State pensioners with an annual income above £35,000 will see their Winter Fuel Payment recovered by HM Revenue and Customs (HMRC) through tax code adjustments, with deductions of approximately £33 per month in the 2027 to 2028 tax year for a typical £200 payment.
The clawback scheme, overseen by John Healey and Andy Burnham, will affect Department for Work and Pensions (DWP) state pensioners who exceed the income threshold. HMRC confirmed that for PAYE customers, a typical payment of £200 will result in deductions of approximately £17 per month initially, rising to £33 per month in the 2027 to 2028 tax year before returning to £17 per month in 2028 to 2029.
How the Clawback Works
HMRC stated: "For PAYE customers, for a typical payment of £200, we'll deduct approximately £17 per month. In the 2027 to 2028 tax year, we'll deduct approximately £33 per month for a typical payment of £200." The higher deduction in 2027 to 2028 is because HMRC will be collecting payments from both 2026 and 2027.
Pensioners who anticipate breaching the £35,000 income threshold have the option to opt out of receiving the 2026 Winter Fuel Payment. HMRC advised: "If you are confident that you will breach the £35,000 income threshold then you have the option to opt out of receiving the 2026 Winter Fuel Payment. Details of how to opt out can be found at gov.uk or mygov.scot from April 1, 2026. You'll also be able to do this by phone or by post."
Income Assessment and Collection Methods
HMRC will assess total income, which includes all income expected in the tax year before any deductions. Importantly, a partner's income does not count towards the individual's total income for this purpose. Pensioners can check whether their income exceeds the threshold by providing their expected total income for the tax year.
For most pensioners, HMRC will collect the owed amount through their tax code, which will increase the tax deducted from wages, salary, or pension. Those who complete a Self Assessment tax return will instead pay the amount through their tax bill. HMRC will notify affected pensioners by email or post if their tax code is changed to recover the Winter Fuel Payment.
Impact on Pensioners
The policy means certain pensioners will lose out on £300 a year under the DWP Winter Fuel Payment rules. The recovery process will continue across multiple tax years, with the monthly deduction amount varying as HMRC collects payments from different years.
Pensioners affected by the clawback will see their net income reduced by the monthly deductions, with the full £200 payment recovered over the course of the collection period. The opt-out option provides a way for those confident of exceeding the threshold to avoid the repayment process entirely, with details available from April 1, 2026.
