What Expenses Can Be Deducted from the Estate Value

At Towerstone, we provide specialist Inheritance Tax accountancy services for families and executors. We have written this article to explain what deductions may be allowed, helping you make informed decisions.

This is one of the most important inheritance tax questions I deal with in practice, and in my opinion it is also one of the areas where people either miss out on legitimate deductions or assume far too much can be claimed. From experience, getting this right can make a very real difference to the inheritance tax bill, sometimes tens of thousands of pounds, but getting it wrong can lead to HMRC enquiries, delays to probate, and stress for executors at an already difficult time.

In this article I am going to explain clearly and  what expenses can be deducted from the estate value for inheritance tax purposes in the UK, what cannot be deducted, how HMRC looks at these claims in practice, and the common mistakes I see time and time again. Everything here is grounded in current guidance from HM Revenue and Customs and GOV.UK, and in real world experience of preparing inheritance tax returns and dealing with HMRC on behalf of estates.

This is intentionally detailed. In my opinion deductions are one of the few areas where executors can lawfully reduce the taxable value of an estate after death, so understanding them properly really matters.

Why Deductions Matter for Inheritance Tax

Inheritance tax is charged on the net value of the estate, not the gross value.

That means HMRC looks at:

• What the deceased owned at the date of death

• Less any allowable liabilities and expenses

The difference between gross and net can be significant. From experience, estates that are prepared carefully and accurately often pay materially less tax than those rushed or completed without proper understanding.

The Core Principle HMRC Applies

In my opinion, everything about deductible expenses comes back to one core principle.

To be deductible, an expense or liability must:

• Exist at the date of death, or

• Arise directly as a result of the death and estate administration

If an expense fails that test, HMRC is likely to disallow it.

This distinction sounds simple, but in practice it causes a lot of confusion.

Funeral Expenses

Funeral expenses are the most widely understood deduction and almost always allowable.

Deductible funeral expenses usually include:

• Funeral director fees

• Coffin or casket costs

• Burial or cremation fees

• Minister or celebrant fees

• Flowers for the funeral

• Reasonable transport of the body

From experience, HMRC is generally pragmatic here, provided costs are reasonable.

What Is Not Deductible as a Funeral Expense

Not everything connected to a funeral is deductible.

Common non allowable items include:

• Wake or catering costs

• Travel or accommodation for mourners

• Memorials or headstones installed after burial

In my opinion, this is where people often overclaim unintentionally.

Debts Owed at the Date of Death

Debts that existed at the date of death are generally deductible in full.

These can include:

• Mortgages secured on property

• Personal loans

• Credit card balances

• Overdrafts

• Outstanding utility bills

• Unpaid care fees

From experience, the key is that the debt must be genuine, legally enforceable, and outstanding at death.

Mortgages and Secured Loans

Mortgages are one of the most significant deductions in many estates.

If a property is worth £600,000 but has a £200,000 mortgage outstanding:

• The deductible value is £200,000

• Inheritance tax is calculated on the net property value

This often comes as a relief to families who assume inheritance tax is charged on the full property value.

Loans From Family Members

Loans from family members can be deductible, but this is an area HMRC scrutinises closely.

From experience, HMRC will expect:

• Evidence the loan existed

• Proof of the amount outstanding

• Clear intention that the loan was repayable

Verbal arrangements without paperwork are often challenged.

In my opinion, proper documentation is essential here.

Household Bills and Living Expenses

Unpaid household bills at the date of death are usually deductible.

This can include:

• Gas and electricity bills

• Council tax

• Water charges

• Telephone or internet bills

Only amounts outstanding at death are deductible, not future bills incurred after death.

Care Fees and Medical Costs

Outstanding care fees at the date of death are deductible.

This can include:

• Care home fees

• Domiciliary care invoices

• Private medical bills

From experience, these deductions can be substantial, particularly where care costs were high in later life.

Estate Administration Expenses

This is where confusion often arises.

Some administration expenses are deductible, but not all.

Allowable administration expenses usually include:

• Probate application fees

• Valuation fees required for probate

• Legal fees directly related to administering the estate

• Accountancy fees for inheritance tax returns

In my opinion, the phrase “required for administration” is key.

Valuation Costs

Professional valuations required to establish estate values are deductible.

This can include:

• Property valuations

• Valuations of antiques, jewellery, or artwork

• Business valuation fees

From experience, HMRC expects valuations to be reasonable and relevant to probate, not speculative or excessive.

Legal Fees

Legal fees are deductible where they relate to:

• Obtaining probate

• Advising executors on estate administration

• Resolving estate liabilities

They are not deductible where they relate to:

• Disputes between beneficiaries

• Rearranging the estate for tax planning

• Personal advice to beneficiaries

This distinction is important and often misunderstood.

Accountancy Fees

Accountancy fees can be deductible if they relate directly to:

• Preparing inheritance tax forms

• Calculating estate liabilities

• Advising executors on tax compliance

From experience, fees for post probate tax planning are not deductible.

What About Executors’ Fees?

Professional executor fees are usually deductible.

If an executor is a solicitor or accountant charging for their services, those fees are typically allowable.

Lay executors do not usually charge fees, but if they do, deductibility depends on the will and circumstances.

Property Maintenance and Insurance

This is an area where people often assume too much can be deducted.

Deductible property expenses may include:

• Insurance required to protect the estate

• Essential repairs to prevent deterioration

Non deductible expenses usually include:

• Property improvements

• Renovations to increase sale value

• Cosmetic upgrades

From experience, HMRC draws a clear line between preservation and enhancement.

Selling Costs and Estate Agent Fees

Costs of selling estate assets are generally not deductible from the estate value for inheritance tax.

This includes:

• Estate agent fees

• Conveyancing costs for a sale

• Auction fees

In my opinion this surprises many executors, but HMRC’s view is that these costs arise after death and are not liabilities at death.

Inheritance Tax Itself

Inheritance tax is not deductible from the estate value.

This sounds obvious, but I have seen it queried more than once.

Beneficiary Expenses

Expenses incurred by beneficiaries personally are not deductible.

This includes:

• Travel costs

• Legal advice for beneficiaries

• Personal tax advice

Only estate level expenses count.

Disputed or Contingent Liabilities

Disputed liabilities can sometimes be deducted, but HMRC will often require evidence.

From experience, this can include:

• Ongoing legal claims

• Potential compensation claims

These cases are complex and usually require professional input.

Business Related Liabilities

Where the deceased owned a business, deductible liabilities may include:

• Trade creditors

• Business loans

• Outstanding tax liabilities

Business debts can significantly reduce the taxable estate, but must be properly evidenced.

Tax Liabilities at the Date of Death

Outstanding tax liabilities are deductible.

This can include:

• Income tax owed up to date of death

• Capital gains tax already incurred

• Council tax arrears

Future tax liabilities are not deductible.

Common Mistakes I See in Practice

From experience, the most common errors include:

• Claiming costs incurred after death incorrectly

• Overclaiming funeral related expenses

• Missing legitimate debts

• Failing to evidence family loans

• Assuming selling costs are deductible

In my opinion, careful review and documentation avoids most of these issues.

HMRC Enquiries and Evidence

HMRC has the power to ask for evidence of deductions.

They may request:

• Invoices

• Bank statements

• Loan agreements

• Contracts

From experience, estates with clear records tend to move through the process far more smoothly.

The Emotional Side of Deductions

It is worth acknowledging the emotional context.

Executors are often grieving, overwhelmed, and unfamiliar with tax rules. In my opinion this is why mistakes happen, not because people are careless.

Clear guidance and professional support can make a significant difference.

Practical Steps I Recommend From Experience

If you are acting as an executor, I recommend:

• Creating a full list of debts at death

• Keeping all invoices and receipts

• Separating estate and beneficiary costs

• Taking advice where liabilities are unclear

• Being cautious rather than aggressive

These steps protect both the estate and the executor.

Key Takeaways

So what expenses can be deducted from the estate value? In simple terms, debts owed at the date of death and necessary costs of administering the estate can usually be deducted, while personal expenses, selling costs, and post death improvements generally cannot.

From experience, deductions are one of the most effective and legitimate ways to reduce the inheritance tax bill, but only when applied correctly. Overclaiming creates risk, underclaiming leaves money on the table.

In my opinion, the best approach is a careful, evidence based one. Take the time to understand what qualifies, document everything, and do not be afraid to ask for help. When handled properly, deductible expenses ensure inheritance tax is calculated fairly, accurately, and in line with UK rules, which ultimately benefits everyone involved.

If you would like to explore related Inheritance Tax guidance, you may find What forms do I need to complete for HMRC when someone dies and What happens if I give away my home but still live there useful. For broader inheritance tax guidance, visit our inheritance tax hub.