HMRC is sending new tax codes to state pensioners (Image: Getty)
HMRC will send new tax codes out to state pensioners in order to take their winter fuel payment back if they broke the earnings threshold this winter. Following changes made to the previous, unpopular winter fuel payment system which was tied to Pension Credit, winter fuel payments have since been made with the new £35,000 earnings threshold in place, which means most (but not all) state pensioners get to keep their £200 to £300 payments.
The new system for the payments of up to £300 means that everyone receives a payment, but an estimated two million state pensioners who earned more than the £35,000 threshold will be made to pay it back to HMRC. State pensioners aged under 80 receive £200, and those aged 80 or over receive £300 by default. In HM Revenue and Customs’ guidance published via Gov.uk, state pensioners have been told how it will work in practice for those who need to surrender the payment.
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The ‘qualifying week’ for the winter fuel payment is just days away, and if you miss the deadline to surrender the payment, you will need to go through the process of receiving and returning it.
State pensioners who earned more than £35,000 from any income sources, whether it’s work or savings income, will have 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 taxman.
This means HMRC will adjust pensioners’ tax code 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.”
The qualifying week is September 21 to 28, so you need to inform the Winter Fuel Payment service before those dates if you wish to surrender the payment.
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.”
HMRC confirms removal of winter fuel payment with tax code change
HMRC has confirmed that some pensioners will see their Winter Fuel Payment recovered through a change to their tax code, meaning the money they received for winter heating costs can effectively be taken back through their income during the tax year.
The change affects pensioners whose individual taxable income is above the £35,000 threshold. Importantly, this does not mean that the Winter Fuel Payment has been abolished for pensioners generally. Under the rules applying from winter 2025/26, people who have reached State Pension age can qualify for the payment, while those whose individual income exceeds £35,000 are subject to a tax charge designed to recover the full amount.
For many affected households, the practical consequence is a change to their PAYE tax code.
What is changing?
The Winter Fuel Payment has undergone several major changes in recent years.
Previously, the payment was broadly available to households containing someone of State Pension age. In 2024/25, eligibility was restricted in England and Wales to people receiving Pension Credit or certain other means-tested benefits.
The policy was subsequently changed again.
From winter 2025/26, the government restored eligibility to people over State Pension age, but introduced a £35,000 individual taxable-income threshold for recovering the payment. The House of Commons Library says that people above the threshold have the payment recouped through the tax system.
That means the headline figure can be misleading if interpreted as a straightforward cancellation.
The payment may still arrive, but HMRC can subsequently recover the money from people whose income exceeds the threshold.
How the tax-code change works
For pensioners who are paid through PAYE and do not normally complete a Self Assessment tax return, HMRC can adjust their tax code.
The adjustment effectively increases the amount of tax collected from their pension or other PAYE income.
HMRC’s guidance gives an example involving a £200 Winter Fuel Payment. For the 2026/27 tax year, the repayment would generally amount to around £17 per month over the year.
This does not mean HMRC is taking £17 directly from the pensioner’s bank account each month.
Instead, the individual’s tax code is changed so that more tax is deducted from their income.
The result is that the person gradually repays the value of the Winter Fuel Payment through the PAYE system.
Why some pensioners may notice a lower monthly income
A pensioner who normally receives a fixed amount from an employer pension or another PAYE source could therefore see their net monthly income change after the revised tax code is applied.
For someone receiving a £200 Winter Fuel Payment, the deduction could be approximately £17 a month under the standard example.
For a £300 payment, the corresponding monthly recovery would be higher.
The precise amount depends on the payment received and the individual’s tax circumstances.
HMRC has said that taxpayers should receive a Tax Code Notice explaining changes to their code.
Anyone who believes the information used by HMRC is incorrect can check their tax information and contact HMRC if necessary.
The £35,000 threshold is based on individual income
Another important detail is that the £35,000 threshold applies to individual taxable income, rather than household income.
This means the income of a partner does not automatically count towards the other partner’s threshold.
For example, if one member of a couple has taxable income above £35,000 while the other does not, the Winter Fuel Payment charge can apply to the individual whose income exceeds the threshold.
The distinction could be particularly important for couples who have different pension arrangements or investment income.
Taxable income can include more than the State Pension itself, depending on an individual’s circumstances.
What about people who file a tax return?
Not everyone affected will have their tax code changed.
People who normally complete a Self Assessment tax return have the Winter Fuel Payment recovered through the tax system as part of their tax calculation.
The Chartered Institute of Taxation said HMRC’s approach means that those outside Self Assessment will generally have the payment collected through PAYE, while Self Assessment taxpayers will deal with it through their tax return.
This creates two different administrative routes for recovering the same benefit.
For PAYE taxpayers, the change may appear as an amended tax code.
For Self Assessment taxpayers, it can appear as an additional liability on their tax calculation.
A major expansion compared with 2024/25
The scale of the policy change is significant.
According to the House of Commons Library, around 12.3 million people were expected to receive Winter Fuel Payment or the equivalent Pension Age Winter Heating Payment in 2025/26, with roughly 2.2 million forecast to have incomes above £35,000 and therefore face recovery of the payment.
That compares with approximately 1.5 million recipients in 2024/25, when eligibility had been restricted to people receiving qualifying means-tested benefits.
The figures illustrate why the policy has generated substantial public and political discussion.
The government has effectively moved from a system that restricted eligibility at the point of payment to one in which a much larger group can initially receive the payment, with higher-income recipients subsequently required to repay it.
What pensioners should check
People who receive a new tax code should not automatically assume that an error has been made.
A change could reflect HMRC’s calculation of the Winter Fuel Payment charge.
The first step is to examine the Tax Code Notice and compare the figures with personal income and the amount of Winter Fuel Payment received.
HMRC’s online services allow taxpayers to check their tax information and PAYE details.
If the income figure is wrong, or if the person believes they should not be subject to the charge, they should contact HMRC or seek independent tax advice.
There are also circumstances in which the charge does not apply, including certain people receiving qualifying state benefits.
The rules can therefore be more complicated than simply asking whether someone receives a pension.
The payment has not simply disappeared
The wording surrounding the change is important.
Claims that HMRC is simply “removing” the Winter Fuel Payment can give the impression that the government has cancelled the benefit altogether.
That is not what the current system does.
For eligible pensioners in England, Wales and Northern Ireland, Winter Fuel Payment remains available. GOV.UK says most eligible people will receive their payment during November or December 2026. However, HMRC will recover the payment from individuals whose income exceeds £35,000, subject to the relevant rules.
Scotland operates a separate but equivalent Pension Age Winter Heating Payment system, while the tax-recovery principle also applies to qualifying higher-income recipients.
A system designed to recover money through taxation
The government’s approach effectively separates entitlement from the final financial benefit.
A pensioner may qualify for and receive the Winter Fuel Payment, but a person with taxable income above the threshold will ultimately have the full payment recovered.
This approach allows the payment to be administered more broadly while using the tax system to target the financial benefit according to income.
For pensioners affected by the £35,000 threshold, however, the practical experience may feel very different from receiving a permanent addition to their winter income.
Instead, the payment can be followed by months of higher tax deductions.
Further changes are already planned
HMRC has also explained that the recovery mechanism is being brought increasingly into the relevant tax year.
For the 2027/28 tax year, HMRC says deductions will temporarily rise because the system will be recovering payments relating to both the 2026 and 2027 winter payments during that tax year. For a typical £200 payment, the deduction is expected to be approximately £33 per month during that period.
That means pensioners affected by the rules could see a noticeably different pattern of deductions from 2027.
The change is therefore more than a one-off alteration to a tax code. It forms part of a broader redesign of how Winter Fuel Payments are recovered from higher-income recipients.
For pensioners, the key issue is not simply whether a Winter Fuel Payment appears in their bank account, but whether their income places them above the £35,000 threshold and how HMRC subsequently collects the amount.
As the new tax codes are issued, checking the figures carefully will be important for anyone affected.