying on the receipt of Interest on Client Account and in view of Lammy’s 75% confiscation proposal to “shore up the Justice System” and the better funding of it and asking those Firms urgently how they propose to make themselves financially sustainable and remain solvent if the proposals go ahead in this current FY?
Is it doing so? If not, why not?
Does the LSB need to intervene and again question the SRA on this?
What is the SRA actually doing?!!