Rachel Reeves may have found a new way to “fix the foundations” of Britain’s finances, and armed forces families are watching in disbelief.
Rumours circulating in the press suggest that from April 2027, death-in-service payments and unused pension pots could be included in inheritance tax. That means, potentially, the pension your loved one earned while serving could be treated like any other asset subject to a tax bill.
At present, these payments are excluded from inheritance tax. They go directly to families as intended, offering security when it is needed most. The proposal under discussion would change that for anyone who is not a spouse or civil partner. Up to 40 per cent could, theoretically, be payable as inheritance tax. Think of it as the Treasury taking a slice of the comfort intended for those left behind.
To give a sense of scale, consider some hypothetical but realistic scenarios. A senior non-commissioned officer with a pensionable salary of around £50,000 would leave a death-in-service lump sum of about £200,000. If their estate is valued at £200,000, the total estate could reach £400,000. With the current inheritance tax threshold of £325,000, this would mean a tax bill of roughly £30,000 for the family. A senior warrant officer with a £62,000 salary could leave a total estate of over £640,000, facing a potential inheritance tax of more than £120,000. A mid-ranking commissioned officer with a £75,000 salary and dependent children might see a total estate of £760,000, with tax liabilities approaching £175,000. That is not “just numbers” for a grieving family, it’s a life-changing sum.
The government insists that exemptions would remain for those who die on active duty, or from wounds or disease contracted in service. Spouses and civil partners would remain protected. Children, siblings, or other nominated beneficiaries, however, could be affected under the current discussions. Campaigners have already voiced concerns that this could undermine the spirit of the Armed Forces Covenant, which promises to support service personnel and their families.
Supporters of the idea argue it is about fairness and closing gaps in the public finances, which are estimated to face a shortfall of £20 to £30 billion. The logic is that bringing these benefits into the tax net, rather than raising headline rates like income tax or VAT, is a subtler way to raise revenue. Critics, including former service members, have been blunt, warning that such a move would feel like a tax on grief and could cause delays in payments while estates are assessed.
Let’s be clear: nothing has been enacted yet. These are proposals being discussed in Treasury circles, and the public consultation period or parliamentary scrutiny may yet change the outcome. But the headlines have already sparked debate, highlighting the tension between fiscal planning and the moral obligation to protect families of those who serve.
If anything, this is a moment to watch closely. Rachel Reeves may be trying to show she is serious about the economy, but the optics of taxing death benefits, even hypothetically, risk backlash. The proposal is currently just that: a rumour made public by media reporting. The truth is, families of armed forces personnel have reason to pay attention, because if it goes ahead, it could affect them in the most sensitive way imaginable.
The irony is hard to miss. Britain claps soldiers on parade, pins medals on uniforms, and proclaims the Armed Forces Covenant. But when the uniform is folded and the family is left behind, the Treasury sharpens its pencil. Reeves has said the economy “isn’t broken, it just isn’t working well enough for working people.” Tell that to the widow waiting for a tax assessment before she can pay the mortgage, or to the orphan whose inheritance shrinks because fairness apparently means taxing the dead.
The Autumn Budget is supposed to show Labour as competent, compassionate, and credible. Yet this move, even as a proposal, risks making them look penny-pinching and tone-deaf. Balancing the books is one thing. Balancing them on the backs of grieving families whose family member has put their life on the line for our country is quite another.
If you want honesty, here it is: the current government is considering making death in service taxable for members of our Armed Forces, except for narrow exemptions. It is a stealth tax on grief in theory, and it is stirring strong opposition. It is not just about numbers on a spreadsheet. It is about whether the nation really honours those who serve, or whether we just say we do until the Treasury needs cash.
Photo by Naomi O’Hare
