Can you inherit debt in the UK?

mans hands holding empty wallet to symbolise debt

Do you inherit debt? No, but that doesn’t mean the debt goes away.

You might still be expected to manage the debt or make payments. It all depends on the type of debt and your relationship with the person who has died.

In this article, you’ll learn about different kinds of debts and who is expected to pay them.

Please note that some of this information only applies to England and Wales. Be sure to check if you live in Scotland or Northern Ireland.

What happens to a deceased person’s debt?

When a person dies, their estate pays most types of debts. A person’s estate is everything they owned when they died, including cash, savings, property and possessions.

If the person left a will, they should have named an ‘executor’. It’s the executor’s responsibility to manage the person’s estate – including using the estate to pay off debts. The executor is often a close friend or family member. Sometimes, a solicitor or bank acts as executor.

If there was no will and the estate was worth a certain amount, an administrator will carry out the same duties. To act as administrator, you must apply for a document called a ‘grant of letters of administration’.

You can learn more in our article, what happens when someone dies with debt?

Can you inherit debt in UK law?

Technically speaking, you can’t inherit debt. If only one person owed a debt, it will remain in that person’s name after they die. This kind of debt is called an ‘individual debt’.

If you’re acting as executor, you’ll need to manage the payment of debts. An executor of a will is not responsible for debts in UK law – but they are responsible for making sure the debts get paid from the person’s estate. As long as things are managed correctly, the money shouldn’t come from your own pocket.

Things can get more complicated with other kinds of debt. Here are a few examples.

Joint debts

These are debts taken out in more than one person’s name. For instance, you might have a shared bank account with an overdraft.

If one person on a shared bank account dies, any debt on that account automatically passes to the other account holder. The same goes for other kinds of joint debts like shared mortgages, credit cards and car loans.

You’re technically not inheriting this debt because you already part-owned it. However, it can feel like you’re inheriting the debt if you shared it with a spouse or other family member.

Similar rules apply if you’re a ‘personal guarantor’, meaning you gave a personal guarantee on a loan. This is when you promise to pay back a loan if someone else can’t afford to. If the person who took out the loan dies, the personal guarantor will take on responsibility for paying the loan.

Mortgages

As we’ve seen, a shared mortgage will automatically transfer to the other named person. But what if you inherit a property with outstanding mortgage payments?

In this case, you will be responsible for paying the rest of the mortgage, as well as household bills and other running costs.

Again, you’re not exactly inheriting the mortgage. You’re inheriting the property – and as the new named owner, you must take responsibility for any associated costs.

There is an exception. If the person who has died made a will, they may have asked for the mortgage to be paid using the rest of their estate. If this happens, you won’t have to pay the mortgage.

You could also choose to sell the property or lease it (rent it out) to cover mortgage costs.

Unpaid taxes

After death, unpaid taxes are treated as an individual debt. This means they’re paid for using the estate of the person who has died.

You won’t inherit unpaid tax debts. However, the executor or administrator might have to pay if the estate runs out of money and something goes wrong in the repayment process.

Student loans

Student loans have their own special rules. This kind of debt can be cancelled after a person has died. This means nobody inherits the debt or becomes responsible for it.

To cancel the debt, you’ll need to contact the Student Loans Company (SLC) with evidence that the person has died.

This only applies to loans taken out with the SLC. You’ll have to check the rules if the person’s student loan came from another provider.

Council tax debts

Council tax debt also follows special rules. If the person who has died got into debt while living with other people, these people will have to pay their share of the debt.

This is because people who live together all share a responsibility for council tax, even if the money comes out of one person’s account. In the eyes of the council, they all benefit from the property so they all have to pay.

This isn’t the same as inheriting debt. Council tax debt doesn’t follow inheritance rules – it can pass onto anybody, regardless of whether they were related to the person who has died.

Are you liable for your partner’s debt when they die?

If your husband or wife dies, you aren’t automatically responsible for their debts. It’s the same if you were in a civil partnership or were living together as common-law spouses.

However, you may well have had joint debts with the person who has died. For instance, you may have taken out a mortgage together or shared a bank account with an overdraft. As a named person on these debts, you’ll be responsible for paying them.

You might also be named as executor or administrator. This means it’s your job to make sure a person’s debts are paid from their estate. It doesn’t mean you have to pay them from your own pocket.

What happens when parents die with debt?

You’re not automatically responsible for your mother’s or father’s debts when they die. Nor can parents automatically be held responsible for a son’s or daughter’s debts.

It’s the same as with spouses. You’ll only have to pay if you had joint debts with a parent or child. And if you’re named as executor, you’ll have to make sure debts are paid from their estate.

What about funeral costs?

Usually, a person who dies pays some – or all – of their own funeral costs.

If the person had a pre-paid funeral plan, this can be used to pay for part or all of the funeral.

If not, the person’s estate can help pay for the funeral. However, the amount you use must be considered ‘proportionally reasonable’. For instance, if a person’s estate is worth £4000, you probably can’t use £3000 for funeral costs. This is likely to be seen as too much.

You can also use life insurance payouts to cover funeral costs. In case you’re not sure whether the person had a life insurance policy, here’s how to check.

More info on funeral costs and inheritance

 

Photo by Towfiqu barbhuiya on Unsplash

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Funeral Director fees

The price quoted contains the Funeral Director fees for a simple funeral. This includes:

  • Funeral Director fees for meetings, paperwork and running the funeral
  • Collection of the deceased and care prior to funeral
  • Hearse or appropriate vehicle for transport to the funeral
  • Basic coffin

The Funeral Director fees quoted do not include third party costs (often called disbursements). The Funeral Director will guide you through your options. These costs are:

  • Cremation or burial fees
  • Medical certificate for cremation
  • Clergy or officiant fee for conducting the ceremony

In addition to the disbursements you may want to discuss optional costs with your Funeral Director - these could include:

  • Funeral flowers
  • Memorial (venue hire, catering etc)
  • Memorial headstone
  • Orders of service
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