Does Personal Injury Compensation Affect Benefits?

Yes, receiving personal injury compensation can impact your means-tested benefits entitlement, but it depends on your unique situation. There are ways to ensure you keep your benefits and receive compensation, including creating a personal injury trust.

Means-tested benefits are available for individuals who are currently unemployed and actively looking for work or those with an illness or disability that limits their capability to work. The amount you receive is based on your income and savings, with certain thresholds in place.

There are numerous means-tested benefits, including:

• Income-related Employment and Support Allowance
• Income-based Jobseeker’s Allowance
• Housing Benefit
• Council Tax Benefits
• Universal Credit

Universal Credit was introduced in 2013 and gradually rolled out across the UK. It replaced most means-tested benefits (also known as legacy benefits), including income-related ESA, Housing Benefit, Income Support, Working Tax Credit, Child Tax Credit, and income-related JSA.

While some people receiving means-tested benefits can continue claiming them until they receive a Migration Notice, most have already made the transition.

The UC you receive depends on your circumstances and whether you’re classed as able to work.

However, there are thresholds in place that can reduce your benefits entitlement or make you ineligible. They include:

• Savings Threshold: People with savings that exceed £6,000 will receive a reduction in the amount they can claim.
• Losing Entitlement: If your savings are over £16,000, you could lose your entitlement to means-tested benefits.

Non-means-tested benefits aren’t based on your income, and a compensation payment won’t impact the amount you receive. They include:

• Personal Independence Payment: PIP is available for individuals with a disability, mental health condition or illness. It provides extra financial support, but you can still claim it while working or if you have savings.
• Disability Living Allowance: Some people might still be eligible for DLA, but Personal Independence Payment is replacing most claims.
• Attendance Allowance: Individuals over State Pension age can apply for Attendance Allowance if they have an illness or disability that compromises their ability to care for themselves.
• New Style ESA: If you’ve made National Insurance contributions through working or receiving credits, you might be able to claim New Style ESA.
• New Style JSA: The same rules as New Style ESA apply here, and some people might be eligible to claim UC and New Style JSA at the same time.

All compensation claims are different, and when you first call 0800 234 6438 or use the online form for free legal advice, a specialist will assess your claim. Once they learn more about the circumstances surrounding your injury, they’ll be able to offer an idea of how much compensation you might receive.

If your claim is likely successful, you’ll be referred to a no win no fee personal injury solicitor. While using a compensation calculator can help you determine a ballpark figure, your solicitor will have a clearer idea of your potential compensation payment, allowing you to plan ahead.

Minor injuries might mean you’re unable to work for a few weeks, but most people make a full recovery. If you were injured in a car accident, had a slip or fall, or suffered a minor injury at work, the amount you receive could be under £6,000.

In these cases, you won’t need to worry about the compensation impacting your benefits.

Receiving compensation between £6,000 and £16,000 can impact your benefits, as the government class this as income.

Every £250 over the £6,000 is classified as £1.00 of income each week. The following table shows the potential reduction in means-tested benefits:

Settlements over £16,000 usually mean you won’t be able to receive means-tested benefits, but it won’t limit contribution-related benefits.

Certain compensation claims – such as clinical negligence and serious accidents that result in amputations, can be worth thousands. So, you’re probably wondering why file a compensation claim if you’re likely to lose your benefits.

Well, it depends on how much compensation you receive. For example, medical negligence claims commonly exceed £100,000, so losing your benefits won’t worsen your financial situation, but claims for smaller amounts can cause problems.

Receiving £20,000 can help you pay for immediate care costs and lost earnings, but it can also impact your financial circumstances as you won’t receive means-tested benefits.

Luckily, there are ways to claim compensation and retain your state benefits. We’ll take a look at them next.

Setting up a Personal Injury Trust is a viable solution for maintaining your financial situation. These trusts enable you to put the compensation payment in a separate bank account, which means they won’t count when the government assesses your income and savings.

Different types of trusts are available, and the one you choose depends on whether the compensation is for a child or someone with special needs.

When you set up a Personal Injury Trust, you must appoint between two and four trustees. You can be one of the trustees; the others might be friends, family members or solicitors. Due to the vital role trustees play in managing the fund, they must align with the following criteria:

• All trustees should be over 18
• They shouldn’t have excessive debts or a history of financial difficulties
• Each trustee should be responsible and willing to sign a document that outlines specific terms

The individual can remove their existing trustees and appoint new ones, giving them more control.

Personal Injury Trust Funds offer immediate and long-term financial protection. If you’re not currently receiving state benefits, you can ring-fence the funds for the future, which ensures any claims protect the money.

All trustees must sign off when they want to access the funds, which also adds a layer of protection as it limits the amount you can spend.

Funds with higher levels of protection benefit individuals with special needs or limited capacity of mind.

Beneficiaries unable to make financial decisions or manage their affairs can name family members, solicitors, and legal guardians as trustees, but measures are in place to prevent financial abuse.

When you receive compensation, you’ll have a 52-week grace period to set up a Personal Injury Trust. However, acting quickly is best if you’re already receiving benefits.

If you don’t set up a trust account within this time, your compensation will count as personal funds from 52 weeks onward – until the trust is opened.

A solicitor will assist you in setting up the fund and ensure each trustee understands their responsibility.

If you’re unsure about setting up a Personal Injury Trust, there are other ways to potentially retain your benefits, including using a spend-down strategy and opting for staged payments. Both options have advantages but require careful consideration, and you might require legal advice.

If your compensation exceeds £16,000, you could potentially use a spend-down strategy to limit the impact on your means-tested benefits. Many people use the method to avoid losing Pension Credit and Universal Credit, but it’s vital to consider the possible implications of spending down:

One of the most popular spending-down methods is paying off debts like loans, outstanding credit cards, or bill arrears. Not only does this prevent you from losing benefits, but it also stabilizes your financial circumstances.

The long-term consequences of an injury could include permanent disabilities, the need for specialist equipment and having to make property adaptations. You could use some of the money to purchase essentials outright – but it’s important to use it for necessities only.

Using the money to buy luxuries could cause problems as the DWP might class it as an Intentional Deprivation of Capital.

In some cases, you can use the compensation to prepay essential expenses, Including utility bills and rent. However, you’ll need to do this in moderation, as it might cause issues with benefit assessors.

If you receive a large compensation settlement, you might be able to use an interim payment basis rather than receiving a lump sum. Staged payments can help you plan for future care needs and ensure you don’t lose your benefits.

Each interim payment is made over a set period, which can be every year or longer.

• Retain Your Benefits: If you’re currently receiving means-tested benefits, staged payments can ensure you remain below the maximum savings thresholds, offering extra security.
• Financial Planning: It also makes it much easier to budget, as you won’t be tempted by a lump sum.
• Deprivation of Capital: If the DWP feels you’ve intentionally spent large amounts to avoid losing benefits, they might classify this as deprivation of capital but still factor it in as savings or income.

You may not receive staged payments, depending on whether the negligent party is willing to offer them.

If you’re unsure of whether you can claim compensation, the first step is to seek free legal advice at 0800 234 6438 or use the online form. An advisor will assess the viability of your compensation claim and connect you with a no win no fee solicitor.

If you successfully secure compensation, you can seek advice from your solicitor about preventing losing means-tested benefits.

Yes, all claimants must report any change in circumstances to the DWP. This includes minor details, such as a change of address and receiving compensation. Failing to do this could mean you have to repay any benefits, but the consequences can be more severe.

You have up to a year (52 weeks) to set up your fund after receiving a compensation payout, which gives you plenty of time. After this, your settlement will count as savings until you open the trust.

However, it’s always a good idea to act quickly, as it ensures you have a plan in place and can make use of your compensation.

Some claims can settle for over £1 million, which means that even interim payments might exceed the threshold. The general rules will still apply, with potential reductions in benefits or them stopping altogether.

Yes. In fact, it’s a good idea to do so as the child won’t be able to manage their finances until they turn 18. The parents or legal guardians can act as trustees, but the child has a right to take control of their trust when they become a legal adult.

Aside from using a spending down strategy, you can potentially appeal the decision. However, as there are set thresholds in place, any appeal is unlikely to be successful. The Citizens Advice Bureau and any local benefits advice agencies might be able to help you ask the DWP to appeal the decision.

No, the DWP cannot access your compensation payment – even if you’ve been overpaid or haven’t notified them about receiving a settlement. Instead, they might reduce your benefits to recover the money or stop them altogether.