Is death in service subject to inheritance tax?

No. Benefits payable through a registered scheme because you died while employed are specifically excluded from the pension rules taking effect on 6 April 2027, from discretionary and non-discretionary schemes alike.

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What death in service is

It is life cover provided by your employer, usually as a multiple of salary, paid if you die while working for them.

It ends on the day your employment ends, including when you leave, retire or are made redundant.

What to check on yours

The multiple
Commonly a number of times basic salary. Whether bonus and other pay count varies between schemes.
Who it would be paid to
There is normally a nomination form, separate from any pension expression of wish.
Whether it is enough
Cover set against salary takes no account of what your household would need, including the mortgage.
What happens if you leave
The cover stops on the day you leave, so review any cover of your own that was arranged around it.

The exclusion applies where you were in employment immediately before death. Somebody who had already left is not obviously covered by it.

Related questions

Is the payout taxed as income?

It can be. A lump sum from a registered scheme is tested against the member's remaining lump sum and death benefit allowance, and anything above it is taxed at the recipient's marginal rate. Two further conditions apply: the member has to have died under 75, and the money has to be paid within two years of the scheme learning of the death. A large multiple of a high salary is the case most likely to exceed the allowance.

Does it form part of my estate?

Not normally, where the scheme pays at the trustees' discretion, and it is excluded from the April 2027 pension rules either way.

Do I still need my own life cover?

That depends on the size of the benefit and on what would still need paying. Employer cover also ends when the job does, so a plan built only on it has a gap at every job change.

What is a relevant life policy?

It is individual death in service cover a company pays for, often used by small companies and directors who have no group scheme. The tax treatment depends on the purpose, ownership and structure of the policy.

Calculators

Inheritance tax on pensions calculator

Enter your estate and your pensions to compare the inheritance tax on a death before 6 April 2027 with a death on or after it.

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Where this fits

We will go through your scheme's rules with you to see what the cover pays and who receives it.

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The advisers for this subject

Sunny Bharj

Sunny Bharj

Independent Financial Adviser

Tony Springer

Tony Springer

Independent Financial Adviser

Advising through Equity & General Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority. Check the firm on the FCA register under number 474163.

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