Paying the Estate's Debts: The Correct Order of Priority

The Legal Order of Priority

The Administration of Insolvent Estates of Deceased Persons Order 1986 (as amended) sets out the order in which debts must be paid. This order applies whether the estate is solvent or insolvent, though it becomes critical in an insolvent estate where there are insufficient assets to pay everyone.

In a solvent estate, all creditors at every level are paid in full and there is still a surplus for beneficiaries. In an insolvent estate, the executor works through the list until the money runs out — those at the lower priority levels receive nothing.

Funeral and Testamentary Expenses (Priority 1)

Funeral expenses have the highest priority and must be paid first. "Reasonable" funeral expenses are allowed — an elaborate funeral costing far more than the estate's resources may not be fully recoverable. HMRC guidance suggests that costs should be reasonable relative to the deceased's circumstances in life.

Testamentary expenses include the executor's own reasonable costs of administering the estate: professional valuations, probate application fees, conveyancing fees for property sale, accountancy fees, and postage/stationary costs.

Secured Creditors (Priority 2)

A secured creditor holds security over a specific asset — most commonly a mortgage lender holds a charge over the property. The secured creditor can be paid from the sale of the secured asset up to the value of their debt. If the sale proceeds exceed the debt, the surplus enters the estate for other creditors.

If the property is being transferred to a beneficiary rather than sold, the mortgage must be either repaid or the beneficiary must assume responsibility for it (with the lender's consent).

Unsecured Debts (Priority 4)

Most everyday debts are unsecured: credit cards, bank overdrafts, personal loans, utility arrears, council tax, and HMRC liabilities. These are all treated equally — if there are insufficient funds to pay them all, each creditor receives a proportionate "pence in the pound" payment.

HMRC debts: Unpaid income tax, National Insurance, and VAT (if the deceased ran a business) are unsecured debts paid at this priority level. IHT, however, is a charge on the estate itself and is paid as part of the administration rather than as an ordinary debt.

For background on what debts survive death, see our guide to debts after death.

What Happens in an Insolvent Estate

If the estate is insolvent (debts exceed assets), the executor must follow the priority order strictly. Beneficiaries receive nothing. The executor's personal liability does not extend to the deceased's debts (debts die with the person) — but the executor can be personally liable if they make payments in the wrong order or pay beneficiaries when debts remain outstanding.

If the estate is clearly insolvent, consider whether an insolvency practitioner should be appointed — this is a specialist area. Taking legal advice early in an insolvent estate is strongly recommended.

Practical Steps for Identifying All Debts

• Review 12 months of bank statements for regular outgoings (loan repayments, subscription services, utility direct debits).
• Check credit reference agencies (you can request a statutory credit report) for registered debts.
• Contact HMRC to confirm any outstanding income tax or NI liabilities.
• Check with the local authority for any council tax arrears.
• Place a Gazette notice — this invites creditors to come forward and gives you protection from unknown creditors after 2 months.

For the full process of distributing the estate once all debts are paid, see our guide to distributing cash to beneficiaries. For the full estate administration checklist, see our estate administration checklist. Use our free estate administration tool.

Related Guides

• Advertising for Creditors in the Gazette
• Executor First Steps
• Executor Final Accounts
• SA900 Estate Tax Return
• Applying for Probate
• Complete UK Probate Guide 2026