Does injury compensation affect my state benefits?

If you are in receipt of means tested state benefits, such as income or housing support, then the receipt of a lump sum personal injury award may affect your entitlement to future benefits depending on how much compensation you receive.

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When can I make a personal injury compensation claim?

You are entitled to make a claim if you suffer an injury (physical or psychological) as a direct result of someone else’s negligence.

Even if you qualify, however, some solicitors may not take on your claim for other reasons.

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How much compensation you receive will be based on how your injury has:

  • impacted your life
  • affected your ability to work
  • the future prognosis and
  • any expenses incurred and the cost of any treatments.

If you receive a lump some as the result of a personal injury claim it can certainly affect your state benefits, both in terms of which benefits you are entitled to and the amount you can claim.

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How will my compensation reduce my state benefits?

Means assessed state benefits take into account your income, assets and savings to assess your eligibility to claim.

These items, added together, are known as your 'capital.' If the value of your personal injury compensation, added to your capital, exceeds certain financial thresholds, then it may affect the amount of benefits you can claim.

The first £6,000 in capital is disregarded when assessing your eligibility for state benefits. If your personal injury compensation is relatively low, such that your total capital remains below £6,000, then your benefits eligibility will not be affected.

The majority of personal injury settlements fall into this category. For example, a minor whiplash claim would probably receive a settlement of £3,000 or less.

If your personal injury compensation means that you have more than £6,000 in capital then your state benefits will be reduced by £1 per week for every £250 held over the £6,000 limit.

If your compensation means that you have more than £16,000 in capital then you are no longer eligible to receive state benefits. Your benefits will be suspended until your capital falls below £16,000 when a fresh application must be made.

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What about state benefits received as a direct result of my injuries?

If you receive state benefits as a direct result of a disease caused by work, these may be deducted from your settlement award and paid directly to the government by way of reimbursement.

This includes payments made under the Diffuse Mesothelioma Scheme and the Pneumoconiosis etc (Workers Compensation) Act 1979.

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Which benefits are affected?

Any means tested benefit may be reduced following the receipt of personal compensation, including:

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

Benefits that are payable whatever levels of capital you have, such as incapacity benefit and disability living allowance, will not be affected by any compensation payment.

Is anything else affected?

A lump sum could also affect your entitlement to free prescriptions, free dental treatment and free eye tests, and could impact any amount you are paying towards care received at home.

Working Tax Credit and Child Tax Credit would not be affected, as they are not based on your savings.

Read more: What can I claim for in a personal injury claim?

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Who will be notified of my personal injury claim?

As soon as you make a claim for compensation, the insurance company receiving your claim will inform the government via the Department for Work and Pensions (DWP).

The DWP will also be notified by the insurer of any interim payments made to you, and again when your compensation is paid in full.

As soon as your financial circumstances change, it is up to you to tell your benefits agency. If you do not tell them, you are at risk of committing fraud.

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Is there anything I can do to avoid losing state benefits?

For many claimants, losing their state benefits is a real blow, especially when the amount of personal injury compensation they receive is not life changing.

However, there are ways to mitigate the risk of a lump sum compensation payment affecting your benefits.

One option is to have your solicitor set up a 'personal injury trust':

  • This is a trust fund managed by two or more trustees (you can be one of them).
  • The account is separate from your bank account.
  • The money in the trust will be held separately from all other assets.
  • Only the compensation you have received can be paid in to the trust account, and this will be taxed in the same way as any other savings.
  • You may draw funds from the account, but in order to protect your benefit entitlement the amounts must not take you over the savings limit.
  • If you require social or residential care, the money in your personal injury trust will be safeguarded against care fees.
  • A trust allows you to accept a small lump sum immediately (one that will not push you over capital limits) and have the rest of the compensation invested.
  • The invested money is not taken into account when assessing your eligibility for state benefits and you can draw a small amount of money from the trust each year to cover specific expenses.

Read more: Should I set up a Personal Injury Trust?

The best advice is to speak to your personal injury lawyer who will advise you on the best course of action.

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The 52 week ‘period of grace’

Once you receive the first payment relating to your personal injury claim (this could be an interim payment), you will have 52 weeks’ grace in which the lump sum will not be counted against your benefits entitlement. Within this time it is advisable to set up your personal injury trust. 

If you spend the money within this 52 week period while continuing to claim benefits, what you spent it on will be scrutinised.

You could be penalised if you are deemed to have spent the money  abnormally quickly with the sole purpose of minimising the impact on your  state benefits. 

If you spend the money after the 52 week period while still claiming benefits, the benefits agency could consider this a ‘deprivation of capital’, which means deliberately reducing your capital in order to fall within your benefits entitlement threshold. Again, you are likely to be penalised.

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Be open about your circumstances

Remember that the government will be notified of how much compensation you receive and when, as well as any interim payments awarded to you.

So do not attempt to keep a change in your financial circumstances from your benefits agency; this will be sure to come back to bite you.

Gaynor Haliday, Legal researcher

About the author

Gaynor Haliday is an experienced legal researcher and published author. She has had numerous articles published in the press and is a legal industry commentator.

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