Will my benefits be affected if I claim injury compensation?

Woman worried about a compensation claim affecting her 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.

When can I make a personal injury compensation claim?

You may be entitled to make a claim if you suffer an injury or illness as a result of another party's actions or negligence.

To make a successful no win, no fee claim, your injury must have:

  • happened in the last three years and
  • been caused by another party and
  • that party must have owed you a duty of care.

How is compensation calculated?

The amount of 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.

Will my compensation reduce my state benefits?

If you receive a lump sum as the result of a personal injury claim, it can have an impact on which benefits you are entitled to and the amount you can claim.

When means-testing your eligibility to claim state benefits, your assets and savings (collectively referred to as your 'capital') are all taken into account.

If the amount you receive in compensation, when added to your capital, exceeds certain financial thresholds, then your eligibility to receive benefits may be affected.

The first £6,000 in your 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. A minor whiplash claim, for example, would probably receive a settlement of £3,000 or less.

If the receipt of compensation means 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, you would no longer be entitled to receive income support or housing benefit. Your benefits would be suspended until your capital falls below £16,000, at which point you would have to reapply.

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.

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 not subject to capital means-testing, 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 you receive at home.

Working Tax Credit and Child Tax Credit would not be affected, as these are not means-tested.

Read more:

What can I claim for in a personal injury claim?

Who will be notified if I make a 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 you receive, 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.

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.

Personal Injury Trusts

One option is to ask your solicitor to set up a 'personal injury trust'.

A personal injury trust effectively ring-fences your compensation and may prevent it from being taken into account when assessing your means. A personal injury trust may allow you to continue to receive means-tested benefits.

Personal Injury Trusts work as follows:

  • The trust fund is 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 into 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?

What is 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. It is usually advisable to set up your personal injury trust within this period.

Any money spent within this 52 week period while continuing to claim benefits, will be scrutinised.

You could be penalised if you are deemed to have spent the money abnormally quickly with the intention 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’. This means deliberately reducing your capital in order to fall within your benefits entitlement threshold. Again, you are likely to be penalised.

Be open about your circumstances

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

You should always keep your benefits agency notified of any changes in your circumstances. Your solicitor will advise you on the best course of action throughout your claim.

How did your injury happen?

Claiming compensation depends on the circumstances of your injury. Click the icons below for read more:

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Gaynor Haliday, Legal researcher

Gaynor Haliday, Legal researcher