Testamentary Expenses and Probate

When someone dies, the executor or administrator takes on the legal responsibility of managing their estate. One of the first practical problems is paying the costs that arise before and during probate. This guide explains what testamentary expenses are, which costs the estate can properly bear, and the distinction that catches most executors out. It applies to England and Wales.

What are testamentary expenses?

The Administration of Estates Act 1925 refers throughout to “funeral, testamentary and administration expenses”. That phrase appears in section 34(3) and in Part II of the First Schedule, which sets out the order in which the estate’s assets are applied to meet them.

Three points follow from the wording, and the first is the one most often got wrong.

Funeral expenses are a separate category, not a type of testamentary expense. The Act lists three heads, not one with subdivisions, and the law treats them differently: funeral expenses are deductible for inheritance tax under section 172 of the Inheritance Tax Act 1984, while administration expenses are not deductible at all. Plenty of published guidance runs the two together. They are distinct.

The Act does not define “testamentary expenses”. The meaning comes from case law, which construes the phrase broadly to cover expenses incident to the proper performance of the personal representative’s duties. The practical test is whether a cost was reasonably and properly incurred in administering the estate.

They are paid before beneficiaries receive anything. Testamentary and administration expenses rank ahead of legacies and residue.

The distinction that matters most: payable is not the same as deductible

This is the single most valuable thing to understand, and the reason so many executors get an unwelcome surprise from HMRC.

A cost being a legitimate testamentary expense means the estate can properly pay it. It does not mean it reduces the inheritance tax bill.

Inheritance tax is charged on the value of the estate as at the date of death. Under section 5(3) of the Inheritance Tax Act 1984, only liabilities in existence at that moment are taken into account. Costs incurred afterwards, in the course of administering the estate, came into being too late. HMRC puts it plainly at IHTM28381: probate fees and other costs of administering the UK estate are not allowable, because they are incurred after the death.

So solicitors’ fees, the probate application fee, valuation fees, property insurance and maintenance during the administration, and the costs of selling assets are all properly payable from the estate, and none of them reduces the taxable value.

There are three exceptions worth knowing:

• Funeral expenses, which are deductible if reasonable.
• Foreign property. Section 173 of the Inheritance Tax Act 1984 allows the additional cost of administering or realising property outside the UK, meaning the excess over what equivalent UK property would have cost, capped at 5% of that property’s value.
• Professional fees for obtaining a tax repayment, which HMRC allows by concession up to 10% of the repayment.

Our guide to what expenses can be deducted from an estate goes into the inheritance tax side in detail, and gross and net value of an estate explains how the figures fit together.

Costs the estate can properly bear

The following are ordinarily legitimate administration expenses. Remember that appearing on this list means the estate can pay the cost, not that it is deductible for inheritance tax.

Legal and administrative

• The probate application fee. In England and Wales this is £526 where the estate exceeds £5,000, with no fee at or below that figure. The threshold is tested on the net estate. Copies of the grant are £2 each ordered with the application and £16 each afterwards. Our guide to probate costs and fees covers the wider picture.
• Solicitors’ fees for probate and estate administration.
• Accountancy and tax adviser fees.
• Statutory notices in The Gazette and a local newspaper.
• Document certification, copying and postage.

Property

• Insurance for an unoccupied property, and essential maintenance and security. See probate property and executors’ responsibilities.
• Utility bills, council tax and service charges during the administration.
• Valuations. There is no legal requirement to instruct a professional valuer, though HMRC’s own toolkit advises doing so for assets of material value. See how to value an estate for probate.
• House clearance, estate agent or auctioneer fees, and conveyancing on a sale.
• Mortgage payments and ground rent or service charge arrears, to preserve the asset.

Financial and tax

• Inheritance tax itself, and any income tax or capital gains tax arising during the administration.
• Valuation of shares, business assets or investments.
• Bank charges on closing or transferring accounts.
• Executors’ liability insurance, and missing beneficiary cover where relevant.

Other

• Reasonable travel for property inspections and meetings.
• Storage of estate contents, deeds or valuables.
• Mediation or dispute resolution costs where necessary to protect the estate.

Funeral expenses

Because funeral costs are a separate statutory category and are deductible for inheritance tax, it is worth knowing where HMRC draws the line. It will generally accept a claim without enquiry unless the expense looks unreasonable relative to the estate.

Deductible: the funeral director’s charges, burial or cremation fees, the cost of a headstone that marks and describes the grave, reasonable flowers, traditional mourning clothes, and reasonable refreshments for mourners.

Not deductible: a memorial plaque or monument as distinct from the headstone, ordinary clothing bought for the occasion, and mourners’ travel and accommodation. A separate memorial service is not automatically allowed.

Costs the estate should not pay

Executors have wide discretion, but some costs are not estate expenses and paying them from estate funds can expose the executor personally.

• A beneficiary’s own legal or financial advice, including advice on an inheritance dispute.
• Travel or attendance costs incurred by family and guests for their own convenience.
• Property improvements going beyond what is needed to preserve or sensibly market the asset.
• The executor’s personal tax or financial advice, as distinct from advice on the administration.
• Penalties or interest arising from the executor’s own default.
• Charitable donations not directed by the will.
• Distributions or advances to beneficiaries before the administration is ready for them.

Can an executor be paid?

A lay executor has no right to charge for their time. They can charge only if the will contains a charging clause, or if all the beneficiaries agree.

What a lay executor can do is recover what they have spent. Section 31 of the Trustee Act 2000, which applies to personal representatives by virtue of section 35 of that Act, entitles a trustee to be reimbursed from the fund for expenses properly incurred when acting on behalf of the trust. So an executor who pays the probate fee or a valuer’s invoice out of their own pocket is entitled to be repaid from the estate.

Section 29 of the same Act allows reasonable remuneration where the will is silent, but it is of no help to a lay executor: it applies only to a trust corporation, or to someone acting in a professional capacity who is not a sole trustee and whose co-trustees agree in writing. A professional executor’s remuneration is treated as an administration expense.

Our guides to the duties of an executor and what power an executor has cover the role more broadly.

The order in which things get paid

Where the estate is solvent, expenses and debts are met from the assets in the statutory order set out in Part II of the First Schedule to the Administration of Estates Act 1925, and the beneficiaries take what is left.

Where the estate is insolvent, a different and stricter order applies, and paying the wrong creditor first can leave the executor personally liable. Our guide to debts and probate explains both orders. If there is any doubt about solvency, take advice before paying anyone.

Paying expenses when the estate has no cash

A common difficulty is that the costs fall due before the money is available, particularly where inheritance tax has to be paid before the grant is issued and the estate’s value sits in a house.

There are several ways through this, and they are worth considering in order. Some banks will release funds directly to HMRC from the deceased’s accounts under the Direct Payment Scheme. Tax on qualifying property, including land, can be paid in ten annual instalments. In some cases a grant on credit can be sought. Borrowing is another option, and an executor’s loan is repaid from the estate rather than by the executor personally, but it carries a cost and is not the only answer.

Note that interest on money borrowed to pay inheritance tax is not deductible in valuing the estate, since it is a post-death liability. There is limited income tax relief for personal representatives on interest on a loan to pay inheritance tax, but only for a period ending within twelve months of the loan being made, and in practice it is confined to the tax payable on delivery of the account, which excludes instalment-option property such as land.

Our guide to the IHT400 form covers the payment routes, and you can compare funding options at probate loans.

Keeping records

Keep a receipt or invoice for everything paid from the estate, and be able to explain how each item relates to the administration. The estate accounts are what the beneficiaries are entitled to see, and clear records are the executor’s protection if a payment is later questioned.

Frequently asked questions

What are testamentary expenses in plain English?

They are the costs an executor or administrator properly incurs in administering an estate: the probate fee, solicitors’ and valuers’ fees, property insurance and maintenance, and similar. They are paid from the estate before beneficiaries receive anything. Strictly, funeral expenses are a separate category under the Administration of Estates Act 1925 rather than a type of testamentary expense, and the difference matters for inheritance tax.

Do testamentary expenses reduce the inheritance tax bill?

Generally no, and this surprises most people. Inheritance tax is charged on the value of the estate at the date of death, and administration costs are incurred afterwards, so they are not deductible. HMRC states this expressly. The exceptions are reasonable funeral expenses, the additional cost of administering foreign property capped at 5% of its value, and professional fees for obtaining a tax repayment, allowed by concession up to 10% of the repayment.

Can an executor pay themselves for their time?

Not unless the will contains a charging clause or every beneficiary agrees. A lay executor can, however, reclaim out-of-pocket expenses properly incurred, under section 31 of the Trustee Act 2000. Section 29 of that Act allows reasonable remuneration where the will is silent, but only for a trust corporation or a professional acting with the written agreement of co-trustees, so it does not assist a lay executor.

What is the probate application fee?

£526 where the estate exceeds £5,000, and no fee at or below that. The threshold is tested on the net estate, and the fee is flat rather than scaling with the estate’s value. Copies of the grant cost £2 each ordered with the application and £16 each afterwards. The fee is payable from the estate but does not reduce the inheritance tax.

Is a headstone a deductible funeral expense?

Yes, the cost of a headstone that marks and describes the grave is allowable as a reasonable funeral expense. A separate memorial, such as a church plaque or monument, is not. The two are often treated as one in published guidance, and they are not the same.

What happens if I pay an estate expense out of my own money?

You are entitled to be reimbursed from the estate for expenses properly incurred in acting as personal representative. Keep the receipt and record it in the estate accounts. The right to reimbursement does not extend to costs that were not properly incurred, so if a payment is unusual or large it is worth taking advice before making it rather than afterwards.

This article is for general guidance only and applies to England and Wales. It does not constitute legal, tax or financial advice. Rules, fees and thresholds can change and every estate is different. For advice on your own circumstances, speak to a qualified professional. You can book a free legal consultation through The Probate Network.