How to complete IHT419: deducting the deceased's debts from the estate for Inheritance Tax

Credit card balances, personal loans, overdrafts, and other unsecured debts outstanding at the date of death are fully deductible.

Request a statement of account as at the date of death from each creditor.

Include the principal balance and any interest that had accrued but not yet been charged to the account.

Household bills that were outstanding at the date of death (gas, electricity, water, council tax, telephone) are deductible.

For bills billed in arrears (most utilities), there will be a period of use up to the date of death for which no bill had yet been issued — the deceased owed this as an accrued liability even if no invoice had been received.

Any income tax, National Insurance, capital gains tax, or VAT that was outstanding at the date of death is a debt of the estate.

This typically arises from the deceased's most recent Self Assessment return, an open enquiry, or a PAYE underpayment.

HMRC bereavement team can confirm the amount outstanding.

If the deceased was self-employed, there may also be Class 2 or Class 4 NIC outstanding.

If the deceased was in a care home and fees for the last period had not yet been paid, those outstanding fees are a deductible debt.

The care home will provide a final invoice or statement of outstanding amount.

Contingent liabilities (debts that might arise in future, for example a potential claim against the deceased that has not yet been made formal); debts to family members not incurred for full consideration; debts that are statute-barred (past the limitation period); and certain anti-avoidance restricted debts under the post-2013 rules (see Section 3).

Funeral director's charges (collection, preparation, coffin, hearse, service); burial or cremation fees (cemetery or crematorium charges); minister's or officiant's fees; flowers for the service; order of service printing; funeral wake or reception (reasonable refreshments); headstone or grave marker (may be claimed in a later period — HMRC accepts this even if paid after the IHT400 is submitted); transport costs for close family to attend.

Costs of a will-reading, 'death notice' in a newspaper (considered promotional), legal costs of administering the estate, the cost of commemorative items for family members, or any costs that are really a bequest to someone.

If the deceased had a pre-paid funeral plan, the funeral costs are met by the plan and are not an additional debt of the estate.

However, the plan itself — if the deceased paid into it — is an asset of the estate (its value at the date of death).

The net IHT position is roughly neutral: the pre-payment was an asset while the person was alive, and the funeral costs are met by the plan on death.

If the deceased borrowed money specifically to buy excluded property (typically foreign assets or certain non-UK sited investments that are themselves outside IHT), the debt is not deductible.

The excluded property is outside the IHT estate; the debt used to acquire it cannot reduce the IHT estate.

This prevents a planning structure where UK-taxable assets are mortgaged to buy overseas assets.

HMRC may challenge a debt to a family member where: there is no written loan agreement; no interest was charged or paid; there was no genuine expectation of repayment; and the 'debt' was created specifically to reduce the estate's IHT value.

These are scrutinised closely, particularly where large sums are involved and the 'lender' did not need the money back.

A genuine loan from a family member (made on commercial terms with a written agreement, regular interest payments, and a realistic repayment schedule) is deductible.

The test is substance over form: did the economic reality match the legal form of the transaction?