Winter Fuel Payment – a messy update
Last year I wrote about the changes to the Winter Fuel Payment and, in particular, the new £35,000 income limit.
You can read the original article here.
The underlying rules haven’t changed. Broadly, if you are eligible for the Winter Fuel Payment and your total income is £35,000 or less, you keep it. If your income is above £35,000, you will still normally receive the payment, but HMRC will recover it from you.
What has changed is when and how HMRC will get the money back.
And, unfortunately, it has become a little more complicated.
A quick reminder
For winter 2026/27, most eligible people will receive their Winter Fuel Payment automatically in November or December.
The payment is generally between £100 and £300, depending on your age and circumstances.
The £35,000 income test applies to each person individually rather than to a household. So, for example, one member of a couple could keep their payment while the other has theirs recovered.
If you’re unsure what counts towards the £35,000, have a look at our original article where we explain this in more detail.
So, what’s changed?
If your income is above £35,000 and you pay tax through PAYE – perhaps through a pension or employment – HMRC will normally recover your Winter Fuel Payment by changing your tax code.
Originally, the plan was largely to deal with the recovery later.
HMRC has now changed the process and some people may see their tax code altered from January 2027.
This is part of a move towards collecting the Winter Fuel Payment back during the same tax year, rather than waiting until later.
Example
Let’s say you held a GIA with a few UK equity funds, and received £1,500 in dividends in the 2024/25 tax year. Because the allowance was £1,000 that year, the extra £500 would be taxable – depending on your income tax band, that could mean £43.75 or more to pay. Not huge, but it still needs to be disclosed.
Why might my tax go up by more than I expected?
This is where the transition gets a little messy.
HMRC may temporarily be recovering two Winter Fuel Payments at the same time.
For example, somebody who received:
· £200 Winter Fuel Payment for 2025/26; and
· another £200 for 2026/27
could see their tax increase by around £30 to £33 per month while both payments are being recovered.
From April 2027, HMRC intends to start recovering the current year’s payment in advance through PAYE as well.
Eventually things should settle down. From April 2028, most people affected should normally only have one Winter Fuel Payment being recovered at a time. For a £200 payment, that would amount to roughly £17 per month through the tax code.
So if your tax code changes and the deduction looks larger than you were expecting, there may be a perfectly good – if rather convoluted – explanation.
Do I need to contact HMRC?
If you only pay tax through PAYE, generally no.
HMRC should change your tax code automatically and will contact you if it does so.
It is worth checking the tax code when you receive the notification, particularly during this transitional period, to make sure the figures look sensible.
If HMRC cannot recover the full amount through your tax code, it may issue a tax calculation instead.
What if I complete a tax return?
If you complete a Self Assessment tax return and your income is above £35,000, the Winter Fuel Payment should be included on your return for the year in which you received it.
HMRC expects the information to be pre-populated for most people completing their return online, but it remains your responsibility to check that the information is correct.
Can I just give the payment back?
Oddly, no.
If you’ve received the Winter Fuel Payment, you can’t simply send it back to HMRC. If your income is above the threshold, HMRC will recover it through the tax system.
You can, however, choose not to receive future Winter Fuel Payments.
For winter 2026/27, the online opt-out deadline is 20 September 2026. If opting out by telephone, the deadline is 6pm on 18 September 2026.
Once you opt out, you do not need to do so every year. You will remain opted out unless you choose to opt back in.
Should I opt out?
If you know your income will comfortably exceed £35,000, opting out can save the slightly peculiar process of receiving a payment only for HMRC to recover it later.
If you’re close to the £35,000 threshold, however, I wouldn’t necessarily rush to opt out.
Interest, dividends and other variable income can make it difficult to know your final income until later in the tax year. Receiving the payment and allowing HMRC to recover it if necessary may therefore be simpler.
In summary
There hasn’t been another major change to who ultimately gets to keep the Winter Fuel Payment.
Instead, HMRC has changed the way it intends to recover payments from those with income above £35,000.
For some people that could mean a change to their tax code from January 2027 and, temporarily, two years’ Winter Fuel Payments being recovered at the same time.
Not the simplest system in the world.
As ever, if you’re unsure whether you’re above the £35,000 limit, whether you should opt out, or if a tax code arrives that doesn’t make sense, let us know and we’ll happily take a look.
Best wishes,
Michael Roberts FPFS
Chartered Financial Planner and Director
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