Does Personal Injury Compensation Affect Benefits

If you’re making or have won a personal injury claim, you might be worried about how your compensation affects your benefits. This is a very common concern, especially for people who rely on support such as Universal Credit, Housing Benefit, or Income Support.

The good news is that not all benefits are affected, but some means-tested ones may be reduced if you receive compensation. At Claims 24 Hours, we explain how this works and what you can do to protect your benefits.

Which Benefits Are Affected by Compensation?

Compensation can affect means-tested benefits. These are benefits where your income and savings are checked to see if you qualify. Examples include:

• Universal Credit
• Housing Benefit
• Income Support
• Pension Credit
• Jobseeker’s Allowance (income-based)
• Employment and Support Allowance (income-related)

If your compensation pushes your savings over the limit (usually £6,000 or £16,000 depending on the benefit), your payments may be reduced or stopped.

Which Benefits Are NOT Affected?

Some benefits are not means-tested, which means they are not affected by your compensation. These include:

• Personal Independence Payment (PIP)
• Disability Living Allowance (DLA)
• Attendance Allowance
• Industrial Injuries Disablement Benefit
• Contribution-based Jobseeker’s Allowance
• Contribution-based Employment and Support Allowance

If you receive one of these, your payments will continue even if you get compensation.

How to Protect Your Benefits with a Trust

One of the most effective ways to stop compensation affecting your benefits is to set up a Personal Injury Trust.

This is a special bank account where your compensation is kept separate from your everyday money. If your money is in a trust, it won’t be counted when the government looks at your income and savings for means-tested benefits.

You will need at least two trustees (people who manage the trust with you), and it should be set up before you receive the compensation.

Why a Personal Injury Trust Is Important

Without a trust, your compensation could quickly reduce or stop your benefits. For example:

• If you receive £20,000 compensation and keep it in your normal bank account, it will count as savings.
• If your savings go over the threshold, you might lose benefits like Universal Credit.
• With a trust, the money is protected and you can still claim the support you need.

When Should You Set Up a Trust?

The best time is before your compensation is paid. This way, the money is protected right away. If you wait too long and the money is put in your personal account, it may already be counted against your benefits.

A solicitor can help you set up a trust properly to make sure it is valid.

Does Everyone Need a Trust?

Not always. If you don’t claim means-tested benefits and don’t expect to in the future, a trust may not be necessary. But if you are on benefits now or may need them later, it’s strongly advised.

FAQs – Does Personal Injury Compensation Affect Benefits

Will I lose all my benefits if I get compensation?
No, only means-tested benefits may be affected. Non-means-tested benefits will not change.

How much savings can I have before benefits are reduced?
Usually £6,000 before payments are reduced, and £16,000 before they stop completely.

Can I spend the compensation instead of setting up a trust?
You can, but if you spend it quickly, it may still be treated as if you had the money (this is called “deprivation of capital”).

Can a trust be set up after I get my compensation?
Yes, but it’s better to set it up before the money is paid to you.

Do I have to pay tax on compensation?
No, compensation itself is not taxable.

Who should I ask about setting up a trust?
A solicitor who specialises in personal injury claims can set it up correctly for you.

Conclusion

So, does personal injury compensation affect benefits? The answer depends on the type of benefits you receive. Means-tested benefits may be reduced if you don’t take action, but non-means-tested benefits will not change.

The best way to protect your money and your benefits is by setting up a Personal Injury Trust. At Claims 24 Hours, we guide our clients through every step so they can keep the support they need while still receiving the compensation they deserve.