Are Mortgages A Debt?

Understanding how mortgages are treated in the context of Inheritance Tax (IHT) is crucial for effective estate planning.

The Legacy Wills Company, with its deep expertise in estate planning and decades of experience in financial advisory, sheds light on the significant shift that occurred on 17th July 2013, altering how mortgages are factored into IHT calculations.

The Pre-2013 Approach

Before 17th July 2013, mortgages were considered a debt against the estate of the deceased. This meant that the value of any mortgage would reduce the overall value of the estate for Inheritance Tax purposes.

Essentially, if an individual passed away with a mortgage, the liability would decrease the estate’s value, potentially lowering the IHT liability.

The Shift in 2013

A pivotal change occurred post-17th July 2013. From this date onwards, mortgages ceased to be directly considered as a debt against the estate for IHT calculations, under specific conditions.

If the mortgage liability was settled out of the estate’s assets, the full value of the property, unencumbered by the mortgage, would be included in the estate for Inheritance Tax purposes.

This change aimed at standardising the treatment of mortgages and ensuring a clearer process for calculating the taxable estate.

The Impact of Life Insurance Policies

A significant consideration under the new rules is the treatment of mortgages paid off directly by life insurance policies.

If a life insurance policy directly settles the mortgage, this payment is not allowed as a deduction from the estate for IHT calculations.

This could potentially increase the IHT liability, as the property’s full value is included in the estate without deducting the mortgage.

Strategic Planning with Personal Representatives

One strategy to navigate this involves Personal Representatives (typically the Executors) ‘borrowing’ funds, often from a life assurance Trust, to repay the mortgage.

This action allows them to then deduct the mortgage from the estate’s value for IHT purposes, effectively reducing the gross estate and, consequently, the IHT liability.

The ‘loan’ can be repaid by transferring a share of the property to the life assurance Trust Trustees, aligning with IHT planning strategies.


The 2013 shift underscores the importance of strategic estate planning and the need for expert guidance. For those navigating the complexities of Inheritance Tax, understanding these nuances is critical.

The Legacy Wills Company stands ready to provide the seasoned guidance and support needed to optimise your estate planning, ensuring your legacy is protected and passed on according to your wishes.

How We Can Help

At The Legacy Wills Company, we’re dedicated to ensuring your estate planning is as efficient and effective as possible. Whether you’re setting up a Will, navigating the intricacies of Inheritance Tax, or looking for strategic advice on managing mortgages within your estate, our team is here to assist.

Book a discovery call   to discuss how we can support your estate planning needs.


Need to discuss your estate?

Book a free discovery call to learn more about how to protect your assets.

Book a discovery call
Download our FREE Estate
Planning Guide

Client Testimonial

“Having seen John of Legacy Wills present at a property event, it was clear he had both the breadth of knowledge and experience and also the ability to make a very dry subject both understandable and engaging. That’s a tough call when talking about Wills, Trusts and death. John produced Wills and POA’s for myself and my wife in a timely, effective and reasonable manner. I have subsequently recommended him to numerous colleagues and friends to cut out the jargon and challenges surrounding this critical protection, which is too often deferred or neglected.”

Dan Norman