How your savings interest could rob you of your winter fuel allowance: JEFF PRESTRIDGE

Daily Mail​

3 hours ago

The Government's U-turn on winter fuel payments means nine million pensioners in England and Wales will now get a £200 or £300 top-up in time for Christmas.
But the rules governing who gets it, only to have it clawed back in tax, are rather baffling to say the least.
In the past ten days, hundreds of readers have contacted Money Mail asking whether they will be a winter fuel payment winner or loser.
'To say the changes are not well thought out is an understatement,' says 68-year-old retired engineer Brian Springthorpe, from near Conwy in North Wales. 'They still penalise pensioners who are scraping by.'
Having been deprived of the winter fuel payment last year by the Chancellor's decision to axe it for all pensioners bar those in receipt of pension credit, Brian and his wife Janet will now receive £200 of it in time for Christmas this year.
But Brian's income will result in him having to give back his £100 share of the payment in tax. 'Preposterous!' he adds. It's a view shared by many readers.
Here, we spell out the key things you need to understand in order to ascertain whether or not the payment coming your way will be grabbed back – as will be the case for Brian.
How the payment will now work
This tax year – ending April 5, 2026 – the Government has decided to pay all households with a state pensioner born on or before September 21, 1959, a winter fuel payment.
The amount will either be £200 or £300, with the higher payment made to households where there is a pensioner aged 80 or over on September 21 this year.
The key is that the payment is household-based. If a pensioner aged 70 lives on their own, they will get the same £200 payment as a pensioner couple who live next door and are of the same age – or a couple where only one of them has reached pensionable age.
In terms of who gets the money, £200 is paid to the first person in the household who reaches state pension age. When the second householder hits pension age, the payment is then split 50:50.
When the first pensioner passes the age of 80, they get an extra £100, taking the combined household payment to £300. When both are aged 80-plus, each gets £150.
The only exception is where a couple are in receipt of pension credit. Here the payment – £200 or £300 – is made in one lump sum.
How will it be taken away?
Although all pensioners will receive a winter fuel payment, not all of them will cling on to it, as Brian Springthorpe has discovered.
Some two million pensioners – not pensioner households – who have taxable income this tax year in excess of £35,000 will have to give back their share of the winter fuel payment, either through Pay As You Earn or through self-assessment.
For pensioners living alone, that will mean handing back either £200 or £300, depending on whether they are under or over 80.
For pensioner couples, it's more complex. How much they will give back is determined by their individual ages and the age of those with £35,000-plus of taxable income.
For a household where a couple are both of state pension age, but below age 80, they will initially receive £100 each in winter fuel payment.
But if one of them has a taxable income above £35,000, they will have the £100 clawed back from them through the tax system.
If both have taxable incomes above £35,000, they will each have to pay back £100.
A household where a couple are both 80 or over will initially get a £300 payment. But if one of them has taxable income in excess of the £35,000 threshold, he or she will lose their £150 share. If both have incomes above £35,000, they will each lose their £150.
For a household where a married couple are both of state pension age but one is above the age of 80, they will start with a £300 payment.
If the older pensioner has taxable income in excess of £35,000, they will lose £200 while their partner keeps £100.
If it's the younger pensioner with more than £35,000 of taxable income, they will lose their £100 share.
The definition of taxable income
Lots of readers have raised queries about the £35,000 taxable income threshold.
For a start, the threshold includes your personal allowance of £12,570; it is not on top of it.
It also embraces your state pension which is taxable and any income or withdrawals from a private pension (a works scheme or one you have set up yourself such as a self-invested personal pension). Any withdrawal of tax-free cash from a pension is excluded.
All interest from savings accounts is taken into account irrespective of whether it is below the annual tax-free personal savings allowance of £1,000 (£500 for higher-rate taxpayers).
So, if you earn savings interest in this tax year of £700, every penny of it will form part of your taxable income.
The same applies to dividends from shares or investments even though you may not pay tax on them because of the annual £500 tax-free dividend allowance.
Income from a second property will also form part of your taxable income as will income from a job or self-employment.
The Springthorpes will lose half of their £200 winter fuel payment because Brian's taxable income, comprising his state pension and company pension, is a 'tad' over £35,000. Janet's taxable income of £19,000 means she will keep her slice.
'Somehow Chancellor Rachel Reeves and her Parliamentary Secretary sidekick Torsten Bell classify me as a rich pensioner and so must hand back my payment,' says Brian. 'It's a joke, especially when you think that if our household income was evenly split, we'd keep our full £200.'
It's a point that Graham Dickson, a 73-year-old retired finance director of a Christian charity, also makes.
Like Brian, Graham, who lives near Banbury in Oxfordshire, has taxable income just above £35,000, while his wife Moira, also 73, has income below the threshold.
So, they will get £200 of winter fuel payment but then lose £100 through tax. 'I'm not that bothered about losing my part of the payment,' says Graham.
'But I find it bizarre that while the winter fuel payment is household-based, the income assessment isn't. After all, we're living in – and heating – the same house.'
On the other side of the household balance sheet, there is no leeway given to pensioners who are obliged by the courts to make regular maintenance payments to former partners and children.
This can result in their disposable income – rather than taxable income – being far less than £35,000.
The only good bit of news is that withdrawals from Individual Savings Accounts will not count towards your taxable income. Nor will any money you may inherit from loved ones or friends – or capital gains made from a sale of shares.
Pension credit, attendance allowance and other tax-free benefits are also excluded – as is the winter fuel payment itself.
Of course, the £35,000 threshold is unfair on pensioner couples where their taxable incomes vary widely – as is the case with the Springthorpes and Dicksons.
A couple, both aged 82, would lose £150 of winter fuel payment if their respective taxable incomes were £12,000 and £38,000. But if their incomes were both £25,000, they would keep their entire £300 household payment.
Uncertainty: In the past ten days, hundreds of readers have contacted Money Mail asking whether they will be a winter fuel payment winner or loser
Pensioner cost-of-living payment
Some readers say the Government is making its U-turn look more appealing than it is.
They point to the fact that in the tax year ending April 5, 2024, they received household winter fuel payments of £600, only to get nothing last year – and now the promise of £300.
It's a fair point, although winter fuel payments in 2023-2024 were boosted by the pensioner cost-of-living payment.
This £300 was made by the former Conservative government in response to rising energy bills and soaring inflation. It was not intended to be paid again – and it wasn't.
Readers' verdict: Almighty balls up
Although Labour's U-turn on the winter fuel payment has been welcomed, most people who have contacted Money Mail on the issue in recent days say Ms Reeves should never have targeted pensioners in the first place.
'The decision to make the withdrawal of universal winter fuel payments her first major policy statement in office has proven to be a massive mistake,' says 72-year-old David Stanley, from Flitwick in Bedfordshire.
'In July last year, she said the move would save £1.5 billion. Now, with the latest changes, she's talking about a saving of £425 million. In the scale of overall
government spending, it's peanuts, and I dread to think what the cost is of administering the new payment scheme.'
He adds: 'Winter fuel payment was introduced 28 years ago by Labour as a universal benefit for pensioners to help them pay their fuel bills. Ms Reeves should
never have tinkered with it. Politically, a huge error which will come back to bite Labour at the next election.' Well said that man.
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