No. Death in service benefits paid from registered pension schemes are excluded from the 2027 pension inheritance tax changes. When the new rules take effect on 6 April 2027, most unused pension funds and pension death benefits will start counting towards the estate for inheritance tax, but a death in service lump sum paid because someone died while employed is specifically carved out. The exclusion applies whether the scheme pays the benefit at the trustees' discretion or as of right.
That single sentence answers the question most people searching this topic are worried about. The rest of this guide explains what counts as a death in service benefit, why the government excluded it, the edge cases (discretionary trusts, dependants' pensions, group life cover written outside a pension scheme), and, just as importantly, which pension money is newly caught. If you hold pension savings beyond your death in service cover, our free pensions IHT 2027 estimator works out in about two minutes whether the rest of your pension wealth could push your estate over the threshold from April 2027. This guide covers the UK wide inheritance tax rules and is general information, not personal tax or financial advice.
What is a death in service benefit?
A death in service benefit is a lump sum your employer's scheme pays to your family or nominated beneficiaries if you die while employed. It is typically a multiple of salary, commonly two to four times annual pay, and it is provided as an employee benefit in the same spirit as sick pay or private medical cover. Crucially, the money does not exist until the person dies in service. There is no pot building up, nothing to draw on in retirement, and nothing to pass on if you leave the job or retire before death.
Most employers provide this cover through a registered pension scheme, either the main occupational pension scheme or a separate registered group life scheme. The benefit is usually paid at the discretion of the scheme trustees, who consider your nomination (often called an expression of wish form) but are not strictly bound by it. That discretionary structure is what has historically kept these payments outside the estate for inheritance tax, and, as we cover below, the 2027 reform does not change that outcome for death in service benefits.
What changes on 6 April 2027, and what stays out
From 6 April 2027, most unused pension funds and death benefits will be included in the value of a person's estate for inheritance tax. The change was confirmed by the government in July 2025 and the legislation is being taken forward in a Finance Bill, with the detailed rules set out in HMRC's policy paper on inheritance tax and pensions. The policy aim is to stop pensions being used as a tax free vehicle for passing on accumulated wealth, rather than for retirement income.
Death in service benefits do not fit that aim, and the government said so explicitly when it published its consultation response: all death in service benefits payable from registered pension schemes are out of scope of the new charge. The table below shows where the main pension related payments land.
| Payment type | In or out of the 2027 IHT charge? |
|---|---|
| Death in service lump sum from a registered scheme | Out. Excluded, whether discretionary or non-discretionary |
| Dependant's scheme pension (ongoing income from a defined benefit scheme) | Out. Not an inheritable pot of capital |
| Unused (uncrystallised) defined contribution pension funds | In from 6 April 2027 |
| Funds remaining in drawdown at death | In from 6 April 2027 |
| Most other lump sum death benefits from pension savings, including many bypass trust payments | In from 6 April 2027 |
| Anything passing to a spouse or civil partner | Exempt under the normal spouse exemption, whether or not otherwise in scope |
If your concern was the left hand column's first row, you can stop worrying about that specific benefit. If you also hold pension savings in the rows marked "in", the reform may genuinely affect your estate, and our guide to who is affected by the 2027 pension IHT changes walks through the tests in detail.
Why was death in service carved out?
The logic is straightforward once you see the policy target. The 2027 change is aimed at pension wealth that a person accumulated, could have spent in retirement, and chose (or happened) to leave behind. An unused drawdown pot is exactly that. A death in service payout is the opposite: it is insurance against dying while employed, funded by the employer, and it only ever crystallises because of the death itself. Taxing it would have meant charging inheritance tax on employer provided life cover, penalising bereaved families of working age employees, the group least likely to have done any estate planning at all.
The government accepted that argument during consultation. It also resolved a technical worry raised by pension lawyers and administrators: under the original proposals, the treatment could have differed depending on whether the scheme paid benefits at trustee discretion. The confirmed design removes that distinction. Death in service benefits from registered schemes are excluded regardless of how the scheme is structured, so employees do not need to investigate the trust mechanics of their employer's scheme to know where they stand.
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Edge cases worth knowing about
Group life cover written outside a registered pension scheme
Some employers provide life cover through an excepted group life policy, a non registered arrangement written under its own trust, rather than through a registered pension scheme. These policies sit outside the pension tax regime, and their inheritance tax treatment follows ordinary trust rules under the Inheritance Tax Act 1984 rather than the new pension provisions. In practice, benefits paid from a well administered excepted policy usually reach beneficiaries without an inheritance tax charge, but the route is different and the 2027 registered scheme exclusion is not what protects them. If you are unsure which type your employer uses, the scheme booklet or HR can confirm it.
Dependants' scheme pensions
Defined benefit schemes often pay an ongoing pension to a surviving spouse, civil partner or dependant, typically a percentage of the member's pension. These dependants' scheme pensions are also outside the 2027 charge. They are an income stream, not a pot of capital that can be inherited, so they fall outside the definition of unused pension funds. They remain taxable as income in the recipient's hands where the existing income tax rules apply.
Death in service paid alongside other pension benefits
Many deaths in service trigger two payments from the same scheme: the death in service lump sum (excluded) and the member's accrued pension savings (included from April 2027, unless passing to a spouse or civil partner). Executors and families should not assume the whole payout shares one treatment. Ask the scheme administrator to break down what is being paid and under which provision. Where everything passes to a surviving spouse or civil partner, the spouse exemption means no inheritance tax arises either way, a position we cover in more depth in our hub for surviving spouses.
What this means for executors from April 2027
From 6 April 2027, personal representatives (the executors or administrators of the estate) are legally responsible for reporting and paying any inheritance tax due on unused pension funds and death benefits that are within the new charge. For deaths after that date, a sensible working sequence looks like this:
- Write to every pension scheme and employer benefit scheme the deceased belonged to and ask for a breakdown of each benefit payable and its type.
- Separate excluded payments (death in service lump sums from registered schemes, dependants' scheme pensions) from included ones (unused funds, drawdown balances, other lump sum death benefits).
- Apply the exemptions: anything passing to a spouse or civil partner, or to charity, is exempt in the usual way.
- Include the remaining in scope pension values in the estate alongside property, savings and investments, measured against the thresholds explained in our inheritance tax threshold guide.
- Keep written confirmation from each scheme on file, including for excluded benefits, so the position is evidenced if HMRC asks.
Schemes will have their own reporting duties to HMRC as well, and up to 50% of an in scope pension amount can be withheld by the scheme for up to 15 months to help fund the inheritance tax liability. Our companion guide to how pension schemes report death benefits to HMRC from 2027 covers those mechanics, so we will not duplicate them here.
The bigger picture: how many estates are affected
The exclusion of death in service benefits narrows the reform, but the overall change is still significant. HMRC's own estimates, published alongside the policy, are that around 10,500 estates a year will become newly liable to inheritance tax because of the pension changes, and a further 38,500 estates that would have paid some inheritance tax anyway will pay more, with an average increase of around £34,000 for that group. The nil-rate band of £325,000 and residence nil-rate band of £175,000 are frozen until 5 April 2031, so adding pension wealth to estates pulls more families over unchanged thresholds each year.
Our pensions and inheritance tax 2027 research hub tracks the data behind the reform, and the pension holders hub collects everything a person planning ahead of April 2027 needs in one place. Nothing in the reform requires anyone to change their death in service cover, and nothing here is a recommendation to do so. Where decisions about pensions themselves are involved, regulated financial advice is the right route.
Speak to a specialist
If you are administering an estate that includes pension death benefits, or planning your own estate ahead of the 2027 changes, a specialist can confirm exactly which benefits fall inside the new rules and what needs reporting. We can connect you with a vetted probate or estate planning specialist for a no obligation conversation. And if you want a quick sense of the numbers first, the free pensions IHT 2027 estimator shows how your remaining pension wealth interacts with your estate's thresholds in about two minutes.
Sources: HMRC policy paper, Inheritance Tax: unused pension funds and death benefits; Government consultation and response, inheritance tax on pensions; Inheritance Tax Act 1984. Figures verified 24 July 2026.