Under the prescribed circumstances in Rule 5.1(c) of the SRA Accounts Rules, a residual balance of £500 or less on any one client matter may be paid to a charity of the firm's choice without SRA authorisation, provided the conditions are met. A balance above £500 on any one matter requires the SRA's prior written authority, applied for on the SRA's form.
Note the unit. The limit is per client matter, not per client and not per payment away. Twelve balances of £180 are twelve separate matters inside the limit; one balance of £620 is a single matter outside it, and splitting it is not available.
Before any of that, though, is the obligation you are trying to discharge. Rule 2.5 requires you to ensure that client money is returned promptly to the client, or to the third party for whom it is held, as soon as there is no longer any proper reason to hold those funds. Paying a balance away to charity is what you do when returning it has genuinely failed. It is not a housekeeping shortcut, and a firm with a long list of small balances has usually failed rule 2.5 long before it reaches rule 5.1(c).
These are SRA rules and apply to firms in England and Wales. Firms regulated in Scotland or Northern Ireland work to their own Law Society's rules on unclaimed balances.
The prescribed circumstances are not simply "it is under £500". Each of the following has to be done and evidenced:
That last condition catches firms out because it is counter-intuitive. You may genuinely have spent more on a tracing agent than the balance is worth. The money is still not yours, and netting the cost off is not permitted.
The reasonableness test is proportionate, which means a £45 balance from a matter closed in 2009 does not demand the same effort as a £480 balance from a matter closed last year. Working up that scale:
Two sentences on a file note saying "unable to trace" is not evidence of reasonable steps, and it will not read well to a reporting accountant reviewing the register.
A firm reviews its residual balances and finds 38 matters totalling £9,760. Thirty-one of them are £500 or less, and seven are above it.
After a letter to the last known address, an email, a phone call and a check for other matters on the system, eleven of the small balances are traced and the clients repaid — £2,180 in total. The remaining twenty small balances, £2,940 between them and none over £500, go to a registered charity under the prescribed circumstances, with the register completed and the receipt filed. That leaves the seven above £500, £4,640 between them and including one at £1,120 and one at £860, which need an application to the SRA for prior written authority before anything can happen to them.
The three routes add back to the total: £2,180 + £2,940 + £4,640 = £9,760, across 11 + 20 + 7 = 38 matters. Figures are illustrative.
The central register is a condition of the prescribed circumstances, so a firm that paid balances away without keeping one has not complied even if every individual decision was sound. Four fields are specified: the original owner's name, the amount, the charity's name and charity number, and the date of payment. Add the matter reference and a cross-reference to the tracing record and it becomes the document that answers the reporting accountant's questions without anyone reopening files.
It also does something more useful. A register that grows steadily is telling you that matters are being closed with money still on them, which is a rule 2.5 problem happening now rather than a historical one. The fix is at the front end: a closing checklist that will not let a file close with a client balance, and a monthly review of the reconciliation's ledger list for balances on matters with no recent activity.
Many charities will give the firm an indemnity when accepting a residual balance, agreeing to refund the money if the rightful owner later appears. Ask for one, and keep it with the receipt.
If the charity does not give an indemnity, the firm remains liable to pay the client if they come forward later. That is a real, if usually small, contingent liability sitting on the firm, and it is worth choosing charities that will indemnify rather than discovering the point when a client turns up eight years later. Either way the possibility does not go away — an indemnity moves the cost, it does not remove the obligation.
Anything over £500 on a single matter needs the SRA's prior written authority. The application is made on the SRA's form and asks, in substance, for the same things the prescribed circumstances require: what the balance is, whose it was, why it cannot be returned, and what you did to try.
Two practical points. First, apply in batches rather than one at a time — a firm doing a clean-up usually has several. Second, do the tracing work before you apply, not after: an application that cannot describe genuine attempts to return the money is asking the SRA to approve something the firm has not yet earned.
The SRA's Part One consultation on holding client money, launched 14 November 2024 and closed 21 February 2025, explored whether solicitors should stop holding client money altogether and move to third party managed accounts. Among the ideas it put out for discussion was replacing "promptly" with hard timeframes for residual balances: 12 weeks to return funds after a case concludes, plus a further 12 weeks to trace the owner.
These are proposals. No decisions have been taken and no implementation dates exist. Nothing in this section is a rule, and a firm should not be planning to a 12-week clock as though it were one. What it does tell you is the direction of travel, and a firm that already returns money at the point a matter concludes has nothing to fear from it whenever the SRA comes back to the question.
Separately, on 2 June 2026 the SRA announced that it has submitted a different package of client money rule changes to the Legal Services Board, expected — subject to LSB approval — to come into force early in 2027. That package is about accountant's reports, an annual declaration and compliance officer separation rather than residual balances, and it is covered in our Accountant's Report guide and our COFA guide.
We flag aged balances every month from the ledger list rather than discovering them in a clean-up, so most of them get returned to the client while the contact details still work. Where a balance has genuinely gone cold we prepare the tracing record, the register entry and the schedule your reporting accountant will ask for. That work sits inside our client account bookkeeping service, and the free client account health check includes residual balances among the twelve points it tests.
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Yes, within limits. The prescribed circumstances in rule 5.1(c) of the SRA Accounts Rules allow a residual balance of £500 or less on any one client matter to be paid to a charity of the firm's choice without SRA authorisation, provided the conditions are met: reasonable steps taken to trace and return the money, records of those steps kept for at least six years, a central register recording the owner's name, the amount, the charity's name and charity number and the payment date, and the charity's receipt retained. The limit applies per client matter, not per client. A balance above £500 on a single matter needs the SRA's prior written authority before anything is paid away.
Enough to be reasonable, and reasonableness is judged on four factors the SRA sets out: the age of the balance, the amount, the availability of contact details, and the cost of tracing. More effort is expected for larger and more recent balances. In practice that means at least a letter to the last known address, an email and a phone call for every balance; checking whether the client has another matter with the firm or a newer address on a different file; and, for larger sums, an electoral roll search, a commercial tracing agent, or contact with personal representatives where the client has died. Record what you did and when, and keep that record for at least six years.
No. The prescribed circumstances are explicit that you must not deduct from the residual balance any costs incurred in attempting to trace or communicate with the owner. This surprises firms, because a commercial tracing agent can easily cost more than a small balance is worth, but the money is not the firm's and netting the cost off is not permitted. The whole balance goes either back to the owner or to the charity. That is also a reason to keep tracing proportionate: the four-factor reasonableness test means a very old, very small balance does not demand the same spend as a recent one close to the £500 limit, so match the effort to the balance rather than to a fixed process.
You may still have to pay them. Many charities give an indemnity when accepting a residual balance, agreeing to refund the firm if the rightful owner later appears, and you should ask for one and keep it on file with the receipt. Where no indemnity is given, the firm remains liable to pay the client if they come forward, so the obligation has not gone away — it has simply been funded by the firm rather than by the charity. That contingent liability is usually small, but it is real, and it is a good reason to prefer charities that will indemnify. Keep the register and the tracing record, because they are what you will rely on if the position is ever questioned.
Not a numbered one. Rule 2.5 requires client money to be returned promptly to the client or third party as soon as there is no longer any proper reason to hold it, which is a standard rather than a clock. The SRA's Part One consultation on holding client money, which ran from 14 November 2024 to 21 February 2025, floated replacing that with hard timeframes of 12 weeks to return funds after a case concludes plus a further 12 weeks to trace the owner. No decisions have been taken on those proposals and no implementation dates exist, so do not plan to a 12-week clock as if it were a rule. Returning money as matters conclude satisfies the current standard and any likely future one.
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