Rachel Reeves has reportedly made another policy U-turn after scrapping plans to introduce new inheritance tax changes on bereaved military families. The Chancellor has abandoned a proposal to tax death in service payments following pressure from Armed Forces organisations, according to reports.
Death in service payments are tax-free lump sums handed to the families of deceased troops. In October’s Autumn Budget, Ms Reeves put forward plans to change inheritance tax rules around the payment from April 2027. It would have made off-duty death in service payments subject to inheritance tax for the first time, if not going to a spouse or civil partner, according to reports.
This would have resulted in children or partners of unmarried personnel having to pay death duties on the benefit, according to The Telegraph, which first broke the story.
Shadow Armed Forces Minister Mark Francois supported the Treasury’s decision to scrap the plans, “even though it represents another U-turn by this Labour Government”.
He told the newspaper that the plans were “unfair” and that “common sense has now finally prevailed”.
Ms Reeves has already had to U-turn on winter fuel payments following an Express campaign, as well as backtrack on welfare reforms.
The Government reportedly said it had decided to not proceed with the inheritance tax change following a consultation.
The Express has contacted the Treasury for a comment.
It is said military organisations had warned the proposals would have had a “corrosive” impact on trust among service personnel.
Death in service payments in the military are paid whether or not the person was “on duty” at the time of their death.
The proposals would have seen the families of those who die “off-duty”, due to for example a sudden illness or accident, being hit with the inheritance tax.
Families of personnel who died “on duty” would have continued to receive the payment tax-free under a separate agreement, per The Telegraph.