Pensioners who earn over £35,000 told to act to avoid winter fuel payment 'tax headache'

State pensioners have been told they could face a ‘tax headache’ with some facing the only way out being to cancel their winter fuel payment. Pensioners who earn more than £35,000 of taxable income face being paid the cshj payout - which is £200 or £300 - but will have to pay it back.

Most people of state pension age get the payment of between £200 and £300 towards heating bills automatically, but if your income is more than £35,000, HMRC will take it back. One tax expert said people can avoid an inconvenient a “tax headache” by opting out of the winter fuel payment, a leading tax advice firm says.

To do so, HMRC will change your tax code for the 2026-27 tax year or add the amount to your 2025-26 self assessment tax return. To avoid this, you can opt out of the payment - but you need to do it by 15 September.

John Havard, a consultant at Blick Rothenberg, said: “The default is that any age qualified individual will receive the winter fuel payment.

“But a “wealthier” individual with an income over £35,000 will be subject to a tax clawback, where the WFP they receive is required to be returned to the government. Given this will be a complex process, and just £1 of income above the £35,000 limit is enough to trigger a clawback, those in favour of a simple life will need to opt out of WFP before the deadline.”

The cash, which is aimed at helping some of the poorest people in the country have enough money to heat their homes, has been reinstated for this year by Chancellor Rachel Reeves for around 9 million pensioners who missed out last year.

However, there’s a cut-off at £35,000 - anyone earning more won’t receive the winter fuel payment. Mr Lewis explained that this relates to taxable income - and although savings are exempt, any interest earned on savings is not.

For basic rate taxpayers earning under £50,270, there is a savings allowance of £1,000 tax-free - which means you could have £20,000 in a 5 per cent savings account and it would be tax-free.

Anything above that counts towards your income, and one listener to Mr Lewis’ BBC Podcast was concerned this would push her over the limit meaning she won’t get the winter fuel payment. Caller Elaine, a state pensioner who also works part-time, reckoned she earns just under £35,000 but also receives savings interest and interest from her cash ISAs.

She asked: “Will that be included in the total amount of income because if it does then it puts me over the £35,000 and I won’t get it.Martin replied: “, reports the Mirror.

Martin responded: “The first thing to say is the means test will be based on your taxable income for the current year that is 2025-6. It is all of your earnings that are subject to income tax. So that is any private pension income, any state pension income, any employment income, any savings interest outside of an ISA. The interest you get inside of an ISA doesn’t count, the interest outside of an ISA does count.

“We don’t yet know if Premium Bond wins count or not. I’m almost certain they don’t count because they’re not taxable income but I’m waiting to get that confirmed.

“While the Personal Savings Allowance is an amount you are allowed to earn of savings interest tax free - as a basic rate taxpayer you can earn £1,000 of interest outside an ISA tax-free - that interest still counts towards your tax-free earnings for winter fuel payment.

“So let me just do a really simple example: you earn £1,000 of interest inside an ISA. Doesn’t count. You earn £500 of interest within your Personal Savings Allowance so you don’t pay tax on it. That £500 does count towards the £35,000 a year threshold.”