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How does a personal injury compensation claim affect your benefits?

4 min read time

If you’re unfortunate enough to suffer a personal injury, the consequences can be devastating. Not only will you be affected by the physical pain of your trauma, the long-term implications can often have a knock-on impact on your health and lifestyle.

In extreme circumstances, you may need to give up your job because you’re no longer physically capable of carrying it out. Or you may need to take time off work, on reduced sick pay, until you fully recover.

Anyone who is affected in this way is entitled to access state benefits, either to make up for their loss of income or to cope with the disability caused by the accident.

If someone else’s negligence causes you to experience a physical or psychological injury, you are also perfectly entitled to seek legal redress and compensation for your suffering. However, the amount of compensation you receive could affect the state benefits you’re entitled to claim.

The aim of this article is to outline how compensation affects your benefits and explain what you can do to safeguard your entitlement.

Will a compensation claim affect my benefits?

If you have over £6,000 (but under £16,000), you are still entitled to means tested benefits but not at the full rate. Total exclusion from means tested benefits only occurs if capital exceeds £16,000.

Universal Credit

If you or your partner have £6,000 or less in savings this will not affect your claim for these benefits.

If you and/or your partner have £16,000 or more in savings, you will not be entitled to Universal Credit.

If you and/or your partner have any savings or capital of between £6,000 and £16,000, the first £6,000 is ignored.

The rest is treated as if it gives you a monthly income of £4.35 for each £250, or part of £250.


What benefits can be affected?

For certain means-tested benefits, the Government will consider your income, savings and capital assets before deciding whether you are eligible to receive them.

If a compensation settlement takes you above a certain threshold, it may have a bearing on the amount of benefits you can claim.

The main means-tested benefits that are affected by both income and savings include:

  • Universal Credit.
  • Pension Credit.
  • Tax Credits (Child Tax Credit and Working Tax Credit).
  • Council Tax Support.
    Income-based Jobseeker’s Allowance.
  • Income-related Employment and Support Allowance.
  • Income Support.
  • Housing Benefit.

Child Tax Credits and Working Tax Credits are not affected by your savings and would not be impacted upon if you were to receive a lump sum as part of a personal injury settlement.


How to claim compensation and still be entitled to benefits

No-one should ever be put off making a personal injury claim because they’re worried that their access to state benefits would be affected.

In fact, it’s probably even more important to seek the justice and compensation you’re entitled to when your finances are stretched.

At Hudgells, we use a practical and simple solution which allows you to claim the maximum settlement possible without affecting your entitlement to certain benefits – a Personal Injury Trust.

Here’s how a Personal Injury Trust works:

  1. A Personal Injury Trust is very similar way to any other bank account and your compensation will be transferred into it in exactly the same way.
  2. The money in the Trust must come solely from your personal injury award (or any income it generates) – and additional funds cannot be added.
  3. The account is managed by a minimum of two Trustees (or three if you wish to be one too), who look after the balance in accordance with your wishes.
  4. Small, irregular payments can be made from the Trust – to remain eligible for benefits you must make sure these are below the savings limit.
  5. Any money held in a Trust will usually be taxed in the same way as savings – and the type of Trust you need depends on your individual circumstances.

Should you ever need to move to a residential or care home, a Personal Injury Compensation Trust can help to safeguard your settlement and ensure you don’t have to use it to fund long-term care fees.

Whilst the law on Trusts is quite complex, using this funding facility is a great way to protect ‘lump sum’ compensation payments and your entitlement to benefits.

If we feel doing this would be in your best interests, our personal injury solicitors can advise you about how to set up a Trust during the claims process.

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How does a personal injury compensation claim affect your benefits?

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