Business escrow accounts: hold transaction money with a real third party

An escrow arrangement places money with a third party until agreed conditions are met. It can reduce counterparty risk in a business sale, property transaction or other conditional deal, but the account structure, release rules and legal status of the provider matter. Calling an ordinary bank account "escrow" does not create independent protection by itself.

An escrow account should be tied to a real legal or commercial transaction

HMRC's July 2026 international-information guidance describes an escrow account as an account held by a third party on behalf of the beneficial owner of the money. The guidance recognises escrow structures connected with court matters and with the sale, exchange or lease of real or personal property where money is held to secure an obligation directly related to the transaction.

That transaction link matters. The account should not become a general holding place for money between parties simply because they want an extra layer between them. Define the asset or obligation being secured, the amount to be held and the event that releases the money.

The third party operates the account, but the beneficial ownership can remain with someone else

Escrow is fundamentally about separating control from beneficial ownership. The third-party operator holds or administers the money under the agreement, while the commercial documents determine who is economically entitled to it before and after the release conditions are satisfied.

For example, a buyer can deposit £500,000 pending completion of a business acquisition. Until the agreed completion conditions are met, the funds may remain held under the escrow terms rather than becoming free cash of the seller or the intermediary. The accounting treatment should follow the legal arrangement rather than the fact that money is sitting in a bank account with a visible balance.

A solicitor's client account is not a general-purpose escrow service

The Solicitors Regulation Authority says law firms must not use client accounts as banking facilities for clients or third parties. Holding and moving money can be proper where it has a real connection to regulated legal work, including normal company acquisitions, conveyancing and other transactions on which the solicitor is actually acting.

The SRA has specifically warned about firms acting as "execution only escrow agents" where they do not understand or advise on the underlying transaction. If a solicitor is being asked to hold funds, there should be a proper legal retainer and a genuine reason for the firm to handle the money. Convenience alone is not enough.

The escrow agreement should state exactly what evidence releases or returns the money

Write objective conditions: completion of a share transfer, delivery of documents, expiry of a warranty period, court order or another verifiable event. State who can instruct the escrow agent, whether joint instructions are required, what happens if the parties disagree and how interest and bank charges are handled.

A vague instruction such as "release when both sides are satisfied" creates avoidable conflict. If £1 million is held pending delivery of regulatory approval, define which approval document counts and what happens if approval is refused. The bank or escrow provider should not be forced to decide the commercial dispute itself.

Escrow does not remove anti-money-laundering and source-of-funds checks

The SRA says solicitors handling transactional money remain subject to anti-money-laundering duties, including understanding source of funds and source of wealth where relevant. A third-party managed account provider should also be appropriately regulated; SRA guidance tells law firms using TPMAs to check the provider's FCA authorisation status.

Expect the provider to ask who is paying, who will receive the money, what the transaction is and why the amount makes sense. Build those checks into the timetable. A completion can be delayed if the parties assume the escrow provider will accept £5 million on the morning of closing without first completing KYC and source-of-funds work.

Release the money and close the arrangement when the purpose has ended

SRA guidance requires client money to be returned promptly when there is no longer a proper reason to hold it, and the same principle is sensible in commercial escrow. Once the condition is satisfied, execute the release, record the beneficiary, settle permitted fees and close the escrow balance rather than letting residual funds remain indefinitely.

Keep the escrow agreement, bank statement, deposit evidence, release instruction and final payment confirmation together. Reconcile any interest or fees separately. The file should show the full chain from deposit to final release so neither party later has to rely on an intermediary's memory.