State pensioners will start receiving letters on the doormat from HMRC with new tax codes inside if they have exceeded the new £35,000 winter fuel payment threshold. This winter is the first time the new winter fuel payment system has been in place, following change to the previous, highly unpopular implementation of means testing which was tied to Pension Credit.
Now that the winter fuel payments have been made, HMRC will, in the following months, begin the process of taking the money back from households who earned in excess of the new limits, and it will do so using tax code changes.
The new system for the payments of £200 to £300 (depending on age) means that everyone receives a payment, but an estimated two million state pensioners who earned more than the £35,000 threshold are set to be made to pay it back to HMRC.
State pensioners who earned more than £35,000 from any income source, whether it’s work or savings not in an ISA, will need to wait for HMRC to take back the money via a change in their tax code, unless they normally submit a self-assessment tax return, or are asked to by the tax office.
This means HMRC will adjust pensioners’ tax codes and send them a letter to tell them what their new tax code is, and recover the payment from their income each month.
Their guide says: “You’ll need to wait for us to take back the payment, you cannot pay it sooner.
“We’ll take your payment for the 2025 to 2026 tax year by changing your PAYE tax code for the 2026 to 2027 tax year. This means you’ll pay more tax each month to pay back the full payment that you received in the 2025 to 2026 tax year.
“For example, for a typical payment of £200, you’ll pay approximately £17 per month extra in tax.
“You’ll get a letter or a notification in the HMRC app to tell you that we’ve changed your PAYE tax code.
“We’ll review all of the tax you paid against the tax you were due to pay. If we have been unable to collect the full amount due during the tax year, in your tax code, we’ll send you a tax calculation.”
An HMRC spokesperson said: “The majority of people who need to pay back a Winter Fuel Payment will do so automatically via their tax code. For those already registered for Self Assessment, it will be collected via their tax return.
“We’ve provided online guidance clearly explaining how recovery of payments works, and a calculator so people can see if they’ll need to pay back the payment.”