Labour's Proposed £100m Client Account Interest Grab Faces Backlash
The Ministry of Justice has unveiled controversial plans that would redirect approximately £100 million in interest generated from funds held temporarily in lawyers' client accounts during estate administration and property transactions. Critics have swiftly labelled the proposal a "back door tax" that could disproportionately impact grieving families and home buyers during already stressful financial processes.
Vulnerable Groups Face Additional Financial Burden
Tax experts have raised significant concerns about the potential consequences of this policy shift. Andrew Sanford, a partner at leading tax and accounting firm Blick Rothenberg, described the measure as an "egregious form of government enrichment" that could see hundreds of pounds diverted from individuals during drawn-out legal proceedings.
"This has been slipped out with little public pronouncement and could well affect the vulnerable or bereaved from interest they are clearly entitled to," Sanford warned. "Probate processes can be held up by disputes, and delays in processing the probate and inheritance tax claims mean more interest on the held funds could be going to the government."
The same concerns apply to clients navigating personal injury claims or divorce proceedings, where substantial sums often remain in client accounts for extended periods.
Uncertainty Over Who Ultimately Bears the Cost
Dan Neidle, founder of the influential tax campaign group Tax Policy Associates, highlighted the fundamental question surrounding the proposal's implementation. "Is it the lawyers? Or is it their clients, when they've large amounts in their lawyers' client accounts, particularly during property transactions and probate?" he questioned.
"Either way, this is in effect a tax increase – the only question is who pays it," Neidle concluded, pointing to the inevitable financial impact on either legal professionals or their clients.
Government Defends Proposal as Necessary Justice System Funding
A Ministry of Justice spokesperson defended the initiative, stating: "This Government inherited a justice system in crisis. Years of underinvestment have taken their toll – leading to increasing backlogs in our courts and a crisis in our prisons."
The spokesperson continued: "We're exploring how interest earned on accounts – a tried and tested idea already operating in many countries around the world – could be invested to strengthen our justice system, making it fairer and more accessible for all."
The proposal represents a significant policy shift that would see interest traditionally accruing to clients during property purchases, probate settlements, and other legal transactions redirected to government coffers. With the Ministry of Justice framing it as essential funding for an overstretched justice system and critics condemning it as an unfair burden on vulnerable citizens, the debate highlights ongoing tensions between revenue generation and protection of those navigating complex legal processes.
