In a move that’s bringing relief to military families across the UK, Labour has officially walked back a controversial proposal that would have taxed bereavement payments received by children and unmarried partners of fallen service members.
Original Plan Sparked Outrage Within the Armed Forces
Back in October, Chancellor Rachel Reeves had announced a plan that would have taken effect in April 2027, aiming to apply inheritance tax to off-duty death-in-service payments—unless the beneficiary was a spouse or civil partner.
That meant children and long-term partners of soldiers who died while not on active duty, especially due to illness, could have been hit with unexpected tax bills.
Unsurprisingly, the announcement stirred deep anger among Armed Forces communities, who saw the proposal as a betrayal of the very people left behind when soldiers die serving their country.
Military Voices Prompt Labour to Reverse Course
As the backlash grew louder, Reeves and her team faced mounting pressure from veterans’ groups and defence advocates, some of whom described the plan as “corrosive” and tone-deaf to the realities faced by grieving families.
Following consultations with Armed Forces organisations, Labour has now confirmed to The Daily Telegraph that the plan will no longer go ahead.
New Commitment Removes Inheritance Tax for All Service Deaths
In a formal statement, a government spokesperson clarified that as of April 6, 2027, all death-in-service benefits from registered pension schemes—regardless of whether they’re discretionary or non-discretionary—will be exempt from inheritance tax.
This change applies across the board and simplifies what had previously been a patchy and inconsistent system for different types of pension arrangements.
Another U-Turn Adds to Labour’s Recent Retreats
This isn’t the first time Rachel Reeves has had to backpedal.
Just recently, she also scaled back plans to axe the universal winter fuel payment and alter welfare support systems—both of which received heavy pushback.
Tory MP and Armed Forces spokesperson Mark Francois was quick to call out what he sees as a pattern, saying: “This is yet another U-turn from Labour, but I’m glad that, at the very least, common sense has prevailed this time.”
Treasury Insists the Goal Remains Fairness
Despite the criticism, the Treasury insists the goal remains creating a fairer system.
A spokesperson explained: “It’s right that we are excluding all death in service benefits from inheritance tax while still achieving the Government’s objective of removing inconsistencies between pension schemes.”
What Comes Next?
For now, families who’ve lost loved ones in the service can breathe a sigh of relief knowing they won’t be hit with a tax bill in the midst of their grief.
But as Labour continues to tweak its policies under public pressure, questions remain about how much of its broader financial reform agenda will stick—and how much will end up reversed.