HMRC to police the winter fuel payments
HMRC to police the winter fuel payments
The government has made a U-turn on winter fuel
payments. It recently announced that everyone of state pension age will receive them, starting this year. However, the allowance will be means tested by HMRC. How will this work in practice?
New rules
The winter fuel payment is back but not as we know it. A new system is in the works to automatically make a payment to state pensioners but those with higher incomes will have to pay it back. And, of course, whenever incomes are a factor HMRC gets involved.
Who gets the fuel allowance?
Eligibility is based on your age and place of residence during the qualifying week, which is the third full week of September. For winter 2025/26, the qualifying week will be 15 to 21 September 2025. A person must have reached state pension age by the end of the qualifying week to receive the payment. There's no need for individuals to do anything as all eligible persons will automatically receive the £300 winter fuel payment, which increases to £500 if you're over 80.
Means tested
The payment is made per household, so a married couple will receive £300/£300 between them. For those with incomes above the new threshold of £35,000, the allowance will be clawed back via PAYE or self-assessment (as applicable). The government has confirmed that this threshold will apply to each individual, not to each household. The threshold includes all sources of taxable income, such as private pensions, the state pension, bank interest and dividends.
Planning - income just over £35,000
If one spouse has income that only just exceeds the threshold and the other has a lower income, check whether income-producing assets can be transferred so that each spouse's income is within the limits. Assets can be transferred between spouses free from inheritance tax and capital gains tax, but there may be costs and admin to consider. Alternatively, look at moving savings into ISAs to reduce taxable income, or if you use drawdown from your pension reduce it slightly to bring your taxable income below the magic £35,000.
How will it work?
We don't actually know how the clawback will work in practice, but it could be similar to the high income child benefit charge. Those who aren't within self-assessment will have it collected via their PAYE code, whereas those who complete tax returns already will pay it back through self-assessment. The government has confirmed that nobody will need to register with HMRC as a result of the changes. As the payment will be made later in the year, it could be some 15 months before the self-assessment payment is due, i.e. by 31 January 2027 if you receive the fuel allowance in 2025.
Too much hassle?
It will be possible to opt out of receiving the payment, e.g. where you know your income will exceed the threshold and don't want the hassle of receiving it only to pay it back later. The Department for Work and Pensions will create a "simple" system to opt out. While most pensioners will be grateful for the latest government U-turn, the new system appears to create more admin for HMRC and some taxpayers for very little reward, much like the high income child benefit charge.
If your annual income exceeds £35,000 you will receive the winter fuel payment but it will be clawed back through the tax system. This will be through PAYE or self-assessment but precise details are yet to be published.