Winter Fuel 2025 - Will higher rate tax payers pay back double if they forget to opt out?

Ukulelestrummer

Apologies if this has been answered, but I have not seen this discussed. The latest plan for the winter fuel payment is that everyone over State Pension age will get a payment, and then HMRC will adjust the tax code of everyone who has income exceeding £35,000 pa to get their payment back over the next financial year. So to take the simplest case of someone age 70 living alone. They will get £200. If their income is say £40,000, HMRC will reduce their tax allowance by £1000. Then as a basic rate tax payer they will have 20% of £1000 = £200 taken away again, probably by PAYE of their private pension. But what if their total income exceeds say £55,000, so they are into the 40% tax band? If HMRC reduce their tax allowance by £1,000, they will pay back 40% of £1000 = £400. Twice the payment they received. Are HMRC's processes going to be clever enough to deal with this? Should there be a recommendation that everyone who knows they are likely to pay tax at a highr rate makes sure they opt out?  

Exodi

They handle it just fine reclaiming tax underpayments from higher rate taxpayers currently by adjusting their tax allowance relative to their nominal tax bracket so no reason to think they wouldn't do the same for something as big and obvious as this.

sheramber

Ukulelestrummer said:

Apologies if this has been answered, but I have not seen this discussed. The latest plan for the winter fuel payment is that everyone over State Pension age will get a payment, and then HMRC will adjust the tax code of everyone who has income exceeding £35,000 pa to get their payment back over the next financial year. So to take the simplest case of someone age 70 living alone. They will get £200. If their income is say £40,000, HMRC will reduce their tax allowance by £1000. Then as a basic rate tax payer they will have 20% of £1000 = £200 taken away again, probably by PAYE of their private pension. But what if their total income exceeds say £55,000, so they are into the 40% tax band? If HMRC reduce their tax allowance by £1,000, they will pay back 40% of £1000 = £400. Twice the payment they received. Are HMRC's processes going to be clever enough to deal with this? Should there be a recommendation that everyone who knows they are likely to pay tax at a highr rate makes sure they opt out?  

They  will reduce the allowances by 500 to collect 500@ 40%. 

NickPoole

Will claw back happen the following tax year or could code be adjusted earlier? Assuming anybody actually knows yet!

kaMelo

It has to happen after the tax year end so HMRC know how much taxable income you've had in that tax year.

Precisely what constitutes taxable income for WFP purposes or how they will ask people to pay the WFP back if they exceed the taxable income threshold I don't think anyone  can know yet.

 This should all become clearer when the WFP legislation is passed

Maggieocambs

If I get the winter fuel payment but I earn over £35000 my understanding is I will get the £200 paid to me. Then it will be clawed back. I believe the winter fuel payment is "tax free". So will HMRC only claw back only £200 exactly as tax ? I am also aware that I can opt out of receiving the £200 WFP.

Isthisforreal99

Maggieocambs said:

If I get the winter fuel payment but I earn over £35000 my understanding is I will get the £200 paid to me. Then it will be clawed back. I believe the winter fuel payment is "tax free". So will HMRC only claw back only £200 exactly as tax ? I am also aware that I can opt out of receiving the £200 WFP.

Why would they claw back more than £200 if you were only paid £200. I'm confused by the question tbh.

Dazed_and_C0nfused

Maggieocambs said:

If I get the winter fuel payment but I earn over £35000 my understanding is I will get the £200 paid to me. Then it will be clawed back. I believe the winter fuel payment is "tax free". So will HMRC only claw back only £200 exactly as tax ? I am also aware that I can opt out of receiving the £200 WFP.

Yes and no!

The winter fuel payments themselves are not taxable income.  Just like Child Benefit isn't taxable income.

HMRC haven't said exactly how this will all work yet but if you pay it back through your tax code then £200 WFP would mean you pay £200 back.

But if you need a calculation at the end of the tax year then a £200 WFP would probably mean you owe £201.80 or £203.60 due to how  PAYE works.