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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...

Hi I have been putting off going for a claim after I cut a tendon in my finger in an accident at work. I have had surgery to fix it, but the surgery didn’t work as well as hoped, so my finger now doesn’t move properly. I delayed making a claim as my partner said that her benefits would be affected as she doesn’t work.

Whilst benefits entitlements can be impacted by receipt of a compensation settlement, there are legitimate ways in which a claimant can mitigate the loss of any benefits and specialist Solicitors can assist successful claimants to obtain specialist advice and support in cases where a claim value may impact on benefits rights. However, in your case you have sustained a permanent injury that will impact on your dexterity and close motor-skills for the rest of your life and the impact that such an injury could have on your ability to work properly and earn as much as you may otherwise have earned surely outweighs whether or not your partners benefits rights are entitled! Our article on finger injuries will give you more information.

Given the injury you have sustained, our view is that not attempting to pursue a claim is a short-sighted move and one you may well end up regretting if you allow your claim limitation period to expire.

I have just had a payout for an injury and was wondering if it affect my universal credit pay, the amount was £1000.

The amount you mention is unlikely to impact on your universal credit payments and your rights under that scheme.

I am currently receiving benefits for 4 yrs for my loss of earnings and not being able to work due to a hammer beating that severely caused my business to collapse and become immobile. I have a solicitor who is no win no fee but I’m so worried she says that I will have to pay back all of my compensation well most of it at least £60,000 of it. I have a loss of earnings claim and personal injury claim with this sols. I am on (mortgage payments interest only ) with mortgage holding off until claim comes through, I also receive PIP,ESA , my main worry and concern is that whilst I’m claiming if its true what she implies about benefits being deducted is this from loss of earning only or P I Claim? I live alone am worried I’m wasting my time if I then pay all the money back and still loose my home and concerned why my sols has not mentioned a personal injury trust that I have been told about that could protect my claim and benefits from being taken leaving me penniless.

It is true that benefits entitlements can be altered by receipt of a compensation settlement. However, your Solicitor should be able to assist you with wealth management advice as to legal ways of receiving your settlement in such a way that it does not reduce your benefits entitlement and allows you to receive settlement in a way that prevents you from losing out.

Hello I currently receive universal credit and I’m due a cheque for £1,077.90 in 2 days do I need to declare this?

We would always recommend that any compensation settlement or other income is declared to the benefits office in order to ensure that no restrictions are broken or breached. It is likely that your compensation will not impact on your benefits entitlement in anyway.

I was injured in an RTA Oct 18. I have had numerous scans and tests. MRI shows legion to left ankle, which is quite painful and has caused weakness and buckling. I am in receipt of ESA due to severe arthritis of right hip. Can I set up a Trust? how much are the fees?

If you have a Solicitor acting for you in your claim for personal injury compensation, they will be able to link you with a qualified financial planner or advisor who would be able to assist you in minimising the impact of any settlement on any benefits entitlements, including setting up a trust or making appropriate investments.

The costs of such services is not something we can advise on, but it would be wise for you to investigate such avenues.

I’m on esa support group and on pip but had a car accident the other day, am thinking of claiming whiplash injuries, do i have to tell the DWP about any compensation i receive? it is about 3000 a claim or less.

The reality is that your claim would not be of a sufficient value for you to have to disclose any settlement to the DWP. However, a specialist Solicitor would ensure that you were made aware of your rights and obligations and that if the settlement were to exceed any benefits threshold, that appropriate action was taken to ensure that you could receive settlement in such a way that the impact on your benefits entitlements was minimised within the law.

We can help you with your claim for whiplash.

I received in 1993 a6% award for vibration white finger for life although it wasn’t enough to entitle me to a pension. Over 20 years my condition has deteriorated and now I have been told I have carpel tunnel as well, I am 70 years old and claim housing benefit and council tax benefit. I have been told if I make another claim it will effect my ongoing claim for these benefits, could you please let me know if this is correct?

Any compensation settlement that is of a financial value that is above the allowable benefits criteria would need to be disclosed to the DWP and benefits could be impacted. However, Solicitors are used to assisting clients who succeed in a claim with financial advice that enables them to maintain their benefits entitlement whilst still receiving compensation via legally accepted methods such as trust funds and slow release of settlement amounts. We’ve an article on vibration white finger claims which might be of interest.

If I’m on benefits but my friend isn’t And I get a large some of compensation like £50,000 and had it paid in a cheque in a friends name and he put it in his account, will I still have to declare it or will it be ok as my friend isn’t on benefits and it’s in his bank?

It would be unwise to attempt to ‘cheat’ the system and not to declare any lawfully received compensation settlement. Further, what is to say that your friend won’t cheat you out of your compensation? We would not recommend the course of action you suggest.

The concerns you have regarding a benefits settlement impacting on your benefit rights are common. You should discuss your situation with your Solicitor as they will have legitimate ways of minimising any impact on your benefits entitlements and will ensure that your financial situation is handled legitimately and that your best interests are served.

Hi I have been awarded 11000 compensation due to a sexual incident. I’m worried cos I claim house benefit tax credit and carers allowance. I do not want to go over what I’m allowed and scared now to claim this compensation.

It is important to remember that you are being awarded compensation due to having suffered emotionally and physically, especially given the nature of the incident that lead you to making your claim.

If you have been represented by a Solicitor, they should be able to assist you with regards to making sure that your award is paid to you in such a way that it falls below the required threshold for disclosing the settlement sum to the benefits authorities. If you have acted independently and made a claim without representation, you should make contact with your Citizens Advice Bureau to discuss the settlement and how you can minimise any loss of benefits entitlements. Of course, you should disclose the sum to the authorities at the appropriate time, but not before you have sought advice.

The whole point of compensation is to ‘compensate’ you – the victim of an upsetting incident. For that compensation to then see you lose any benefits entitlement (even if short-term), would then effectively see you not being compensated fairly.

Good evening i am getting p.l.p and industry injury payments. I would like some information regarding about payout. Will it affect my payout?

I was in a car accident 1 year ago and recieved treatment ect I have been offered a settlement in the region of 4.5k, but not yet agreed or recieved this,our financial situation has changed were my husband no longer works so as I work part time now we have been advised to claim universal payment. I have recieved a certificate from the cru to say nothing is currently owed to them but my question is, will me receiving this payment reduce our benefit entitlement or am I better waiting until the claim is fully settled and paid before claiming our benefit entitlement and just struggling thro until then?

Your Solicitor should be able to help you make contact with people who can assist you with advice as to how to minimise the impact of any compensation settlement on any benefits entitlement you may have. Of course, receiving compensation should be compensatory for losses and injuries etc sustained, so if the compensation settlement is effectively lost in lost benefits entitlements, it would render the purpose of claiming compensation pointless.

We would recommend that you speak with the benefits agency regarding your situation and discuss the potential claim settlement value and whether it would impact on your entitlement. Our initial view is that the amount you mention is UNDER the threshold, so it shouldn’t impact on your benefits claim – but again, we recommend that you discuss that with the appropriate people.

Most benefits are means tested and as such, receiving large lump sums of compensation can have an impact on certain benefit entitlements. With this in mind, Solicitors that do settle claims for claimants that receive benefits will be able to discuss with their client as to the best way to avoid impact on benefits entitlements. In most cases, this will see a claimant receive a portion of their settlement initially and then have the rest placed in a trust fund that will enable them to draw down an annuity annually that will remain below the income level that would impact on their benefits.

I will shortly be receiving a compensation one off payment for harm (£10K) from my local authority while in their care as a child. I am age 60 and in receipt of ESA/PIP/HB and CTAX benefit. Will I have to declare this compensation to the DWP or will my compensation payment be exempt when it is paid.

You should declare any payment – although it is often done automatically anyway. The value of your settlement shouldn’t impact on your existing benefits entitlement but your Solicitor or legal representative should be able to link you to an appropriate financial advisor who can ensure that your settlement is paid to you in a way that doesn’t damage your existing position.

Hi, I receive PIP and ESA benefits, I was in a road traffic accident a few months ago and I’ve now been giving an offer of £2200, my solicitor takes 15% of that so that leaves me with just under £2000, will any of my benefits be affected? I was on benefits before the accident (I wasn’t claiming benefits because of the accident) .

I’ve also read about a trust fund, will I need this even though the road traffic accident claim is a small amount? Will I also need to inform the DWP of my successful claim?

With a settlement of that value, it is unlikely that you will have anything to worry about. You should double check with your Solicitor, but my view is that you need not be concerned.

I don’t get any benefits only child tax credit and Carers allowance Child benefit. I have got my renewal form from the tax credits, do I have to tell them how much money I have in the bank as got compensation from a accident in 2013?

It is important to disclose any requested details to HMRC and the tax credits authorities, but it is unlikely that your compensation settlement will have an impact on child tax credit and carers allowance benefit.

hi my mother had a fall at home due to work done by contractors and is due a compensation claim, she will receive after the solicitors have taken there fee just over £3000, do you know if this will effect her benefits, the solicitors have sent her something about putting the money in a trust but to do this she will have to pay out of the money another £650 so will leave her even less can you help, i was wondering if i could be a trustee for her.

Hi I receive pip, esa, child tax, housing/council tax, I am in the middle of a car crash claim and looking to receive about 16.5000 in compen due to excess damage caused I am wondering if this will effect my benefits and if so is it possible to have the money paid to someone else as a Trustee for me? Thank you.

Your specialist Solicitor should be able to arrange a suitable and legitimate way to have your settlement paid in to a trust in order that it does not exceed the threshold that can impact any benefits entitlement.

Compensation settlements for previous/past losses and injuries are not deemed to be taxable income and I would therefore doubt that any such payment of £3000 to your mother would have an impact on her benefits claim – although I would stress that all financial sums held by a benefits claimant ought to be disclosed.

In claims for compensation, the only sum that can be deemed as taxable would be the element of the settlement that provided for lost income that would usually have been taxed at the point of earning if one is a PAYE worker or via a self-assessment return for a self-employed worker. This would also apply to future loss of income if a claimant was left unable to work for a considerable time after the settlement were awarded.

Thank you Ian, what do you think about her having a trustee, would this help in any way what so ever?

I would say that at the level of compensation that you expect to receive and given the proposed cost of the trust fund, it is not really worth going down that route.

Your Mothers Solicitor should be able to put you in touch with wealth management people who can offer best advice regarding how to protect a settlement value in the best way. Such discussions should not cost you – particularly when you are simply finding out what proposals or offers the financial people can make.

Hi I had a fall at work 5 months ago since then I have had lots pain in my back legs I am still at work but am struggling to do my job if I left would I be able to claim esa I am also a career as I have an disabled adult son.

If you are forced to leave work on medical grounds, make sure you receive written evidence to support this requirement from your GP as any future benefits claim will require evidence to support the fact that you can no longer work.

You may also be entitled to claim compensation for the injuries after the accident at work. You may be able to make a claim against the employer for the fall that you had and I would be interested in speaking with you about this. One of the great benefits of pursuing a claim for compensation is that you can not only look to receive compensation for the injuries, but also get rehabilitation therapies (such as physiotherapy or even surgery) provided at the expense of the 3rd party.

In your case, whether or not you have a viable claim against your employer will depend on what caused your fall and whether or not the employer would be held responsible for your fall.

I am about to receive 10.5k in compensation for an accident I had 3 years ago.
I was made redundant last september and when I claimed I was put on ESA, It is Income related due to my partner being on the same claim and I have just been put in a support group (not work related)
I have no other savings.

I have 2 questions.

Would I have to pay back the ESA I have already received?

Will my benefits change?

Sorry I am just worried as i’m already struggling to pay my mortgage as it is.

Thanks in advance.

It is very difficult for us to give advice in this situation as we don’t know the full details of your situation or the nature of your compensation settlement.

I would strongly suggest that you take advice from the Citizen’s Advice Bureau and also speak to your Solicitor. In most cases, your Solicitor should be able to refer you to a financial planner who will be able to ensure that any settlements you receive are received in the most tax efficient manner.

I hope that this helps.

I am currently receiving universal credit and due a large settlement within the next few months. Will i have to pay back the benefit i have received out of my settlement?

This is a complex issue to explain and very difficult to do properly by way of a comment without knowing the full details. What I can say is that if you are receiving benefits to enable you to live as a result of being unable to work, your Solicitor will be able to help you find the most efficient legal ways to receive your settlement without it having an undue effect on your benefit payments.

Clearly, the compensation you will receive should be compensation rather than simply to replace benefits. However, if you have over a certain threshold of money, your benefits can be reduced or removed. To this end, Solicitors can help you look at ways of having the settlement paid in to a trust fund or similar so that you can receive some of the money at first, then the remainder in instalments so that it doesn’t impact on your usual benefits receipts. Of course, each case is different and as such, I would strongly recommend that you speak with your Solicitor – who knows the full facts of your situation and settlement amount – to get specific advice that will aid you with the way you opt to handle your settlement.

I hope this helps.