Finally coming to the wrapping up of my friends estate (pension excluded but that's another story) and there is no mention of interest on monies the solicitors held (£295k) from late Sept 2023 to mid July 2024 in their accounts. Before I question this, are there any rules or guidance I should be looking for, as back of a fag packet maths equals £2k for each % interest
If solicitors have to do it the same as accountants then a sum of that size and for that length of time should have been held in a separate designated account specifically for that client alone. That will make any interest earned easily attributable.
Bare in mind that current account interest rates are still pretty low though so it might not be much.
I'd just ask them how much money that account earned in interest, they should.be able to produce a statement to show this. BITD when I was looking after client accounts they all had to be reconciled to the penny every month and then my reconciliations signed off by the senior partner. They were checked by the regulator, ICAEW in our case, will be different for solicitors, every two years. Client monies are a pain in the bottom but have to be done properly.
From my memory of local solicitors' accounts holding accounts at the bank I worked at, they'd have a single 'clients' account where all client money was held They did not have one account per client.
I doubt they have any obligation to earn or offer interest in client money, in fact it's probably the opposite.
A quick Google finds this
https://www.sra.org.uk/sra/news/sra-update-126-interest-rates/
That's very different to how we did it. There was a 'general.account' for small.amounts/very short term but that amount should have had a specific account, especially if held for that length of time. Usually had a dozen or so, most of which were empty, so could be used immediately a client wanted one, once emptied again it would sit there until another client needed it, opening new ones each time would have been a faff.
There's no obligation to earn interest, security being the number one priority, but any earned belonged to the client and not the firm (Edit as per IHN's post - unless otherwise agreed with the client)
But as I say, maybe solicitors are different from accountants, I don't know🤷
Thanks IHN, it's certainly not a conversation I've had but could be buried in their t & C's, will bring it up before the accounts are settled and see what they say.
That's very different to how we did it. There was a 'general.account' for small.amounts/very short term but that amount should have had a specific account, especially if held for that length of time. Usually had a dozen or so, most of which were empty, so could be used immediately a client wanted one, once emptied again it would sit there until another client needed it, opening new ones each time would have been a faff.
There's no obligation to earn interest, security being the number one priority, but any earned belonged to the client and not the firm (Edit as per IHN's post - unless otherwise agreed with the client)
But as I say, maybe solicitors are different from accountants, I don't know🤷
Pretty much this..the solictors have to hold the money in a 'safe' 'client' account. that might mean zero or very low interest.
You'd rightly be pissed off if they put it all on the the S&P500 and lost you 25% of the value of the account.
So basically when it's with solicitors I wouldn't expect much, if any interest...the solictors have to liquidate all the accounts as part of the estate account reconciliation.
You'd rightly be pissed off if they put it all on the the S&P500 and lost you 25% of the value of the account.
True but there is a significant difference between doing that & placing it in a low interest cash account, I've been getting around 4% from cash in the bank which would have amounted to £7.5k in this example - but as I said I'll ask & see what they say, seems like professional advice is that solicitors themselves shouldn't benefit but doesn't mean they are obliged to place money in an interest earning account especially when they wouldn't know how long it would end up being held for.
Many years ago I got a surprise extra payment from a solicitor who held money for a few weeks and made interest on it so rightly passed it on. In recent similar circumstances I hinted at my solicitor they may have overlooked this - and they advised that their bank didn’t pay interest on the type of account they use for client accounts, in return it has other benefits like lower/no transaction fees.
We hold money for clients in client accounts. The main purpose is that the money is safe, protected and separated from the firms main accounts in case we went bust.
They do carry a small amount of credit interest - Currently 1.6% (although this is reducing) this is taxable in the estate as income at 20% and is also used to offset any bank charges. The rates would have been similar in the period you were talking about.
Some firms use client accounts that carry no interest.
We would credit any surplus to the estate.
Received a response from solicitors today, apparently there will be interest added to the account but they only calculate that at the very last moment - which does make perfect sense.
Although their ineptitude in other matters is still shining through....
Well, it turns out there is more interest than is permitted without doing a tax return for HMRC but the solicitors have told me that an accountant must do it but they can't recommend one to me...
Did they give a reason an accountant has to do it? That's definitely not the case for a personal tax return.
Having said that, heck knows how you'd go about setting up a tax account for an estate, so for practical reasons may be a good idea. You could try ringing HMRC but not sure you'd get much useful information.
After a bit of bedtime reading of the government websites its all becoming a bit clearer, shame the solicitors couldn't have explained it all at any time during the process of administration of my friends estate (2.5yrs & counting). Basically the beneficiaries of his estate are all residual legatees (get to divide up as a share of the estate rather than being left any specific item or amount of money) and an estate doesn't have any "personal tax allowance", so any interest earned from when my friend died is counted as income to the beneficiaries and tax needs to be paid on it before distribution from the estate (non tax payers can then claim it back). I think that his estate is classed as "complex" rather than "simple" by HMRC because his house sold for more than £500k and also explains why HMRC came after me for capital gains tax when his house was sold (capital gains would have been paid on any uplift between IHT valuation & actual sale). 3 of the beneficiaries are charities which further complicates matters I presume, so I need to find a tax accountant who is experienced in this area, especially as I have pretty low confidence in the solicitors at this stage.
And all because I agreed to be an executor for an old friend....
Would the charities help out?
They'll have trusted accountants who might be experienced in this stuff
Would the charities help out?
Thanks for the suggestion but they all backed out fairly sharpish when I asked for help with his pension... so would rather sort it myself, turns out the wife of one of the beneficiaries works with people in this area, so that will be my first port of call, failing that I've a couple of friends who might have links to such people - tax accountants not being on my radar as an average salaried PAYE bod.
