Tips for increasing your chances of receiving the Winter Fuel Payment

This year, millions of pensioners who earn less than £35,000 will receive the Winter Fuel Payment after a government U-turn

To make sure you're qualified, we share some pointers.

This year, the Winter Fuel Payment will be given to pensioners earning less than £35,000, but a fifth of retirees will not receive it.

More people will receive the payment this winter as a result of the government's change to the eligibility requirements last week. The U-turn comes after the Winter Fuel Payment was means-tested by the government last year, primarily limiting it to Pension Credit recipients.

In England and Wales, the benefit will now be paid to nine million pensioners this winter, according to the Treasury. About two million people who are over the state pension age and have taxable incomes over 35,000 will not be eligible as a result.

If your income exceeds 35,000, you will receive the Winter Fuel Payment, which you can later claim through HMRC. Later this month, more information on this is anticipated.

200 per household or 300 per household with an individual over 80 is the value of the payment.

But, if you're concerned that you won't be eligible for the payment because you earn more than £35,000 annually, you may want to consider whether you can keep your Winter Fuel Payment.

There are a few strategies that may increase your eligibility. Some of them are about prudent financial planning rather than even cutting your actual income.

According to Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, "There are a few easy things you can do to lower your taxable income, which means you can qualify for the Winter Fuel Allowance and save tax," she tells BFIA.

1. Invest and save money in ISAs

A person's taxable income, not their total income, will determine the 35,000 threshold.

This means that maximizing your ISAs should be one of your first priorities. Income from stocks and shares ISAs or interest earned from cash ISAs is not included in your taxable income.

On the other hand, taxable income from investments or interest received on non-ISA savings accounts will be included.

The head of strategy at Coventry Building Society, Jeremy Cox, remarks: "A lot of retirees might not be aware that interest earned on savings held outside of ISAs is included in their income. Even small savings can yield income that helps someone cross the threshold because interest rates are still high.

For instance, 20,000 in a savings account with a 4 percent interest rate would yield 900 in interest over the course of the year. Cox claims that even though this is tax-free and falls within the basic-rate taxpayer's £1,000 personal savings allowance, it is still regarded as "taxable income" and contributes to the 35,000 Winter Fuel Payment cap.

He goes on to say: "ISAs provide a tax-free method of removing savings interest from the calculation of income. Interest received inside an ISA is not included in income calculations and is never subject to taxation.

The 20,000 cash ISA allowance is still available this tax year, and with possible changes on the horizon, it's still a wise option for retirees who want to preserve their eligibility for benefits like the Winter Fuel Payment.

In addition to the fact that any ISA income or gains are tax-free, you will also not be required to pay taxes on withdrawals from an ISA, even if you cash in the entire amount. This means that you can use an ISA to augment your retirement income, but it will not still be eligible for the Winter Fuel Payment.

2. After using up all of your ISA funds, think about investing in Premium Bonds

Think about purchasing Premium Bonds if you have already spent your entire ISA allowance for this year and you have a sizable amount of savings where the interest could push you over the 35,000 taxable income cap.

Your potential Premium Bond winnings are tax-free and do not count toward your taxable income.

3. Use the tax-free money from your pension, but don't take more

In addition to making sure that the profits from your investments and savings do not count against your taxable income, you should also review your pensions.

You can increase your retirement income significantly by taking the 25% tax-free money from any personal or workplace pension. Importantly, this money is not taxable income.

Any additional pension funds received in the form of an annuity, income drawdown, or lump sum, however, are subject to taxes.

Morrissey advises monitoring your pension income and possibly combining your ISA and pension income to stay below the threshold. For instance, if you already received 10,000 from the state pension and 30,000 from your pensions annually, that would equal 40,000 in taxable income.

Nevertheless, you would still have the same 40,000 total income, but only 35,000 would be subject to taxes, if you took 5,000 withdrawals from your ISA to supplement your pension's 30,000 to 25,000 income.

Keep in mind that the requirements state that you can get the Winter Fuel Payment if your annual taxable income is at least £35,000. Therefore, you will still be eligible if it is precisely 35,000.

As an annuity is a lifelong guaranteed pension income, it is also important to keep in mind that it cannot be reduced.

To stay under the 35,000 threshold, you can lower the amounts if you have an income drawdown plan in place or are taking lump sums from your pension pot(s).

4. Deferring your state pension is something to consider

Consider deferring your state pension if you have done the above and determined that claiming it will raise your total taxable income above 35,000, disqualifying you from receiving the Winter Fuel Payment.

All you have to do is not claim it after you reach state pension age; there is nothing you can do to postpone it.

"You have the option to decline your state pension," Morrissey remarks. It is important to note, though, that deferring it will result in a larger state pension when the time comes to claim it. This could force you into higher tax bands or make you ineligible for benefits that you would have otherwise been eligible for.

Additionally, you must consider if it is worth forgoing a year's worth of state pension now in order to receive the winter fuel allowance and a larger state pension later.

Additionally, Sarah Pennells, a consumer finance specialist at Royal London, says: "It's crucial to avoid making snap decisions. For every year you postpone claiming your state pension, your payments will increase by 5 percent.

However, it will take time to recover that because, assuming you are eligible for the full new state pension, you will be forfeiting about £12,000 in income annually at current rates.

5. Give assets that generate income to a spouse who makes less money

A spouse or partner whose income is less than £35,000 can also have assets transferred to them, which lowers your taxable income.

Both partners will receive the Winter Fuel Payment (100 each, or 150 if one is over 80) if one earns more than 35,000 and the other earns less. However, the higher earner will be responsible for repaying the other.

Therefore, if one of you earns £40,000 and the other £20,000 in taxable income, you can still enjoy a total household income of £60,000 and both of you can keep the Winter Fuel Payment by shifting £5,000 to the lower-income partner.

6. Don't be concerned about some benefits increasing your earnings

You can enjoy receiving many benefits without worrying that they will add to the 35,000 limit because they are not taxable.

According to Pennells, the Attendance Allowance, which is given to individuals over the state pension age to assist with additional expenses in the event that they are ill or disabled and is not means-tested, is not taxable. Neither is the Winter Fuel Payment or Pension Credit.

Some, like the Carers Allowance (also known as the Carers Support Payment in Scotland), are, nevertheless. Therefore, when determining whether you could lose the Winter Fuel Payment, don't forget to include the taxable ones.

Seven.

Donate any extra cash to a worthy cause. Charity contributions are a frequently disregarded method of lowering your taxable income, according to Pennells.

"If you make a gift through Gift Aid, you can deduct the amount of the gift plus the basic rate of tax, which is currently 20 percent," she explains.

Making some of these donations now will benefit the charity more quickly, reduce your taxable income, and possibly allow you to keep the Winter Fuel Payment if you had been thinking about make a will donation.