New Winter Fuel Payment system triggers HMRC Tax Code change

Those who exceeded the new £35,000 income threshold are now being issued updated tax codes so the Government can reclaim their Winter Fuel Payment.

This winter marks the first full year the revised repayment system has been in place.

What’s changed this year?

For the 2025–26 tax year (6 April 2025 to 5 April 2026), a clear rule applies:

• £35,000 or less total personal income → You keep the payment
• More than £35,000 → HMRC will recover it

The repayment applies to the Winter Fuel Payment in England and Wales, and to Scotland’s Pension Age Winter Heating Payment.

Importantly, income is assessed individually, not by household.

Tax code letters are now being issued

Under the updated system, pensioners who are not in Self Assessment will see the repayment handled through PAYE.

In a fresh update, the government said: "We’ll take your payment for the 2025 to 2026 tax year by changing your tax code for the 2026 to 2027 tax year.

"This means you’ll pay more tax each month to pay back the full payment that you received in the 2025 to 2026 tax year."

That means:

• HMRC adjusts your tax code
• The payment is gradually recovered through your pension or earnings
• You receive a letter explaining the change

For many pensioners, this may be the first time a Winter Fuel Payment has affected their tax code.

Why have Winter Fuel Payment rules changed?

The previous system - which linked eligibility to Pension Credit as a form of means testing - proved highly controversial and widely criticised as complex and unpopular.

The new structure instead pays the benefit automatically, then assesses income afterward through the tax system, clawing it back from higher earners.

The £35,000 test is based on your gross personal income, including:

• State Pension
• Workplace and private pensions
• Employment income
• Savings interest
• Dividends
• Rental income
• Self-employment profits
• Taxable benefits

With pension uprating and stronger savings returns in recent years, some pensioners may have unintentionally moved above the threshold.

Recommended reading:

• Martin Lewis explains how to increase tax-free HMRC Personal Allowance to £18,570
• DWP confirms full list of benefit and pension increases from April 2026
• HMRC is urging parents to claim £1300 Child Benefit following rule changes

What if you complete Self Assessment?

If you already submit a tax return, the repayment will appear as part of your annual tax calculation instead of being collected through a tax code change.

For decades, the Winter Fuel Payment was viewed as a near-universal entitlement for pension-age households.

Now, for higher earners, it effectively operates as a recoverable benefit.