The Winter Fuel Payment U-turn could open up an unexpected loophole for wealthy retirees
After facing severe backlash for cutting back Winter Fuel Payments shortly after winning the election last year, the Labour party has made a U-turn. Announcing new rules to means-test the seasonal benefit to assure vulnerable retirees are helped through the harshest months.
To be eligible for the Winter Fuel Payment, which offers either £200 or £300 every winter to help cover heating costs, people over state pension age will need to have a taxable income of under £35,000 per year.
Experts at Forbes Dawson warned: “Although this may seem like a sensible approach, as many pensioners are asset-rich but have relatively low levels of income this could have unintended consequences and exclude many ‘poor’ people.
“Wealthy pensioners are generally in a unique position to control their level of taxable income on a year-to-year basis. Most pensioners will generally have some control over the amount of taxable income they extract from their pensions on an annual basis and many pensioners will have no ‘income’ and live off their built-up capital.”
However, the experts added: “We are not seriously suggesting that wealthy individuals will manipulate their income just to enjoy a £200 benefit, there will be cases where the very wealthy still qualify, while more deserving cases go without.”
To break it down, the finance experts shared a fictional example of a retired NHS consultant called Dr Sam who has an estate worth £5million and makes specific moves with his money already in order to cut down a future Inheritance Tax bill. Including making loans to his Family Investment Company that sits outside his estate.
As none of the shares are held by him directly, he doesn’t pay tax on it and instead gets £200,000 annually as a repayment on his loan to the company. So while his general income is sitting at six-figures, his taxable income is zero so he will qualify under the new Winter Fuel Payment rules.
In another fictional example, the money experts pointed out how people with less assets in retirement don’t have as much control over their finances and might be excluded from the benefit. Retired teacher Doris uses a defined benefit public sector pension which is taxable income.
She gets £40,000 a year from it, roughly £2,600 after tax, and with little money elsewhere she is reliant on nearly every penny so she can’t cut it down. Because of her taxable income, she will not qualify for the benefit despite getting £160,000 less each year than Dr Sam.
The new rules will make nine million more pensioners eligible for Winter Fuel Payments. And people can still opt out of receiving it but will need to do so before 15 September, 2025.
Eligible people over state pension age will be receiving £200 between November and December 2025. Meanwhile those over the age of 80 who are eligible will receive £300.