Death in Service & Inheritance Tax (IHT) From April 2027
Published / Last Updated on 19/03/2026
Government Confirms Exemption for Standalone Group Life Schemes
- Overview
The UK government has confirmed that standalone registered group life (death‑in‑service) schemes will remain exempt from the new IHT rules taking effect from April 2027.
This removes earlier uncertainty created by the draft wording of Clause 63 of the Finance (No.2) Bill that received Royal Assent yesterday (18 March 2026 at 7.57pm) to become the Finance Act 2026.
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What Changed in the Finance Bill?
Original Draft (Problematic)
- Required the deceased to be “actively accruing benefits” under the pension scheme at the time of death.
- Standalone group life schemes do not allow benefit accrual, so they could never meet this condition.
- This created uncertainty for 8+ million employees covered by these arrangements.
Amended Bill (Final Position) – and now the Finance Act 2026
- The government removed the accrual requirement.
- Standalone group life schemes are now explicitly excluded from the new IHT charge.
- Aligns treatment with retirement schemes that also provide death‑in‑service benefits.
- Why the Change Was Needed
Industry responses highlighted that:
- The draft clause was nonsensical for standalone group life schemes.
- It risked unintentionally bringing DIS benefits into IHT from April 2027.
- It created inconsistency with non‑pension group life policies held in trust, which remain outside the estate.
The government accepted this feedback and amended the Bill accordingly.
- Wider IHT Reform Context
What is changing from April 2027
- Most unused pension funds and pension death benefits will be brought into the estate for IHT.
- Expected to raise £1.5bn per year by 2029/30.
- Average IHT burden projected to increase by £34,000.
What is not changing
- Lump‑sum death‑in‑service benefits from standalone group life schemes remain IHT‑exempt.
- Discretionary trusts continue to protect non‑pension group life benefits from IHT.
- Current IHT Position (Before 2027)
- DIS benefits are only subject to IHT if paid from a non‑discretionary scheme or trust (i.e., treated as part of the estate).
- Most employer group life schemes use discretionary trusts, so no IHT applies.
FAQs Death‑in‑Service & Inheritance Tax (IHT) From April 2027
Will death‑in‑service benefits be subject to IHT from April 2027?
No. Standalone registered group life schemes are explicitly exempt following the Finance Bill amendment.
Why was there confusion originally?
The draft Bill required members to be “accruing benefits,” which standalone DIS schemes cannot do. This has now been corrected.
Do the new IHT rules apply to pension pots?
Yes. From April 2027, unused pension funds will generally fall within the estate for IHT.
Are group life policies held in trust affected?
No. These remain outside the estate, consistent with current rules.
Does the exemption apply to all death‑in‑service arrangements?
Yes — both standalone group life schemes and DIS benefits within retirement schemes are excluded from the new IHT charge.
- Key Takeaways
- DIS benefits remain IHT‑free after April 2027.
- The government has removed the accrual requirement that caused industry concern.
- The major IHT change relates to pension funds, not death‑in‑service.
- Employers and employees can be reassured that financial protection benefits remain intact.
