Sole Trader Dies: What Happens to the Business and Debts

Administering the estate of a sole trader is significantly more complex than dealing with a straightforward employee's estate. The business, the clients, the debts, and the assets all need to be addressed as part of the estate administration — often against the clock, particularly where clients are depending on work being completed or where there are ongoing contracts. This guide explains the key steps for executors.

The legal position: a sole trader's business ceases on death

A sole trader is not a separate legal entity from the person who owns and runs the business. Unlike a limited company (which exists as a legal entity separate from its directors and shareholders), a sole trader business has no independent legal existence — it is simply the trading activity of an individual.

When the sole trader dies, the business ceases to exist at that moment. The executor cannot simply "carry on" the business as if nothing has happened — they have no authority to trade on behalf of the deceased's business. The executor's role is to wind down the business in an orderly way, not to continue it.

It is possible to sell the business as a going concern — but this involves separately negotiating with clients to novate (transfer) contracts to a new owner, selling the goodwill, and selling individual business assets. Nothing transfers automatically. A potential buyer would be purchasing individual assets and client relationships, not an ongoing legal entity.

The HMRC registration of the sole trader (the Unique Taxpayer Reference or UTR, and the Self Assessment registration) also terminates on death. A final Self Assessment return must be filed by the executor for the period from 6 April of the final tax year to the date of death.

Notifying clients and managing ongoing work

If the sole trader had ongoing client relationships — whether as a tradesperson, consultant, freelancer, or any other self-employed capacity — clients need to be notified promptly and professionally. This is both an ethical obligation and a practical necessity: clients who are waiting on work may have their own deadlines and commitments that they need to manage.

Contact clients by phone or email as soon as possible after the death. Keep the communication factual and professional. For each client, identify:

• Whether there is work in progress that is at a stage where it can be completed by someone else — in which case, facilitating a handover to another professional may be possible and valuable
• Whether there are deposits or advance payments that have been paid but where work has not yet been performed — these may be liabilities of the estate (money owed back to the client)
• Whether there are amounts outstanding that the client owes to the business — these are debts to be collected

If the sole trader had a professional qualification (for example, a solicitor, accountant, or regulated financial adviser), there will be specific regulatory requirements around notifying the relevant professional body and managing client files. Contact the relevant regulator promptly.

Collecting outstanding invoices

Amounts owed to the sole trader's business at the date of death are assets of the estate. The executor has the same rights to pursue these debts as the deceased would have had. Do not write these off prematurely — even in the emotional period after a death, money owed to the estate must be collected and can be significant.

Identify outstanding invoices from the business's records, accounting software, or bank statements (looking at payments expected but not received). Then:

• Send formal payment requests to debtors, explaining that the business has ceased following the death of the owner and that payment should be made to the estate
• Provide updated bank details for the estate account to receive payments
• If a debtor disputes an invoice or refuses to pay, the executor has the same legal remedies as the deceased would have — including small claims court for debts under £10,000

Business debts: a sole trader's personal liability

One of the defining characteristics of a sole trader structure is that there is no limited liability. All debts incurred in the course of the business are personal debts of the sole trader. On death, these become debts of the estate and must be paid in full before any assets can be distributed to beneficiaries.

Sole trader business debts commonly include:

• HMRC liabilities: outstanding income tax (Self Assessment), National Insurance contributions, and VAT (if the business was VAT registered) — HMRC is a preferential creditor and must be paid promptly
• Trade creditors: suppliers and subcontractors who are owed money for materials or services
• Client deposits and advance payments: money paid by clients for work not yet performed — these are owed back to the clients and must be refunded
• Business finance: outstanding balances on business loans, overdrafts, or finance agreements for equipment
• Rent: if the business operated from rented premises, rent obligations continue until the lease is formally surrendered

If the business debts exceed the value of the business assets and the estate, the estate may be insolvent — a situation that requires specialist advice from an insolvency practitioner.

Realising business assets: tools, equipment, stock, and goodwill

Business assets — tools, equipment, vehicles, stock, and any intellectual property — are assets of the estate and need to be valued and realised (sold) as part of the estate administration. The approach depends on the type and value of the assets:

• Trade-specific tools and equipment: consider a trade auction (online auction platforms such as Bidspotter or Hilco are used for trade asset sales), sale to another business in the same trade, or private sale. Obtain at least one valuation before selling significant items
• Vehicles: any vehicles used in the business should be valued using market data (Parkers, Autotrader) and sold through a dealer, private sale, or auction
• Stock: if the business held stock, this needs to be valued at the lower of cost or net realisable value for probate purposes and then sold — either to another business or through clearance
• Goodwill: the value of client relationships and the trading name. This can be sold to a competitor or successor — but goodwill in a sole trader business typically has limited value because it was often personal to the individual

Any outstanding finance agreements on business equipment (hire purchase, finance leases) need to be addressed specifically. The executor should contact the finance provider promptly, as equipment subject to hire purchase remains the property of the finance company until the final payment is made — it is not automatically an asset of the estate.