State pensioners face having their tax codes changed as HMRC imposes extra charges related to the Department for Work and Pensions (DWP) Winter Fuel Payments. The allowances will be issued to nine million retirees again this coming winter, but those with a total income exceeding the £35,000 threshold will see these payments clawed back in 2026.
HMRC will reclaim the payments in full either by adjusting the tax code for the 2026/27 tax year or by adding the amount to the Self Assessment tax return. This process could result in unexpected financial adjustments for many pensioners.
Expert Warning on Tax Implications
A personal finance expert told Birmingham Live: “Many pensioners may not realise that receiving the Winter Fuel Payment does not automatically mean they will keep it. Under current rules, higher-income recipients may later see the payment recovered through the tax system, which can come as an unexpected adjustment for those who were not expecting it.”
The expert added: “It is important for pensioners to understand what counts towards taxable income, including pensions, employment earnings and certain investments, to assess whether they may be affected by the threshold.”
Background on Winter Fuel Payments
The payments were reinstated after a eligibility criteria shake-up two years ago by Chancellor Rachel Reeves, which caused a massive backlash from households. The change means that pensioners with higher incomes may not retain the full benefit of the payment.
HMRC Example of Tax Code Adjustment
HMRC provided an example: “Your total income is £37,710. This is made up of £25,737 from a private pension and £11,973 from your State Pension. In December, you got a £200 Winter Fuel Payment. Your Personal Allowance is £12,570.
“We’ll reduce your tax free amount by £11,973 (your State Pension) or 1,000 (1,000 × 20% = the £200 Winter Fuel Payment you need to repay). This is your total deductions. £12,570 (Personal Allowance) – £12,973 (total deductions) = –£403 of tax free allowance.
“Your new tax code is K39. This means you’ll pay extra tax on £399 of income. You’ll pay around £17 more tax per month.”
