Outgoing Chancellor Rachel Reeves has confirmed the mechanism for recovering Winter Fuel Payments from wealthier pensioners, with monthly deductions from state pensions starting at £17 and rising to £33.
How the deduction works
Pensioners with annual incomes over £35,000 will have the Winter Fuel Payment automatically clawed back by HMRC through adjustments to their tax code. The payment, worth up to £300, is initially given to all over-65s but is then recovered from higher-income households in instalments.
For those receiving the standard £200 payment, deductions will be approximately £17 per month in the 2026/27 tax year. This will double to £33 per month in 2027/28 as HMRC recovers payments from two years. The amount will then revert to £17 per month from 2028/29.
Government explanation
According to the Government: "If your total income is over £35,000, you'll need to pay back the payment. HMRC will automatically collect the payment through your tax code unless you already file self-assessment tax returns."
The statement added: "This means we'll change your tax code for the 2026 to 2027 tax year. For a typical payment of £200, we'll deduct approximately £17 per month."
Impact on pensioners
For the 2027 to 2028 tax year, the Government confirmed: "We'll deduct approximately £33 per month for a typical payment of £200. This is because we'll be collecting your payments from 2026 and 2027. It will then return to approximately £17 per month for the 2028 to 2029 tax year."
Pensioners who file self-assessment tax returns online will have the payment automatically included as income on their 2025/26 return, rather than facing tax code adjustments.
Background
Rachel Reeves, expected to leave her role as Chancellor in the coming weeks, confirmed the rules as part of the government's means-testing of Winter Fuel Payments. The policy aims to target support to those most in need, while recovering payments from pensioners with higher incomes.
