Is a refund of contributions paid on death excluded?

Not where the scheme would pay it in other circumstances. HMRC’s example is three times salary plus a refund of contributions: the three times salary is the death-in-service benefit, and the refund is not excluded.

What about death benefits from a former employer’s scheme?

Benefits from a scheme for a previous job, in which the member was a deferred member, do not meet the death-in-service conditions, so they are not excluded on that ground.

Death benefits and IHT · Inheritance tax (from 2027)

Death-in-service benefits and inheritance tax after April 2027

Death-in-service benefits paid by a pension scheme stay outside inheritance tax from April 2027, but only the part that is paid because the member was still working. Refunds and former employers’ schemes are a different matter.

4 min read · Last reviewed 28 Sept 2026

— In short

From 6 April 2027 a death-in-service benefit from a pension scheme is left out of the estate for inheritance tax if it is payable only because the member was in employment or other work of a particular description immediately before death. Anything the scheme would pay in other circumstances, such as a refund of contributions, is not excluded. Benefits from a former employer’s scheme in which the member was a deferred member do not qualify either.

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From 6 April 2027 most unused pension money and pension death benefits count towards the estate for inheritance tax. Finance Act 2026 lists a few benefits that are left out altogether, and death-in-service benefits are one of them. The test is narrower than the label, so it helps to know exactly what it covers. This guide is about death-in-service benefits paid by a pension scheme within the new rules.

The rule

The new IHTA 1984 s.150A(6) defines an excluded benefit as a benefit that may only be paid under the scheme in one of four forms. The fourth, s.150A(6)(d), is the death-in-service class:

any amount that (i) is payable as a benefit (in any form) in respect of a member of the scheme if the member is in employment or other work of a particular description immediately before their death, and (ii) is not payable as a benefit (in any form) in respect of a member of the scheme if the member does not meet those conditions

IHTA 1984 s.150A(6)(d), inserted by Finance Act 2026 s.66

So the benefit must depend on the member being in employment or other work of a particular description immediately before death. Whatever the scheme would have paid anyway is outside the exclusion.

What is excluded, and what is not

Death benefits from a pension scheme, deaths from 6 April 2027

Lump sum paid only because the member died in service: Excluded
Dependants’ scheme pension (whatever the type of pension): Excluded
Refund of contributions the scheme would pay in any event: Not excluded
Lump sum from a former employer’s scheme where the member was a deferred member: Not excluded
Other unused pension funds and lump sum death benefits: Not excluded

HMRC's technical note gives an example: on a member's death the scheme pays three times salary, linked to the employment, plus a refund of contributions. The three times salary is the death-in-service benefit. The refund of contributions would have been paid in other circumstances, so it is not excluded. Only benefits from the current employment or work qualify; a scheme from a previous job in which the person was a deferred member does not.

A worked estate

One of ParaplanAI's pension-IHT test cases has an estate of £500,000 outside the pensions, a £150,000 death-in-service lump sum that meets every s.150A(6)(d) condition, and a £20,000 refund of contributions that does not. No home passes to children, so there is no residence nil-rate band.

Worked estate · death on 6 April 2027

Estate outside the pensions: £500,000
Death-in-service lump sum (excluded): £150,000
Refund of contributions (counted): £20,000
Nil-rate band: £325,000
Inheritance tax without the pensions: £70,000
Inheritance tax with the pensions: £78,000
Increase: £8,000

The £150,000 lump sum adds nothing. The whole £8,000 increase is 40% of the £20,000 refund, which counts like any other unused pension money.

Other points

Excluded benefits are not caught by a withholding notice, so the scheme can pay them out without waiting for the inheritance-tax position. HMRC expects scheme administrators to report death-in-service payments from registered schemes as a reportable event. The exclusion is for inheritance tax only: a lump sum death benefit paid on a death before 75 is still tested against the lump sum and death benefit allowance for income tax, as the LSDBA explainer sets out.

The full list of what is in and out is in pensions and inheritance tax from April 2027, with the wider picture in pensions, death benefits and inheritance tax. The Pension IHT calculator sends a case with death-in-service cover to the full calculator, which leaves out an excluded amount only when every s.150A(6)(d) condition is confirmed and otherwise returns the case for manual review. For planning and illustration only; not legal, tax or estate-planning advice.

IHTA 1984 s.150A(6) (inserted by Finance Act 2026 s.66) · HMRC “Inheritance Tax on pensions” technical note §§3.3.4, 6.1 · PTM172000

Common questions

Is death-in-service paid through a pension scheme subject to inheritance tax from April 2027?: Not if it meets the test in IHTA 1984 s.150A(6)(d): it must be payable only because the member was in employment or other work of a particular description immediately before death. Such a benefit is an excluded benefit and is left out of the estate.
Is a refund of contributions paid on death excluded?: Not where the scheme would pay it in other circumstances. HMRC’s example is three times salary plus a refund of contributions: the three times salary is the death-in-service benefit, and the refund is not excluded.
What about death benefits from a former employer’s scheme?: Benefits from a scheme for a previous job, in which the member was a deferred member, do not meet the death-in-service conditions, so they are not excluded on that ground.

Sources

Based on IHTA 1984 s.150A as inserted by Finance Act 2026 and HMRC’s May 2026 technical note on Inheritance Tax on pensions.

For planning and illustration purposes only. Verify all inputs against source documents. This explainer does not constitute financial or tax advice.

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