Death-in-service and life cover after 2027

The changes applying to deaths from 6 April 2027 bring most unused pension funds into inheritance tax, but not every death benefit. Qualifying death-in-service benefits from registered pension schemes are excluded. What matters is the benefit's terms and the arrangement that pays it, rather than simply whether the person was working when they died.

Included or not?

Benefit	Inheritance tax from 6 April 2027
Qualifying death-in-service benefit from a registered pension scheme, whether lump sum, income or another form	Excluded
Qualifying dependant's scheme pension	Excluded, subject to the benefit conditions below
Qualifying dependant's or nominee's annuity purchased together with the member's lifetime annuity	Excluded
Unused defined contribution pension or drawdown fund	Generally included
Ordinary lump sum death benefit from a defined contribution pension	Generally included
In-scope benefits paid to a spouse or civil partner	Included, normally with spouse exemption; residence limits can apply
Benefits passing to a qualifying charity	Normally exempt

Excluded dependants' scheme pension benefits must be payable only as excluded benefits. Choosing a scheme pension from alternatives that include a non-excluded benefit does not itself create exclusion. A qualifying joint-life annuity bought with the member's lifetime annuity is also different from a new annuity bought with an inherited pot. Income Tax remains a separate question.

Death-in-service: check how yours is set up

Employers provide death-in-service cover in different ways:

Through a registered pension scheme. A benefit qualifies for the death-in-service exclusion where it depends on being in the relevant employment or work immediately before death and would not also be payable without that condition. It may be a salary-multiple lump sum, income or another benefit. An ordinary pension pot in the same scheme is not excluded just because the death happened during employment. Old employment pensions and refunds payable regardless of current employment need separate consideration.
Through a separate "excepted" group life policy, commonly held in a discretionary trust. These are outside the pension reform. Discretionary benefits are generally outside the member's estate, but the trust can have its own inheritance tax charges, including potential ten-year and exit charges. "In trust" does not mean every tax rule disappears.

Ask the employer or scheme administrator which arrangement applies, what counts as current employment under its terms, and whether cover continues during absence or after leaving. The same scheme can contain benefits with different tax treatments.

Personal life insurance

Personal life policies aren't pensions, so the 2027 changes don't directly affect them. But how they're set up still matters:

A policy written in a suitable trust can pay to trustees outside your estate without waiting for the estate's grant of probate. The policy, trust terms and claims process affect what happens and when; separate trust tax rules may apply.
A policy payable to your estate forms part of it and may create an inheritance tax liability. Some policies pay another owner or beneficiary directly, so absence of a trust is not enough to establish the result. Check who owns the policy and who is contractually entitled to the proceeds.

Life cover creates an insurance payout; it does not change the pension's own inheritance tax treatment. Policy costs, exclusions, ownership and trust terms need to be understood separately. This guide describes the distinctions without recommending a policy or arrangement.

Check your nominations

For discretionary pension and death-in-service benefits, trustees or managers decide who receives the money, considering an expression of wish form and the scheme rules. Check that the recorded wishes and contact details are current, particularly after family changes. Other schemes can have binding or rule-based entitlements, so ask which process applies.

FAQ

Is death-in-service taxed from April 2027? Qualifying death-in-service benefits are excluded from inheritance tax, including benefits paid as income. Ordinary pension savings do not gain that exclusion merely because the member dies while working. Income Tax conditions must be checked separately.

Is life insurance affected by the 2027 pension changes? Not directly, because personal life policies are not pensions. Ownership, who is entitled to the payout and any trust terms determine the inheritance tax position; trust arrangements can have separate tax charges.

What is an expression of wish? A form recording who you would like to receive benefits. In a discretionary scheme, trustees consider it alongside scheme rules and other relevant information; it does not guarantee the named person receives the benefit.

Are widow's pensions taxed? A qualifying dependant's scheme pension is excluded from inheritance tax, subject to the benefit conditions above. It remains taxable as pension income for Income Tax purposes.

Sources

General information, not a personal recommendation. Tax treatment and pension rights depend on the rules and individual circumstances.