HMRC to claw back up to £600 from pensioners earning over £35,000

State pensioners earning more than £35,000 will have payments recovered through the tax system

State pensioners earning more than £35,000 a year will have their Winter Fuel Payments reclaimed through changes to their HM Revenue and Customs (HMRC) tax codes.

Prime Minister Andy Burnham and Chancellor John Healey are preparing to implement the policy, which was originally announced by former chancellor Rachel Reeves before her departure from Number 11.

From November, the Winter Fuel Payment will continue to be paid automatically to everyone aged 66 and over.

However, pensioners with an annual income above £35,000 will lose their entitlement, with HMRC recovering the money through adjustments to their tax codes.

Around two million pensioners are expected to be affected by the measure.

Rather than preventing payments from being made to higher earners, the Government will issue the Winter Fuel Payment to all eligible pensioners before recovering it through the tax system from those above the income threshold.

Instead, HMRC will amend tax codes so repayments are collected in monthly instalments.

For pensioners receiving the standard £200 Winter Fuel Payment, the monthly deduction will be around £17.

The system effectively allows the payment to remain universal initially before it is reclaimed from higher earners through taxation.

The deductions are set to increase during the 2027 to 2028 tax year, when HMRC plans to recover two years' worth of Winter Fuel Payments at the same time.

One deduction will recover the 2026 payment, while another will recover the 2027 payment, meaning some pensioners could see total deductions of up to £600 over the course of the year.

HMRC said: "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 tax authority added: "This is because we'll be collecting payments from 2026 and 2027. It will then return to approximately £17 per month for the 2028 to 2029 tax year."

Pensioners who are confident their annual income will exceed the £35,000 threshold will be able to opt out of receiving the payment altogether.

HMRC said: "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."

The tax authority added: "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."

Opting out means pensioners will avoid having the payment reclaimed through their tax code and will not face the larger deductions planned for the 2027 to 2028 tax year.