Home
» Claims FAQ
» Does compensation affect my benefits?

Will Getting Personal Injury Compensation Affect My Benefits Claim?

By Ian Morris | Updated August 13th, 2024

178 questions have been answered on this subject - ask us your question

Quick Answer: Receiving a personal injury compensation settlement can potentially impact your entitlement to means-tested benefits. However, there are ways to mitigate this impact, such as setting up a personal injury trust.

If you currently receive state-funded benefits, such as Universal Credit or similar, making a claim for personal injury compensation could impact your benefits entitlement and the amount of benefit payments you receive.

Below we’ll explain the potential impacts, the thresholds you need to be aware of, and strategies to protect your benefits while still pursuing fair compensation.

How Compensation Can Affect Benefits

Understanding the potential impact of a compensation settlement on your benefits is important for making informed decisions about your claim and financial future. The relationship between compensation and benefits is complex and depends on various factors, including the type of benefits you receive and the amount of compensation awarded.

Universal Credit and Other Means-Tested Benefits

Compensation settlements can affect means-tested benefits, which include:

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

Current Thresholds

As of 2023, the key thresholds to be aware of are:

£6,000: If your savings (including compensation) exceed this amount, it may affect the amount of benefits you receive.
£16,000: If your savings exceed this amount, you may lose entitlement to means-tested benefits altogether.

Non-Means-Tested Benefits

Some benefits are not affected by compensation settlements, including:

Personal Independence Payment (PIP)
Disability Living Allowance (DLA)
Attendance Allowance
Child Benefit

Understanding the Impact

If you receive a compensation settlement exceeding the £6,000 threshold, you must declare it as savings. However, it’s impossible to determine if your benefits claim would be affected until you know how much compensation you’ll receive.

Compensation Under £6,000

If your compensation settlement is less than £6,000, it generally won’t affect your benefits. For example, a minor whiplash claim settling within 6-8 weeks would typically fall below this threshold.

Compensation Between £6,000 and £16,000

Settlements in this range may reduce your benefit entitlements. The DWP assumes you have an income of £1 per week for every £250 of savings between £6,000 and £16,000.

Compensation Over £16,000

If your settlement exceeds £16,000, you may lose entitlement to means-tested benefits until your savings fall below this threshold.

Should You Claim Compensation if it Reduces Your Benefits?

In most cases, anyone injured in a non-fault accident should pursue their legal right to seek compensation regardless of any benefits they receive.

If you had a huge settlement of millions, it wouldn’t really matter if you lose your benefits. Where it is a problem is when people receive smaller settlements of, say, £10k or £20k. While it’s a lot of money, it’s not life changing and won’t last forever. Therefore, losing a chunk of or all of your benefits would be a real blow.

However, there are ways of mitigating the risk of a settlement affecting your benefits, and here at Direct2Compensation we can help you understand how to do this. You shouldn’t let concerns about losing benefits entitlements stop you from making your claim for compensation.

Strategies to Protect Your Benefits

It pays to be smart with your claim. Our solicitors will help you to ensure that any existing benefits are unaffected unless the law requires them to be. There are several strategies that can employed:

1. Personal Injury Trusts

A personal injury trust is a legal arrangement that can protect your compensation from being considered as savings for benefits purposes. Key points:

The compensation is held separately from your personal finances
Trustees control how the money is spent
The funds in the trust don’t count towards the savings threshold for benefits
You can be a trustee of your own trust, along with other appointed trustees

Often our solicitors will advise that if you win your claim for compensation, you should agree to take a small settlement immediately (one that would not go above the maximum savings threshold) and that the rest should be placed in to a personal injury trust fund.

2. Spend-Down Strategy

In some cases, it may be appropriate to use your compensation to pay off debts or make necessary purchases before it affects your benefits. However, this should be done carefully and with professional advice.

3. Staged Payments

For larger settlements, it may be possible to arrange for the compensation to be paid in stages, keeping the amount you receive at any one time below the relevant thresholds.

The Importance of Professional Advice

Given the complexities involved, it’s worth seeking professional advice if you’re concerned about how a compensation settlement might affect your benefits. Consider:

Consulting with a welfare rights advisor
Discussing options with your personal injury solicitor
Seeking advice from a financial planner experienced in personal injury trusts

Our specialist solicitors can ensure that any compensation settlements have minimal impact on your existing or long-term benefits entitlements. In cases of larger settlement values, we can link you with specialist financial advisers to handle the compensation in the most tax-efficient way possible, such as creating a personal injury trust.

Reporting Your Compensation

Remember, you have a legal obligation to inform the relevant benefits authorities about any change in your financial circumstances, including receiving a compensation settlement. Failure to do so could be considered benefit fraud.

Let Us Help You Start a Claim

While receiving a compensation settlement can potentially impact your benefits, there are strategies available to protect both your compensation and your benefits entitlement. The key is to plan ahead and seek expert advice to ensure you make informed decisions about your finances and your future.

If you would like to find out a little more about how you could claim compensation after an accident and not lose your benefits entitlement, just drop us a line on 01225 430285, or if you prefer, . We’ve been helping claimants win compensation for over 28 years. We’re happy to discuss your circumstances in confidence and help you to better understand whether claiming compensation could have any undue effect on your existing benefits claim.

Frequently Asked Questions

178 questions have been answered on this subject - ask us your question

Comments & Questions

Read on for questions and advice about claiming...

Thank you for the information you emailed me, I understand I still have a chance to claim, but I will probably need your help.
Earlier they promised me a medical expert and I am waiting until today. I don’t know what to do, maybe you as an expert could help me?

We advise that you allow the insurers to view your medical records and seek a referral to a medical expert. If the insurers then come back with a reasonable offer, that would be great. However, if they refuse to cooperate advise us and we’ll look in to this for you.

I was involved in a crash and I’m currently going through the claim now. It’s been over 2 years since the accident and I am at the stage where my solicitor is sending the deductions for DWP paperwork and I was wondering how long it will take from this stage to receive my claim?

It would appear that you are close to the end of the process and to receiving settlement. Do you know if an offer has been made by the defendant? If so, and if you’ve accepted the offer, settlement should be with you within a month or so.

If my personal injury claim is withdrawn or unsuccessful, can the DWP take any action to recover my benefits if I am receiving personal independence payment?

The DWP cannot recover any paid benefit that you have received if your claim for personal injury compensation is unsuccessful.

I won a claim against the NHS but the solicitors deducted all benefits paid from the date of negligence. This was for ESA and PIP to be paid back to DWP. The total wasn’t far short of half the money paid.
I can maybe understand ESA being paid back but PIP I thought was a given right to help with daily living.
Our solicitor has queried this with the DWP but the DWP haven’t responded in the months since.
Your thoughts would be appreciated.

The DWP can be difficult to deal with. In the majority of cases where a successful claimant is in receipt of PIP benefits, there is no requirement for PIP to be repaid to the DWP, but this is not always the case.

Can a trust fund be set up when the compensation is already in my bank account?

You may be able to establish a trust but you should act quickly to look in to this. You should approach your Solicitor to discuss the prospect of setting up a trust.

I have had my settlement award from cica and its going to have a big impact on my benefits can someone please give me some advice?

Were you represented by a Solicitor in your CICA claim? If so, you should contact them to ask whether they can help you to have the award placed in to a trust (personal injury trust) in order to ensure that your benefits entitlement is not impacted. If you did not have a Solicitor acting for you, please approach a local Solicitor to discuss having such a trust set up.

last year i received a large medical negligence out of court settlement of 500k. After solicitors fees and repayment to private health insurers i received just over 450k. I am currently in the process of purchasing a bungalow to help with ongoing mobility issues and to relieve the financial burden of a mortgage as my health is not expected to improve. Three years ago i had to reduce my working hours to part time due to my health issues. Like many I am currently working from home. My employers have been very supportive but are unable to allow me to reduce my hours further and work from home on a permanent basis. We have entered discussions regarding their terminating my employment due to ill health capability. My question is if most of my compensation is spent on purchasing my bungalow and i am laid off work due to ill health would my having been awarded compensation in the past effect any future benefits i may be entitled to. Thank you.

It is unlikely that any previous settlement payments (once the property is purchased), will negatively impact any benefits entitlement. There is a savings threshold at which some benefits are not available, so it will depend on what financial situation you are left in post the purchase of the property.

I have just received a settlement for personal injury for 20k after deductions ongoing over the last 2 years How if any will it effect my Attendance allowance which started over the last 3 months The insurance claim for the injuries is not what i claim AA for , I understand AA is not means tested Do i need to inform DWP

Although the attendance allowance is not a means tested benefit, it is always sensible to discuss any benefits entitlements and financial situation changes with the DWP.

Hi I have been in a car crash which was not my fault I haven’t done any injury claim yet but I will as my left hand was dislocated badly and had about 4 inches long fracture resulting me having surgery and had plate and screws in my arm. I am expecting more than £6000 which can affect my universal credit so my question is after getting my compensation if I use that amount in deposit for buying my first house straight away, will it affect my universal credit claim and if it will how much it will affect? thanks

A Solicitor will help you to ensure that any settlement that is above the threshold of benefits entitlements is received in such a way that it does not impact your benefits rights.

Hi. I’m about to receive £9,500 cost care of personal injuries. Should I be contacting the Dwp as I get help from universal credit.
Thanks.

It is always sensible and correct to contact the DWP when your finances change – even if due to the receipt of a compensation settlement. However, before you do contact DWP, it is sensible to speak with your Solicitor about your settlement and the options available to you.

I am a single mother with 2 children and will soon be receiving a lump sum of £50,000 plus. I am claiming universal credits and council tax reduction. I am considering a trust however I really don’t know how to go about it. Also how do trusts work? Will I be able to access my money when I need to?

Your Solicitor should be able to assist you in the process of setting up a trust for your settlement, ensuring that you retain the maximum initial lump sum (so as not to impact your benefits entitlement). If you have a good relationship with the Solicitor who has handled the claim for you, you can appoint them as a trustee. If you don’t have a Solicitor, you should make an initial free consultation appointment with a Solicitor to discuss setting up the trust and they will guide you through the process and cost.

Once the trust is set up, the trust – of which you can be a trustee – will control the funds within the trust and can release them accordingly for items of need and living costs etc.

I am anticipating receiving around 10k in compensation I have 10k of debt if I pay off my debt does this count towards savings?

If you can demonstrate your debt and evidence that you are settling the same, it should not cause you any problems with regards to thresholds.

My mother is due to receive about 14k compensation for an accident at work (after lawyers fees), she sometimes recieves universal credit to top up her earnings, but is not currently recieving them. However this is money that she owes me, so she was going to pay me directly after she banks it. Will this effect her universal credit in the future? Does she have to declare that the money was there even if it will be out of her account again straight away?

It is always sensible to make sure that the benefits authorities are fully aware of any money coming in or out of a claimants account. In this situation, I don’t believe the settlement would have any impact on her entitlement and she should not be concerned.

Hi I got awarded compensation through the courts for the sum of £56.000 my solicitor said I had to pay back esa £2000 out of that then once he took all his fees and expenses I didn’t receive a penny, should I have payed esa the £2000 if I didn’t receive any of the compensation?

Until you have formally ‘banked’ your settlement, you are not in receipt of funds, so would not have to repay the benefits authorities until you have the funds in your bank.

Hi thank you for the reply, as my solicitor already payed the benefit department and then took the rest of my compensation for himself have I got grounds to ask benefits for the money back?
Kind regards

Your situation seems unusual and it is one we would recommend that you discuss with both the benefits office and also with the regulators covering the Solicitors in question – the Solicitors Regulatory Authority and Legal Ombudsman Service so that an independent review of the costs charged to you by your Solicitor can be undertaken.

I’ve been told I would receive £25,000 for the injury I sustained. However after Solictor fees and premium fee I will receive a total of £10,170. I’m currently on Universal credit with the limited capability to work meaning I’m unable to work I also receive pip, council tax reduction and school meals for my children . How will these all be affected by my personal injury award . I spoke to financial advisor through my Solictor’s however they said a personal injury trust fund isn’t right for me and not to have one . I have no savings at all so this lump some of £10,170 will be all I have. I was told by the financial advisor that I have. 52 week grace period and because I need to buy some things for the house to help with my disability due to my accident and that I’d be paying for private physio that I would more than likely be under the £6,000 saving threshold before the 52 week grace period finished and just to save all my receipts for big items purchases. I’m really worried and don’t know what to do as last thing I want is to have to use the lump sum award to be used for daily cost of living, rent etc and not for things that may help improve my disability I’m left with or make it a little more comfortable at home for. I need to get new flooring. As the one I have currently is dangerous with my new disability and causes me to have a couple of accidents, also some purchases of a mattress and some aids for walking and a sofa that is easier for me to sit down on and easier for me to stand back up again And private physio as I never received physiotherapy from nhs like I was meant to. Do I just have to keep Receipts for the amount that exceeds the £6000 and what are my options with this . I’m really worried and don’t want to be in the same position I was after my accident please can you share some advise

The advice you have received appears to be correct in that once you fall below the £6k threshold, any Universal Credit entitlement will not be impacted.

Hi there, I was in a car accident almost
3 years ago and I’m just about to get my settlement. It’s almost £8000 but the layers are taking their 20% before paying me the rest. I think I’m going to be paid about £6135.

I’m on working tax credits and child tax credits and really don’t want to be put onto universal credit automatically. I don’t know if this payment will trigger it?

Around £500 of the money is reimbursement for the car seat I had in the accident and the chiropractor I went to afterwards. Almost £900 is for CBT therapy for anxiety I was recommended get but haven’t booked yet due to not having the funds yet.

Will the DWP see this as I got £8k savings despite the fact £2k went to the lawyer and about £1.5K is for refunds/future medical treatment?

Of course, you should always be open and honest with the DWP regarding your financial situation. However, in your case you appear to be under the £16k threshold if you include savings and settlement, so you should be ok.

Hi was in a car accident in 2014 that resulted in me needing spinal fusion. I was awarded a settlement for £40,000 and I put that in a personal injury trust. I used that money towards a deposit on a house.
Unfortunately I had serious fall in 2017 that wasn’t my fault and it resulted in another surgery to my neck and because of this I ended up being medically retired from work. I’ve recently been awarded £20,000 and I’ve been told I can put it into my existing personal injury trust providing I’ve got a copy of my solicitors letter to support the injury compensation. Is this correct? I’ve got to pay back any sick pay I received but I’ve not been made aware I’d have to pay back any existing benefits I’m receiving. Do you think I would?

If your settlement is placed in to trust, the value of the settlement should not be seen as your own personal finance and that should not impact on any benefits that you currently receive.

I am in receipt of ESA and DLA benefits. I have recently won compensation of £30 000. Which benefit department do I report this too. Do I have a year to invest this without my benefits being stopped. thanks. Sarah

Did you have a Solicitor acting for you in your claim? If so, they should be able to assist you with setting up a trust to ensure that any impact to your benefits entitlement is mitigated.

In terms of declaring the compensation, you should contact the Department for Work and Pensions.

I had a injury some time back which has left me permanently disabled. I applied for and received a personal independence payment (PIP) to assist with mobility and care and continue to do so. Recently after several years I have managed to get an injury payment from those who did not treat my injury adequately. I am told that this payment would be subject to CRU payment – i.e. payment of benefits received. I am confused as to why this payment needs to be made, because I will continue to receive the PIP award going forward.

Is this correct, am I liable to payback the PIP from date of first received to injury payment especially when my understanding is that the PIP has been awarded due to my mobility and care needs which will continue and potentially increase as I get older?

Much will depend on the amount of compensation you will receive and whether that money is paid directly to you or placed in a trust. Before you accept the settlement, you should seek specialist advice via your Solicitor or a financial planner as it would be worth delaying receipt of the payment to ensure that you can minimise the impact on any benefits entitlements or the requirement to reimburse the DWP.

Hi I am due a compensation from CICA which is £16,000 and would like to now if this will effect my benfits

Before you receive settlement, we would advise that you discuss the potential impact of a settlement of such an amount on your benefits entitlement with a specialist organisation such as the Citizens Advice Bureau. If you used a Solicitor to help you with your CICA claim, they will be able to help you with this. Alternatively, the CICA should also be able to offer you advice.

Hi, my mother has received a total of £8900 for a crash she was in. However, she claims PIP, income support and child tax credit. Is there a way around them not stopping her benefits?

Solicitors should be mindful of the potential impact on benefits entitlement that a settlement in a claim for personal injury can present. There are legal ways around the impact on entitlement including placing some of the settlement in trust etc. Your Mothers Solicitor should be able to link her to a specialist advisor who can help her in this area.