Did you receive a Winter Fuel Payment in 2025? If so, it could be fully recovered through tax if your income is above £35,000. In our latest blog, we explain what individuals need to know to avoid unexpected deductions.
When does a Winter Fuel Payment tax charge apply?
The charge applies if an individual’s total income for the 2025/26 tax year (before deductions such as the personal allowance) exceeds £35,000.
Total income includes all earnings, state pension, private pensions, taxable investment income and any other income subject to tax such as property income. Capital gains and tax-free state benefits are excluded.
This means the full payment will be clawed back, not just the amount above the threshold. The test is applied to individual income, not household income. One person in a couple may be affected while the other is not.
Example
HMRC guidance explains how this works in practice:
- One spouse has income of £22,000
- The other spouse has income of £36,000
Both may receive a Winter Fuel Payment, however, only the higher earner faces a tax charge. The lower earner keeps their payment in full, while the higher earner has theirs recovered through tax.
How will HMRC collect the tax?
Through Self Assessment
Individuals who complete a Self Assessment tax return will see the charge applied in their 2025/26 return, due by 31 January 2027 if filed online.
HMRC plans to pre-populate this charge on online returns, however, the responsibility for accuracy remains with the taxpayer. If the charge applies but does not appear, it must be included manually.
Through PAYE
Individuals who do not complete a Self Assessment return will usually see the charge collected via an adjustment to their PAYE tax code for 2026/27.
For a typical £200 Winter Fuel Payment, this could mean around £17 per month extra tax deducted from a pension or salary.
Some PAYE codes issued in February 2026 may not yet include the adjustment, but HMRC has confirmed that codes will be updated automatically in April 2026.
Opting out – and opting back in
To avoid the payment being clawed back, individuals can opt out of receiving Winter Fuel Payments, however, a separate opt-out is required each year. The Department for Work and Pensions (DWP) is expected to release an online form in April 2026.
Individuals who opted out for 2025 but now expect their 2025/26 income to fall below £35,000 can opt back in, however, this must be done by 31 March 2026.
Practical points to consider
This change could lead to unexpected tax deductions, especially for individuals who do not usually deal with tax returns or PAYE adjustments.
It is sensible to:
- Review expected 2025/26 income
- Consider whether the £35,000 threshold will be exceeded
- Check PAYE tax codes when issued
- Seek advice if you are unsure whether the charge applies or whether opting out is appropriate
Need help?
If you are unsure whether the Winter Fuel Payment tax charge will affect you, or whether you should opt out, get in touch. Email enquiries@pmm.co.uk, and one of our expert advisers will be happy to help.
