HM Revenue and Customs (HMRC) has issued a crucial update for state pensioners who received a Winter Fuel Payment from the Department for Work and Pensions (DWP). The tax authority has clarified that it may reclaim the payment depending on an individual's total personal income for the tax year.
Who Will Have Their Payment Reclaimed?
HMRC has set a clear income threshold for the 2025 to 2026 tax year. If your total personal income is £35,000 or less, you will keep your Winter Fuel Payment in full. However, if your income exceeds £35,000, HMRC will take the payment back.
The assessment is made on an individual basis, even for people living in the same household. For example, if one partner earns £36,000 and the other earns £22,000, HMRC will reclaim the payment from the higher earner but the lower-earning partner will retain theirs.
How Will HMRC Recover the Money?
You cannot pay the amount back early. Instead, HMRC will recover the money by adjusting your PAYE tax code for the 2026 to 2027 tax year. This means you will pay more tax each month until the full amount is repaid.
For a typical payment of £200, this will result in an extra tax deduction of approximately £17 per month. Affected individuals will receive a letter or a notification in the HMRC app informing them of the change to their tax code.
What About Payments for Multiple Years?
If you receive a payment in the following tax year and are still above the income threshold, HMRC will collect for both years in the 2027 to 2028 tax year. For instance, receiving £200 in each of two tax years would lead to an extra deduction of around £33 per month in that later year.
HMRC will review all tax paid against what is due. If the full amount cannot be collected through the tax code adjustment, the individual will be sent a tax calculation.
Importantly, customers do not need to declare their 2025 Winter Fuel Payment (or the Pension Age Winter Heating Payment in Scotland) on their 2024 to 2025 tax return. Payments received in autumn 2025 will be accounted for in the 2025 to 2026 tax return, which is due by January 31, 2027.
