Personal finance guru Martin Lewis has shed light on which benefits are taxable, potentially affecting eligibility for the winter fuel payment. Chancellor Rachel Reeves recently expanded the £2-300 winter fuel payment to an additional 9 million pensioners in 2024, following its previous cancellation.
The Department for Work and Pensions has stated that individuals earning over £35,000 within a tax year will be required to repay it, sparking worries among those close to the threshold who fear savings interest could tip them over.
Lewis has now clarified that even those receiving benefits might not be safe from the cap, as certain benefits are indeed taxable. This means their total income, including employment, savings, and other sources, combined with these benefits, could inadvertently exceed the limit, obligating them to return the £200 or £300 payments.
On his BBC Podcast, Lewis detailed the benefits at risk under the regulations. He explained: “Let’s say you earn £40,000 of taxable income. If you earn £35,000 and a penny, you lose the entire £200. It is not a graduated scheme, it is a cliff edge scheme.”
He also noted that investment dividends outside an ISA, carer’s allowance, incapacity benefit, and other taxable state benefits are included in the calculation.
Regarding what doesn’t contribute to the £35,000 earnings amount, Mr Lewis clarified that it excludes the winter fuel payment itself, investment income or savings income within ISAs, the tax-free lump sum from a pension, capital gains, and non-taxable benefits like Attendance Allowance, Disability Living Allowance Pension Credit and PIPS. He added: “If it’s generally taxable, it counts, if it’s generally not taxable, it doesn’t count.”
State benefits that are taxable
The most common benefits that you pay Income Tax on are:
- Bereavement Allowance (previously Widow’s pension)
- Carer’s Allowance or (in Scotland only) Carer Support Payment
- contribution-based Employment and Support Allowance (ESA)
- Incapacity Benefit (from the 29th week you get it)
- Jobseeker’s Allowance (JSA)
- pensions paid by the Industrial Death Benefit scheme
- the State Pension
- Widowed Parent’s Allowance
On his BBC podcast, Mr Lewis suggested that in some instances, it might be simpler to opt out of the payment rather than receive it only to have to repay it later. He stressed that the DWP has yet to explain the ‘opt out’ procedure, but he believes it will be more straightforward for those earning over £35,000.
During the podcast, caller Denise queried: “My question relates to a single person household of state pension age but under 80 years old. If your total income is over the £35,000 threshold and therefore your winter fuel payment is to be clawed back through PAYE or self assessment will the whole sum of £200 be clawed back or only a percentage according to your personal tax liability.
“If 100 per cent is to be clawed back then would it be simpler to opt out and are there any pros and cons in doing so?”.
Martin responded: “Let’s say you earn £40,000 of taxable income. You’re due to get the £200 payment will you, because you’re a basic rate taxpayer lose 20 per cent of that income? No. This is a cliff edge. If you earn £35,000 exactly or less you will get the £200 in your payslip because you’re under 80.
“If you earn £35,000 and a penny, you lose the entire £200. It is not a graduated scheme, it is a cliff edge scheme so in your case I’m presuming you will get nothing. Would it be simpler to opt out? Possibly yes although the opt out mechanism is the one thing that we don’t have much detail on yet. But in your particular case as you’re a single pensioner if you’re almost certain to have over £35,000 income in this current tax year, opting out is the simplest thing to do once you are able to do so. I can’t think of any reason why you wouldn’t want to opt out.
“I give myself the slight caveat in that the opt out details aren’t published yet and when they publish it there might be a reason but at the moment I can’t see any reason.”