4. Debts and liabilities

When you value someone’s estate, you deduct their debts from their total assets and gifts.

This includes anything they owed when they died as well as ‘liabilities’ (things they’re responsible for paying) like:

  • household bills
  • bills for goods and services they’d received but not yet paid for (eg building work, decorators, solicitors, accountants)

Mortgages and joint property

Deduct any mortgages or secured loans on a property from the property’s value. If the deduction’s more than the property’s worth, take away the excess amount from the estate’s total value.

If the person had a joint mortgage with someone else, only deduct their share of the mortgage.

Add any payout from a mortgage protection policy to the value of the estate.

Loans and credit card debts

You can deduct:

  • loans
  • outstanding credit card balances
  • overdrafts

Add any payout from a payment protection policy to the value of the estate.

Uncashed cheques

You can deduct cheques the person wrote for things they bought if they haven’t been cashed yet.

Ignore uncashed cheques the person wrote as gifts - you don’t have to deduct them or add them to the value of the estate.

Debts owed to close friends or family

Only deduct these if they’re legally enforceable. This is when either:

  • the deceased person and the lender made a written or verbal agreement about repaying the loan
  • there’s evidence that the person was making repayments

Gambling debts

You can deduct legally enforceable gambling debts, eg from racecourse betting through the Tote.

You can’t deduct debts from:

  • illegal gambling
  • any gambling in Northern Ireland - they aren’t legally enforceable

Guarantee debts

A guarantee is a promise to pay someone else’s debt if they can’t pay it themselves. If they hadn’t paid it when the person died, you may be able to make a deduction.

What you deduct depends on the borrower’s situation - if they:

  • can’t repay the loan, take off the whole amount of the loan
  • can only repay part of the loan, take off the amount they can’t repay
  • can repay the whole loan, you can’t take off anything

You may need to value deductions for guarantee debts as cash gifts.

Funeral expenses

You can deduct expenses to cover the funeral and things like:

  • flowers
  • refreshments for mourners
  • expenses you paid to arrange the funeral
  • a headstone to mark the grave

Liabilities you can’t deduct

If the person died after 17 July 2013, you may not be able to deduct money they owed if any of the following apply:

  • it hasn’t been paid out of the estate
  • it was used to buy property you don’t pay Inheritance Tax on
  • it was used to buy, maintain or improve property that qualifies for Business, Agricultural or Woodlands Relief

Contact the probate and Inheritance Tax helpline to check if you can deduct liabilities.