Pensioners warned 'act within month' to avoid winter fuel payment 'tax headache'

State pensioners have been warned they could be hit with a 'tax headache' with some discovering the only escape route is ditching their winter fuel payment altogether.

Pensioners earning above £35,000 in taxable income are set to receive the cash boost- worth either £200 or £300 - but will be forced to hand it straight back to the taxman.

Most people of state pension age automatically pocket between £100 and £300 towards their heating bills, yet HMRC will claw it back if your income exceeds £35,000.

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A tax expert has revealed people can dodge this awkward "tax headache" by simply opting out of the winter fuel payment, according to a top tax advisory firm.

HMRC will either adjust your tax code for the 2026-27 tax year or slap the amount onto your 2025-26 self assessment tax return, reports the Express.

But there's a catch - you must opt out by 15 September to sidestep this mess. John Havard, a consultant at Blick Rothenberg, explained: "The default is that any age qualified individual will receive the winter fuel payment."

He warned that "wealthier" individuals earning over £35,000 will face a tax clawback, meaning they'll have to return their winter fuel payment to the Government.

Given the complexity of this process - where just £1 above the £35,000 threshold triggers the clawback - those wanting a hassle-free life need to opt out before the deadline hits. "The default is that any age qualified individual will receive the winter fuel payment."

How can you opt out of the payment?

• You can opt out of the payment on the gov.uk website. You must live in England, Wales or Northern Ireland to do so.
• You can also contact the Winter Fuel Payment Centre via the telephone or post to opt out.
• You’ll need to provide your name, address, national insurance number and date of birth.

"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."

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 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."