Labour Abandons Plans to Tax Death in Service Payments of Military Personnel

Strategic Insights -

Rachel Reeves, the Chancellor, has unexpectedly dropped plans to tax death in service payments to the grieving families of military personnel. This decision comes after extensive pressure from Armed Forces organizations, which argued that the move would erode trust among servicemen. The Government had initially proposed to make off-duty death in service payments subject to inheritance tax, but the Treasury has now decided to abandon the reform.

The decision affects children, partners, and unmarried servicemen and women who would have had to pay death duties on the benefit from April 2027. The proposed changes were part of the October Budget, but the Treasury has now reversed course following the consultation. This move follows a pattern of Labour's retreats on contentious policies, including the reversal of plans to scrap the universal winter fuel payment and reforms to the welfare system.

Key Takeaways:

  • The Chancellor, Rachel Reeves, has abandoned plans to tax death in service payments to the families of military personnel.
  • The proposed changes would have made off-duty death in service payments subject to inheritance tax for the first time, affecting children, partners, and unmarried servicemen and women.
  • The Treasury has reversed the proposal after pressure from Armed Forces organizations, which argued that the change would undermine trust among servicemen.
  • The decision affects death in service benefits payable from registered pension schemes, which will be out of scope of Inheritance Tax from 6 April 2027.
  • Labour had sought to shore up support from the Armed Forces community during the general election, declaring the party would be "standing up" for service personnel and veterans.
  • The party's reversal on the tax policy has been criticized by the shadow Armed Forces minister, Mark Francois, who said it represented "another U-turn" by the Labour Government.

Statistics:

  • Death in service payments are a lump sum typically equivalent to four times the late individual's salary. (Source: The Telegraph)
  • The proposed change would have affected only those who die "off-duty", such as by sudden illness or accident, and not those who die "on duty". (Source: The Telegraph)
  • The Treasury has announced that all death in service benefits payable from registered pension schemes will be out of scope of Inheritance Tax from 6 April 2027. (Source: HMRC document)
  • The proposed change would have introduced a new tier of inheritance tax liabilities for military personnel, setting back their families by thousands of pounds in cases of sudden death. (Source: Forces Pension Society)

Sources:

  • The Telegraph
  • HMRC document: "Inheritance Tax treatment of death in service benefits from registered pension schemes"
  • The Telegraph: "Forces Pension Society: military servicemen and women unable to put payment into trust"
  • The Telegraph: "Rachel Reeves, Chancellor, abandons plans to tax death in service payments of military personnel"