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If you have sustained a personal injury as a result of an accident that was the fault of a third party you may be able to claim compensation. If your claim is successful and you receive compensation, one of the issues to consider will be the interface between your compensation and any benefits that you have received.

In certain cases, you may need to claim benefits after your compensation is paid to supplement your income. Whether you are entitled to do so will depend on certain factors. The first of these is the type of benefit that you are claiming. If you have received compensation it can affect your entitlement to means tested benefits. These are benefits where, if your capital is above a certain threshold, you are not entitled to receive the benefit. Means tested benefits include Jobseeker’s and Income Support Allowance, Income Support and Pension and Tax credits, Universal Credit, Housing Benefit and Council Tax Support and certain payments from the Social Fund.

In addition to the capital limits there are also income thresholds for certain means tested benefits. It should also be stated that not all of the mean tested benefits listed above are affected by the amount of your capital, some of them being related to income alone, including interest generated by any lump sum. For example, entitlement to working tax credit and child tax credit benefits are not affected by the compensation that you recover.

Certain benefits relating to disability are not means tested at all and your entitlement to these will not be affected by the compensation that you receive.

It should be pointed out that an interim compensation payment may also affect your entitlement to claim benefits in a pending action in the same way that a final payment does.

The Problem with Means Testing

If you need to claim a means tested benefit to meet your day to day living costs and your capital is too high the simple consequence is that you will have to live on your compensation until falls below the capital threshold imposed by the government from time to time. That threshold is presently £16,000. Clearly, this is a situation that you will want to avoid, especially as your compensation will have already been reduced to repay any benefits that you were paid while your injury claim was running.

The Solution

You have twelve months grace after the receipt of your compensation before it affects your benefits. During that period, you should take steps to avoid the problem set out above. This cannot involve throwing or giving the money away or trying to hide it because the Department for Work and Pensions will simply treat you as if you still have the compensation.

A legitimate way of dealing with the problem is by establishing a personal injury trust. For a valid personal injury trust to be established:

  • Your trust must have at least two trustees, independent of yourself
  • You must be a beneficiary of the trust
  • The trust monies (and any income generated by the trust) must be kept in a separate bank account
  • The money in the trust must come entirely from your compensation

The capital in the trust is not taken into account when calculating your entitlement to means tested benefits, although any income paid to you from the trust will be.

The law relating to how compensation can affect benefit entitlement and setting up a trust is complex and it is highly recommended that you seek the advice of your personal injury lawyer on both of these issues before making a decision about how to invest your compensation.