The change affects how Winter Fuel Payments are collected back rather than introducing a new tax. HMRC will recover the money through changes to tax codes or through Self Assessment tax bills, depending on how an individual manages their tax affairs.
HMRC to Recover Winter Fuel Payments From Higher-Income Pensioners
State pensioners born on or before 27 June 1960 are eligible for a Winter Fuel Payment unless they choose to opt out. Those with an individual income above £35,000 will have the payment automatically recovered by HMRC.
According to HMRC, the repayment process will begin for payments received in winter 2025, with further collections starting for 2026 payments from January 2027. The tax authority said the money will usually be taken through a person’s tax code, meaning more tax will be deducted from their wages, salary or pension each month until the amount owed has been collected.
For people who complete a Self Assessment tax return, the repayment will instead be included in their tax calculation. HMRC states that the payment will appear as the “Winter Fuel Payment charge” on the return.
The amount recovered depends on the size of the Winter Fuel Payment received. According to HMRC, if someone received a £200 payment in both years, they will pay approximately £30 to £33 more tax each month while two payments are being collected through their tax code at the same time. If a person received a £300 Winter Fuel Payment in both years, the additional monthly tax charge will be higher.
Tax Code Changes and Options for Affected Pensioners
HMRC has explained that people whose tax codes are changed to recover Winter Fuel Payments will be contacted by email or post. The change means the amount of tax taken from their income will increase.
According to HMRC, if the full amount cannot be collected during the tax year, the individual will receive a tax calculation letter explaining how much remains to be paid and how it should be settled.
The tax authority also states that people can opt out of receiving the Winter Fuel Payment if their income is above the threshold or if they do not want to receive the payment. This option allows eligible pensioners to avoid receiving a payment that would later need to be repaid.
HMRC will continue collecting payments in future years unless a person opts out. The tax authority said that if someone does not opt out, their tax code may be changed again in April 2027 to continue recovering the 2026 payment and begin collecting the 2027 payment in advance.
For estates handling the affairs of someone who has died, HMRC says that a Winter Fuel Payment received by a person whose income was above the threshold is usually repaid when the estate is settled. The changes mean affected pensioners may see a noticeable difference in their monthly tax deductions from January 2027, depending on the payments they received and their method of paying tax.
