Death in Service Benefit in Kind: Tax and HMRC Rules for Employers

Death in service benefit in kind rules are simple for most employers: cover through a registered group life scheme or an excepted group life policy is not normally a taxable benefit, so there's nothing to report on a P11D.

The premiums are generally an allowable business expense, and the lump sum is usually paid tax-free to the employee's family. The details depend on which type of scheme you use.

This guide covers how HMRC treats death in service for payroll, how the payout is taxed and what the April 2027 pension changes mean.

Key facts

• There is no death in service benefit in kind charge under a registered group life scheme or an excepted group life policy in normal circumstances, so it is not a taxable benefit for employees.
• The standard Lump Sum and Death Benefit Allowance is £1,073,100, and registered scheme death benefits paid on death before 75 are normally tax-free within it.
• Excepted group life policies sit outside the registered pension scheme rules, so their payouts are not tested against the Lump Sum and Death Benefit Allowance.
• From 6 April 2027, most unused pension funds and pension death benefits come into inheritance tax, but death in service benefits from registered pension schemes stay out of scope.

Is death in service a benefit in kind?

Death in service benefit in kind treatment is straightforward: benefits provided through a registered or excepted group life scheme are not normally treated as a benefit in kind. That means there is usually no income tax or Class 1A National Insurance for the employee on the premiums, and nothing to report on a P11D. Tax rules depend on individual circumstances and current legislation, which can change.

For a registered group life scheme, the employer's premiums count as contributions to a registered pension scheme. Section 308 of the Income Tax (Earnings and Pensions) Act 2003 says no liability to income tax arises on those contributions in respect of the employee.

For an excepted group life policy, the exemption comes from section 307 of the same Act, which covers employer provision for death or retirement benefits. HMRC explains this exemption in its Employment Income Manual at EIM21800.

The exemption only covers death benefits. If a policy also pays out on disability, HMRC says the qualifying part may need to be separated out.

Is death in service benefit taxable when it is paid out?

Is death in service benefit taxable? Usually not: it is paid tax-free to the family when the employee dies before age 75. Under a registered scheme, the lump sum is normally tax-free up to the employee's Lump Sum and Death Benefit Allowance, provided it is paid within two years of the scheme being told of the death. Excepted policies sit outside that allowance.

GOV.UK confirms that a lump sum paid on death before 75 carries no tax unless it is above the allowance. If the lump sum is paid more than two years after the provider is told of the death, the whole amount can become subject to income tax.

How do registered and excepted schemes compare for tax?

Registered and excepted group life schemes both give employees death in service cover with no death in service benefit in kind charge, but they work under different tax rules. A registered scheme follows pension rules, while an excepted policy is a standalone life policy.

An excepted policy can only pay death benefits, must have no surrender value and can only cover deaths under an age set in the policy that does not exceed 75. HMRC sets out these excepted group life policy conditions in its insurance manual.

How does death in service interact with the Lump Sum and Death Benefit Allowance?

The Lump Sum and Death Benefit Allowance is the limit on tax-free lump sums that can be paid from registered pension schemes, including on death before 75. The standard allowance is £1,073,100. A registered death in service payout uses up part of the employee's allowance alongside any other pension death lump sums.

Any amount above the allowance is taxed at the recipient's marginal rate of income tax. HMRC sets this out in its Pensions Tax Manual at PTM073010. The test is made against the deceased member's allowance, not the beneficiary's.

This is mainly an issue for higher earners. A director earning £150,000 with death in service at four times salary would have a £600,000 benefit. Add a large pension pot paid out as a lump sum, and the combined total could exceed £1,073,100. That's one reason some employers use an excepted policy for senior staff.

Does death in service count for inheritance tax, including after April 2027?

Death in service payouts made through a discretionary trust are normally outside the employee's estate for inheritance tax. From 6 April 2027, most unused pension funds and pension death benefits will count towards the estate, but the government has confirmed that death in service benefits from registered pension schemes are excluded from that change.

The government's policy paper states that "death in service benefits payable from a registered pension scheme will remain out of scope of Inheritance Tax". You can read the full inheritance tax on unused pension funds and death benefits policy paper on GOV.UK.

Excepted group life policies are not pension schemes, so the April 2027 pension change is not expected to affect them. Their payouts are usually made through a discretionary trust and normally fall outside the estate. Inheritance tax is charged at 40% above the £325,000 nil-rate band, so keeping death benefits outside the estate can matter.

Can employers claim tax relief on death in service premiums?

Employers can generally claim tax relief on death in service premiums, because they are treated as an allowable business expense. For a registered scheme, HMRC treats the premiums as employer pension contributions, and its Business Income Manual at BIM46001 explains when these are deductible. This depends on circumstances and current legislation.

At the 2026/27 main rate of 25% corporation tax, relief on a £2,000 annual premium could reduce the net cost to £1,500. We look at how other types of company-paid cover are treated in is life insurance a business expense?

Death in service is one of several business life insurance options for employers, and the tax position differs for each.

Why do expression of wish forms matter?

An expression of wish form tells the scheme trustees who the employee would like to receive their death in service benefit. It isn't legally binding, which is what keeps the payout at the trustees' discretion and normally outside the estate. Trustees will usually follow it, so it needs to be kept up to date.

• Ask every new member to complete one when they join the scheme.
• Remind staff to update it after marriage, divorce, a new child or a bereavement.
• Prompt a review each year, for example at scheme renewal.
• Keep forms secure and send copies to the trustees or insurer.

Without a current form, trustees must work out who the dependants are, which can slow the payout. For directors weighing a group scheme against individual cover, relevant life works through a similar trust.

We compare the two routes in more detail in death in service vs relevant life insurance.

Want to check your scheme is set up the right way for tax? Book a free call with Executive Life.

Frequently asked questions

Do I need to report death in service on a P11D?

Death in service is not normally reported on a P11D when it is provided through a registered group life scheme or an excepted group life policy, because neither usually creates a death in service benefit in kind charge. Check your scheme type with your adviser or insurer, as other arrangements can be treated differently.

Is death in service benefit taxable?

Death in service benefit is usually paid tax-free when the employee dies before 75. For a registered scheme, the payout is tax-free within the Lump Sum and Death Benefit Allowance, with any excess taxed as the recipient's income. This depends on circumstances and current legislation, which can change.

Does death in service count towards inheritance tax?

Death in service paid through a discretionary trust is normally outside the employee's estate. The government has confirmed that death in service benefits from registered pension schemes stay outside inheritance tax after the April 2027 pension changes. This depends on circumstances and current legislation, which can change.

Who gets the death in service benefit?

The scheme trustees decide who receives death in service benefit, using their discretion. They are usually guided by the employee's expression of wish form, which might name a partner, children or other dependants. Because the trustees aren't bound by the form, they can take changes in family circumstances into account.

How long does death in service take to pay out?

Death in service often takes a few weeks to a few months to pay out. The timing depends on how quickly the trustees receive the death certificate and claim forms, and how long it takes to identify the beneficiaries. An up-to-date expression of wish form can help speed things up.

What does death in service not cover?

Death in service only pays out if the employee dies while they are covered under the scheme, so cover usually stops when they leave. It doesn't normally pay out for critical illness, and most schemes stop at a set age, often State Pension age. For cover that stays with a director, see our guide to company life insurance for directors.

Written by

Alex Ogden DipFA | Director | Executive Life

Alex Ogden DipFA holds the Level 4 Diploma for Financial Advisers (DipFA) awarded by the Walbrook Institute London, formerly known as the London Institute of Banking & Finance (LIBF). He is authorised by the FCA Ref: AJO01072.

Tax rates and thresholds are subject to change. This article will be updated following each HMRC Autumn Budget or Spring Statement where relevant thresholds change.

Executive Life is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 985058. Registered office: Unit 6, Birchy Cross Business Centre, Broad Lane, Solihull, West Midlands B94 5DN.

This article is for general information only and does not constitute financial advice. Tax treatment depends on individual circumstances and current legislation, which may change. Always speak to a qualified adviser before making financial decisions.