Managing Debts and Liabilities During Estate Administration in Scotland

Managing a Deceased Person’s Debts and Liabilities: 5-Step Guide

Here’s a straightforward guide to help you understand the estate administration process in Scotland:

Step 1: Calculate the value of the estate

Before applying for Confirmation, executors must provide an “inventory” list of the deceased’s assets at the time of their death. The total gross valuation of the estate will determine whether the estate is classed as a “small” or “large” estate, as applications for the Grant of Confirmation differ between the two.

• Small estate: Valued at £36,000 or less
• Large estate: Valued above £36,000

Items that make up an estate include:

• Bank accounts and building society accounts
• Property such as buildings and/or land
• Cars
• Investments and shares
• Life insurance policies
• Personal possessions such as jewellery, artwork and belongings
• Any other assets owned by the deceased at the time of their death

*It is important to note that if the estate is subject to Inheritance Tax, this tax must be paid within 6 months from the end of the month of the deceased’s date of death otherwise HM Revenue and Customs will add daily interest to the amount due. Our dedicated team of Solicitors at Jones Whyte Law Ltd will be able to advise you if your loved one’s estate is subject to Inheritance Tax and guide you through this payment process.

If the estate is subject to Inheritance Tax, this must be paid and HM Revenue and Customs must provide an authorisation code before you are able to apply for the Grant of Confirmation.

Step 2: Obtain a Certificate of Confirmation

Next, you must obtain Confirmation, a court-issued document that gives the Executor legal authority to manage an estate. You may not be legally authorised to handle a deceased person’s assets and estate, nor pay any outstanding debts, without obtaining Confirmation from the Scottish courts. For this reason, it is important that you check with a Solicitor that you are the Executor or can be appointed as Executor before attempting to administer an estate.

To apply for a Certificate of Confirmation for a small estate, you will need to provide the Sheriff Court with an inventory of the deceased’s assets, along with the deceased’s original Death Certificate and most recent original  Will. For large estates, it’s strongly advised that you seek advice from  our Private Client Team of Solicitors at Jones Whyte. The Scottish Courts and Tribunals Service cannot assist with applications for the Grant of Confirmation for a large estate. If the Executor does not complete the application correctly the court will reject the application and this can cost the estate time and money.

Once Confirmation is granted, you can manage the estate’s assets, pay any further taxes owed and settle any outstanding debts.

Step 3: Identify debts and liabilities

Once you have Confirmation, gather all the details of what the deceased owed, such as:

• Credit card debt
• Utility bills (gas, electricity, internet)
• Personal loans
• Car finance
• Mortgages
• Income tax
• Council tax
• Funeral expenses

You can find this information in the deceased’s post, emails, online accounts, or by contacting creditors directly.

Types of debts

• Individual debts: Debts in the deceased’s name.
• Joint debts: Debts shared with another person
• Secured debts: Linked to an asset, like a mortgage or a car loan.
• Unsecured debts: Not attached to an asset, like credit cards or personal loans.
• Undisclosed debts: Any other debts not identified during the probate and estate administration process, such as unpaid utility bills or overdrafts.

Step 4: Notify creditors and HMRC

Once you’ve valued the estate and identified the debts, you must formally notify all known creditors and HMRC of the death. This helps confirm the final money owed and ensures no debts are overlooked during estate administration.

Creditors

Contact each known creditor (and/or organisation) the deceased owed money. This could be banks, mortgage providers, utility companies and credit agreement facilities. When contacting creditors, provide a copy of the death certificate and clearly state you are the executor (personal representative) of the estate. You should also request:

• A final balance or closing statement
• Any paperwork or contracts related to unpaid debts, loans and accounts
• Information regarding direct debits or stop orders that need to be cancelled

Keep detailed records of the money owed, making provision for any unsecured creditors such as:

• Council tax and utility bills
• Shop accounts and store cards
• Telephone and mobile accounts
• Subscription services

HMRC

Informing the HMRC is essential, especially if the deceased:

• Received a pension
• Received state benefits (e.g, Bereavement benefits, Child Support, etc.)
• Paid income tax or National Insurance (NI) contributions

The HMRC will advise if further tax returns are required (up to the date of the death) and whether the estate needs to pay:

• Inheritance tax (IHT): On estates exceeding the £325,000 threshold (nil-band rate). Other exemptions and reliefs may apply.
• Capital gain tax (CGT): On profits from sold property or investments above the annual exemption allowance (£3,000 for 2024/2025).
• Income tax (IT): On rental profits, dividend income, plus any remaining personal tax obligations between the time of death and the final estate distribution.

Step 5: Pay outstanding debts in priority order

In Scotland, debts and liabilities must be paid in a legal priority order before distributing the estate to beneficiaries:

1. Privileged debts: Death-bed costs, funeral expenses, probate fees.
2. Preferred debts: Pension contributions, wages owed to the deceased’s employees, tax obligations (inheritance, income, council).
3. Secured debts: Mortgage repayments, collateral loans.
4. Ordinary debts: Credit card debt, utility bills, personal loans.

Note: The Executor should give creditors at least six months to make any claims for money owed before distributing the estate, otherwise, they (the Executor) may be held personally liable for the debts.