I have received personal injury compensation and I claim means-tested benefits

Receiving means-tested benefits depends on the money held by you and those included in your claim. The usual barrier to a claim is holding £16,000, but if you hold more than £6,000 your benefit entitlement is reduced.

When you receive a sum of money you must inform your benefits agency which will decide if your entitlement to benefits should change. So if you have received personal injury compensation do you have any options? The factors to bear in mind follow.

When you make a personal injury compensation claim the insurance company receiving your claim must inform the Department of Work and Pensions (“DWP”) of the claim.

If you receive an interim payment or final settlement the insurer must inform the DWP.Help on personal injury trust 0330 223 1708

When you receive an interim payment or final settlement you must tell your benefit agency of the change in your financial circumstances.

Personal injury compensation will be disregarded for a period of 52 weeks, but take care and read on.

Some incorrectly say you can blow the compensation in that 52 week period. You can spend it, but if your benefits claim continues, how you spent the compensation will be scrutinized. If you are shown to have blown the money to allow you to continue claiming benefits you will be penalized. The compensation is not ignored permanently. The 52 week period is there to allow you to sort out your affairs and set up a trust, not blow the money and keep your benefits.

If you open a bank account or receive interest on a bank account the tax authority is informed and that information is fed back to the benefit agencies.

As we move into the Universal Credit system there will be more information shared between the various agencies of the government.

Unless you have a small sum in compensation, or legitimate ways to spend the compensation quickly, your only choice is to set up a personal injury trust. A trust to protect your benefits will give you time to stop and plan and use the compensation for what it was intended.

There is an inconvenience in a trust, as you need trustees and a separate bank account, but weigh this up against the benefit of keeping your benefits and the choice is easy.

About Mark Thompson

Personal injury and accident specialist solicitor
This entry was posted in Personal injury trust. Bookmark the permalink.

93 Responses to I have received personal injury compensation and I claim means-tested benefits

  1. trish says:

    Hi mark ,I went to court on the 3rd of July and settled a clinical negligence case, at the time I was advised that it would take 28 days to have the payment received from the defendants, two weeks on and I’m still waiting for a “court order”? ..I unfortunately seem to get no direct answer from my solicitor when I ask what’s going on ..Please please could you advise me on what I should be waiting for etc as I have no deals what’s going on
    Regards
    Trish

    • Mark Thompson says:

      Court Orders tend to be slow in coming through on paper. If an Order was made the party who must act will very probably do so. it is also possible your solicitor has given an estimate as to when the payment may arise. If there is no specific Court Order or agreement, I would usually estimate four to six weeks, hoping the money will arrive sooner.

  2. Karen says:

    Hi Mark

    I have just had a pit set up with Cochrane & Dickie. I have now opened the trust account up and the funds have been transferred. However I asked them as I am in receipt of means tested benefits what are the rules for the limits of money having an effect on benefits. For example 6 thousand pounds is that per person or per household. Cochrane & Dickie have advised that they can’t advise on this and advised me to speak to a benefits specialist. I feel I have been out of pocket off over 800 pounds but they can confirm advice regarding the pit that they have just sold me. Where would I stand on this for raising a complaint?

    • Mark Thompson says:

      Hi Karen, I am a fan of a website called http://www.entitledto.co.uk/ which has a really useful benefits calculator.
      Think of your household as a claiming unit, the figures applying to that unit and not just you.
      Solicitors usually identify the task they are going to undertake at the outset, so look at the agreement you entered into.

  3. Kat says:

    I have claimed compensation for my daughter who is under 16 but unsure what will happen once a final amount is released I am currently awarded benifits does the money get held in trust for her or is this something I have to do and will it affect my claim for benifits

    • Mark Thompson says:

      Compensation for someone under 18 years of age must be approved by a Court. The money will be held by the Court until your daughter is 18 years of age. Up to that point the compensation is irrelevant to benefit entitlement as it is administered by the Court and therefore ignored for benefit purposes just like it should be if the compensation was in a trust.
      The Court will pay the money to your daughter when she reaches 18 years of age. If she then claims means-tested benefits, or she is part of your claim for benefits as a household, or such claims look likely in the future, then a trust should be set up to receive the money from the Court.
      A Court approving a compensation settlement can sometimes be persuaded a trust is a good idea at that point in time, but the Court’s primary role is to protect the interests of the injured child.

  4. Samantha says:

    Hi mark, I wanted to find out if £7000 injuries compensation will affect the housing benefit and working tax credit I am in receipt of. I am a full time housewife and my husband is the sole income provider. If so what should I do to protect my compensation as I wanted to keep this money for my sons future education. Thanks in advance

    • Mark Thompson says:

      Tax credits depend on your income. Compensation is only relevant if you earn interest and, by doing so, add to your income.
      Housing benefit is paid in full if the claims unit, that is your household, has funds below £6,000. Benefit stops at £16,000 and between the two figures there is a sliding scale reduction.
      If you plan to keep the compensation for some time, i suggest a trust, as holding £7,000 outside a trust will reduce your benefits, particularly when you husband’s income and any savings are added in.

  5. James Powell says:

    Hi, I am about to get quite a large pay out of compensation and I will be setting up a personal injury trust. Can I buy a house and pay for it straight from the trust and still claim benefits?

    • Mark Thompson says:

      The quick answer is yes. But beware.
      Not all trusts are the same, as the trustees only have the powers included in the trust document. The trusts i write certainly allow the trustees to purchase a property.
      A trust could buy and rent out a property and the trust can receive rent.
      The property is an asset of the trust and the rent is income of the trust, so they are ignored when assessing your benefit entitlement.

  6. Carol Mason says:

    Hi, when setting up a personal injury trust how much do I have to put in it? All of the compensation or only that that takes u over the £6000?? I’m really not good with technical jargon and want a trust set up as easily as possible, how easy is doing this please? I want to get started asap so will need all the help I can get. Is it safe sending out all the required documents as I worry about identity fraud etc. Can this ne done in person and if so where will u travel or I need to travel?? Also I need to take into account the information required from my trustees as they may not feel comfortable sending it. Thanks slot for any help you may be able to give me…..

  7. Dean says:

    Hi Mark, my wife had quite a large personal injury payout several years ago and a trust was setup. We used a financial adviser to invest the money but have recently bought houses to rent out and put them in the trust instead. My question is am I still able to claim carers for my wife and income support while we rent these houses out. The money from the rent is paid into the trust account?

    • Mark Thompson says:

      Provided the income from personal injury trust assets is paid into the trust, the trust fund, assets and income will be ignored for benefit purposes.

  8. peter says:

    Hi Mark

    My mother has just recieved 7.5k in compensation and she receives PIP, ESA and Housing benifits. Now she plans to spend some of the money on minor home improvements such as new furnishing and carpets etc. By the times she has done this her remaining sum would fall below the 6k thresh hold for savings. Would her benefits be effected.

    Also if out of that she was to borrow someone some money, lets say £2000 but this £2000 was repayed before the end of the 52week period (so she would still be left with the sum she started with) would this effect her benifits?

    kind regards

    • Mark Thompson says:

      Your question is straightforward, but the answer is not.
      Look at all funds held by your mother, not just the compensation. Benefit agencies will usually accept necessary domestic expenditure, that is necessary rather than decorative. Commercial loans, rather than loans from family and friends, can usually be repaid. If she made a loan to you, that would look a little too convenient.
      The trouble is there are no rules which clearly tell s what is and what is not reasonable expenditure for someone receiving means-tested benefits. Rather than lose sleep, the simplest solution might be a trust for the personal injury compensation. The money could then be used with freedom from the trust.

  9. Linda says:

    Hi mark. I have a foster boy living with me who is going to get into serious trouble if he does not believe me so I am writing to you for your advice

    He has recently been awarded compensation of 17.5k and is just going into the benefit system claiming housing and benefit weekly but still at school. He has only declared the 9k to the people that are providing his home and thinks that if he spends some of it and then gives the other 8.5k at a later date they will do nothing. I have told him that he will have a deduction of his benefit but is not listening. Can you confirm to me what will happen as I presume the benefit people will want to see proof of his bank account etc. Kind regards. Linda

    • Mark Thompson says:

      In theory a personal injury compensation settlement for a person below 18 years of age ought to be approved by a Court. The compensation is held by the Court until the compensated person reaches 18 years of age.
      Putting the theory to one side, anyone in receipt of benefits is duty bound to provide full disclosure of the money they have. Not telling a benefit agency, or blowing the money, will work short term, but only short term. The benfit agency will know about the compensation through the recoupment process. Any accounts and investments opened are notified to the tax authority and in turn to the benefit agency. So when his application is reviewed he will be tempted to repeat the false information he gave and will face criminal prosecution and will have to repay the benefits.
      The simple solution is to create a trust for the compensation and therefore keep the compensation and benefit entitlement.

  10. Aden Dougherty says:

    hi. my mum is going to receive a compensation payment of £8500. She’s currently claiming disability allowance, employment support allowance, housing benefits and council tax. We have NO idea about what we should do with letting DWP know Or how much is allowed before her benefits are affected. Also we’re still not sure how a trust works or weather or not we need one. Its best i speak to a solicitor really as its alot easier but was hoping someone had an idea? Please email me at doughertyam90@gmail.com thank you

    • Mark Thompson says:

      Those on means-tested benefits must inform the benefit agencies they are dealing with that their financial situation has changed.
      Holding funds above £6,000 will reduce the benefits paid. The question is whether there are necessary expenses, acceptable to the benefit agency, which will bring the funds below £6,000. If not the only way to protect full benefit entitlement is to set up a trust.

  11. Luan Roberts says:

    Hi Mark my mother in law is due a compensation payment from having a depuy hip replacement she is currently receiving pension credit . We have been advised by our solicitor about a trust fund for her . Can my husband her son be a trustee . Is there a limit on what she can spend the money on . Is she able to gift any of the money . Thanks

    • Mark Thompson says:

      Pension credit is based on income, but is reduced if you have capital or savings over £10,000.
      Anyone of at least 18 years of age can be a trustee.
      The money can be used with freedom and if your mother in law wishes, the money can be given to others.

  12. Marcia says:

    Hi I have been offered £11250 for a injury that happened five years ago the first year of my injury dhss did not pay me no benefit and sent my lawyer a letter of me not oweing nothing I now get e/support allowance and disability do I have to open a trust fund as I have so much debt I need to pay nearly all off it out thanks Marcia

    • Mark Thompson says:

      I am often asked if a trust is really necessary when repayment of debt will reduce the compensation to an amount below £6,000. Like many answers, it depends.
      Benefit agencies will accept the repayment of some debts. There is no published list of what is acceptable and what is not. They certainly do not like repayment of loans to friends and family as that can look like someone holding your money for you.
      If this is the first payment of compensation you have received, I suggest you talk with the DWP, tell them what debts you have and ask if repayment from your compensation would be acceptable. If they say no, you can then set up a trust. If this is not the first payment of compensation you have received I suggest you call me rather than teh DWP.

  13. Paul says:

    Hi Mark
    After some really good advice from you about setting up a trust fund back in 2015 , my wife and I managed to find a bank that would set the fund up. Nationwide were really prompt and proffesional in doing so. The fund was set up as a settlement in my fathers name after being diagnosed with mesothelioma. My question is once my father has passed over and the fund passes to myself , will it be subject to any tax .? The amount involved is just under 97k..
    Paul..

    • Mark Thompson says:

      It depends on the way the money passes to you. Have a look at the trust document which will tell you. If the trust fund becomes part of your father’s estate, inheritance tax will be payable if the estate is valued above a certain figure, currently £325,000. The figure changes so please refer to the government website which provides a pretty good explanation.

  14. Mrs Ilona Pasley says:

    I am going through an acrimonious divorce. I had to go bankrupt. At the time of completing the E form I did not anticipate that I would be in receipt of a personal injury claim within the next 12 months. Recently I received a payout of £8300. I pad £4000 into an ISA cash trust account for my son, which apparently nobody will be able to touch until he is 18 years old. I already spent the rest of the cash on necessary household needs like a bed for the children. In any case I will need to clear this receipt with the trustee in bankruptcy. The husband in the meantime is belligerently drawing attention to my situation. The family court and the trustee have been told about my compensation. What else should I do please? What is my position please?

    • Mark Thompson says:

      Divorce and its finances are not my field. It was once the case that only compensated earnings losses played a part in divorce finance, but as I understand the position all compensation is up for grabs, save the reasons why it was paid are taken into account. Strikes me as unfair.
      Your trustee in bankruptcy will want to know about the payment.
      I suspect you will have very little left, but if you are over the £6,000 line then I suggest a trust may at least protect your benefit entitlement.
      If you are worried ta benefit agency will not accept your expenditure is reasonable, you could ask. Compensation is ignored for 52 weeks from first receipt of the first payment of compensation, so if you do not get the answer you want you still have time to set up a trust. When I say the compensation is ignored for 52 weeks, that is all that is ignored. Any expenditure will be examined as to its reasonableness. More information here.

  15. Pete says:

    I’ve received 20.000 in injury compensation and had a deed drawn up and set account up for this.money is now in trust but I put a cheque into own account of3.000 and spent it not all wisely.I’ve re applied for esa and now they want bank statement.what could be the consequences of spending that 3.000 for my benefit claim.thanks.

    • Mark Thompson says:

      What was the total of your funds when you paid yourself £3,000? If your total funds went over £6,000 your benefits will be reduced.
      Even if your total funds were below £6,000 the benefit agencies might consider expenditure to be unreasonable for someone claiming benefits. They will treat you as still having that unreasonably spent money and if you receive, or pay yourself, more money in the future, you may exceed the cash limits and lose entitlement to benefits.
      The golden rule is to keep compensation in the trust and spend it direct from the trust.

  16. Richard says:

    Hi Mark, I am currently receiving income related ESA and have money in a personal injury trust (bare trust). I have read that any capital gains earned from the trust, as the beneficiary I would have to fill in a self assessment tax return for this. Will this affect my benefits? Please could you advise on this. Thanks, Richard

    • Mark Thompson says:

      Income and capital gains on a trust for compensation will not effect your benefits provided the income or gain remains within the trust.
      From a tax point of view, you are personally liable for tax on income and gains. One benefit of a bare trust is that your personal tax allowances can be used.
      A good place to check your tax allowances is here.

  17. sadia aden says:

    hi all,
    I thought i’d share my experience i receive compensation from CICA back in 2014 sum of £22,000, best thing i did was seek legal advice as i was allowed my 52 weeks to get the money moved in to a trusted fund to avoid losing my benefits as i work part time.
    I set up with metro bank who were more than happy to help set this trust, their interest rate was at the time 0.5% which sadly has gone down now.

  18. Sanaa Al-Ameen says:

    Hello MarK
    I am self-employed and receiving Working Tax Credit and Child Tax Credit. My total earning will be 6.5 to 7K by the end of this financial year. In January 2016 my wife and I had a car accident, and in July 2016 we a received a compensation award for personal injury from the insurance company of £3580 for me and £3580 for my wife. Is this £7160 considered as an income and will it affect my claim? Also, do I have to inform Inland Revenue and Tax Credit Office of this extra income? Please advise me. Thanks

    Sanaa

    • Mark Thompson says:

      If the only financial support you receive is in the form of tax credits, you do not have to do anything.
      Tax credits are based on your income and your compensation is not treated as income. If you receive interest or other income on the compensation, that income must be included in the calculation undertaken as to your tax credit entitlement.
      If you receive other benefits which depend on your financial situation you may need a trust as your “savings” will be over £6,000.

  19. barry Jones says:

    HI mark,

    I had a accident in 2014 and another one September 2016. The 2016 accident has been sorted and i am waiting on a payment of £4500 which £2700 is for the bike that was written off. But the 2014 one looks like i will get that soon which is around £3000. This will take me over the £6000 mark. Am i able before i get the 2014 payment to put some money away into a junior isa for my daughter to bring me below the £6000 mark?

  20. Amy says:

    Mine is contribution based. Does that make a difference.

    Thanks

  21. Amy says:

    Hi mark thanks for response im lookin to make sure i can keep as much as i can. I was told employment and support allowance isnt means tested? Can you confirm this. I know housing is. I dont want to blow it thats just silly so im looking or the future.

    • Mark Thompson says:

      ESA, or Employment and Support Allowance, has two versions. One is not means-tested, ESA contributions based, which is paid on the basis of your national insurance contributions. The other is ESA income-related, which is means-tested.
      Housing benefit is certainly means-tested, as is the other benefit often claimed with it, Council Tax Reduction.

  22. Amy says:

    Hi Mark

    I am receiving a sum of £16500 for childhood rape and i am claiming ESA and housing benefit. I am wondering how this will affect me as i have read so many different things. I am confused.

    Thanks

    • Mark Thompson says:

      You can hold between £6,000 and £16,000 for most benefits, but if you hold £16,000 or more you cannot claim benefits. Between the two figures I mentioned, benefits are reduced.
      You receive means-tested benefits so the only answer is to set up a trust. I always suggest the full compensation be paid directly into an account held by the trustees, as this avoids any argument with benefit agencies.
      I have seen it suggestions on forums that you can blow the money within 52 weeks. Well, you can certainly spend the money, but it will not help your benefit position. Benefit agencies must ignore personal injury compensation for a period of 52 weeks after first receipt of compensation. The rule is intended to give you time to set up a trust, not spend it. If you do not set up a trust and just spend the money, at the end of 52 weeks a benefit agency will assess your expenditure. If your expenditure is not reasonable for someone claiming benefit, you will be treated as still having that money and you will have been overpaid benefits.
      The correct and simplest solution is to set up a trust now and keep your benefits.
      More information on 52 week disregard.

  23. Barry says:

    Hi mark,

    I have been on income related employment support since 2008 and I also get housing and child tax credits and I had a accident in June this year. They are paying out for my bike which amounts to 2700 for being written off and 2ooo for injuries. Does this affect my claims

    Many thanks

    • Mark Thompson says:

      The first question to ask is do you need a trust to protect your benefits. You can have up to £6,000 before benefits are reduced. You should check how much money is held by you and those with whom you claim benefits. If your existing funds added to the compensation are below £6,000, then your benefits will not be affected.
      If this exercise shows you will hold more than £6,000, you may owe money and repayment of that debt will bring you below the £6,000 limit. Benefit agencies will accept business debts, but they will be cynical of money owed to friends and family.
      If you are comfortably below the £6,000 line you do not need a trust for your compensation.
      The compensation must be made known to the benefit agencies which are dealing with your claim. Your financial circumstances have changed so the agency must be told. What might surprise you is to know the Department of Work and Pensions receive notice of every personal injury compensation case when it is first made and when a payment of compensation is made. Compensation is made known to the DWP, but you still have a duty to tell them yourself.
      It i salways worth checking you are receiving the correct benefits. There is a very useful website which helps you check called entitledto

  24. Lisa says:

    Hi Mark, could you advise please, I wanted the compensation paid to a solicitor to which cica said they couldnt unless I sent a letter of authorisation to which I duly sent ( even ringing to check thats all they wanted) weeks later after ringing them today they now want a letter from the solicitor as well, so I asked if it could now be sent to trust bank account instead then seeing as thats now set up, apparantly only if im account holder, well im not, I have trustees Can I ask them to pay my own bank account and move it into trust or is that going to cause alsorts of issues with the benefit agencies

    • Mark Thompson says:

      I can see the problem. The CICA want to pay the compensation direct to you as that is then their receipt.
      Ideally compensation should be paid direct to the trust account. That has been refused, which I find surprising, so the alternative is to have the money paid to you and then transfer it straight away to the trust account. Provided this is the first payment of compensation, such a transaction will be OK. If you have already received some of the compensation more than 52 weeks ago, a problem could occur, as a benefit agency might refuse to ignore the money. If that is the case then have the money paid to your solicitors and they can transfer it to the trust account.
      Hope that helps.

  25. Ayesha says:

    Hi, I was wondering if you could help me please. I’m due to recieve a compensation award of £7,700 but I’m on employment and support allowance. Do I need to inform the DWP of this payment and declare it? As this money isn’t a form of income. I’ll be spending the money fairly quickly in the 52 week period as there’s several things I need to buy for my home like fridge/freezer and sofas. I was told that I didn’t need to set up a trust fund because it’s only £7,700. I was also told that because I’ll be spending that money quite quickly that my benefits won’t be affected. Is this true? I’ve after bought things out of that money it will be less than £6,000. Thank you.

    • Mark Thompson says:

      If you receive compensation your financial position has changed, so the DWP should be informed.
      You may be surprised to know that every compensation case made must be notified to the DWP by the defendant or its insurer. The same goes for the settlement. This is because the defendant insurer must repay any benefits you received as a result of the injury complained off. The defendant must also repay the NHS for medical treatment provided after a road accident. It is also the case that all bank and building society accounts are notified to HMRC, the tax people. So when you tell the DWP about your compensation they will not be surprised, but it is your duty to tell them.
      The next part of your question deals with the trap of thinking you can spend the compensation in the first 52 weeks after receipt, leaving you with less than £6,000 in the bank. The 52 week disregard is a period of grace when the compensation is ignored. It is there to give you time to sort yourself out and set up a trust if you need one. It is not a period in which to blow the compensation, as the deprivation of capital rules will apply to spending compensation as they do do to any money.
      Make sure the 52 weeks has not already started to run, as it runs from the first receipt of compensation and you only have one 52 week period.
      There is more information here.

  26. Ms Gudula Vincent says:

    Hi. I will be receiving about £4,000 for compensation from a motoring accident. I am on Universal Credits and Council tax reduction. How will this affect my benefits?

    • Mark Thompson says:

      The Citizens; Advice Bureau have a good description of the rules for Universal Credit.
      Provided your savings and other investments do not rise above £6,000 you will be entitled to Universal Credit. Do not forget to include and money held by those you are claiming with in your household.
      If the compensation does not take you over this £6,000 mark you may decide a trust for compensation is not necessary.

  27. Melanie says:

    Hi Mark,

    Thanks for your reply to my query. My partner is employed and would be able to get a mortgage. He also would be putting some money towards the deposit of a property. Would I still be able to use some money from my trust to pay towards the deposit if it was paid directly? Thanks

    • Mark Thompson says:

      Provided the trustee powers contained in the trust allow for purchase of property then there is no problem.As you say make the payment direct from the trust and do not channel it through private bank accounts. You will find the payment will actually be made to the solicitor handling the transaction.

  28. Melanie says:

    Hi Mark,

    If compensation money was put into a trust and then I wanted to use that money for a deposit on a house would that be acceptable? Providing the money did not go directly into my personal bank account?

    • Mark Thompson says:

      Your trust must include the power to purchase property. This is a pretty standard clause, but do check it is there. beyond that, pay the deposit direct from the trust account and as you rightly say, avoid the money passing through your personal account.
      If the trust fund is used to pay part of the price of a property there is good reason for the trust to own part of the property. For means-tested benefits property ownership is not an issue, but for local authority care property ownership is important. Assets, like part of a property, must be ignored by a local authority when assessing your finances for care.
      If a trust cannot pay the full price for a property, I understand from clients it may be difficult to arrange a mortgage. I am not saying this is an absolute position, but you should take advice from a mortgage broker

  29. Dre Elliot says:

    Hi I have been awarded 3,200 for personal injury and 2000 for lose of earnings and I claim ESA for about 10 months I was just wondering will the department for work deduct all the money I received from ESA while I was off sick thanks

    • Mark Thompson says:

      I think you are to receive less than £6,000 in compensation. If the total funds of your household remain below £6,000 after receipt of the compensation, you do not need to set up a trust to protect your benefits. Do check funds held by all those included in your benefit claim.
      You may be asking a separate question about the recoupment of benefits which is a separate subject. When you make a claim for compensation the insurer of the party held to blame must notify the Department of Work and Pensions of the claim. If the compensation case is settled in your favour the insurer must repay any benefits you received as a result of the accident. If you have received ESA, then you must give credit for that benefit against your earnings loss. It is the liability of the insurer to make repayment to the DWP and you only have to give credit within the calculation of your claim for certain benefits against certain losses. There is a full explanation here.

  30. lynda hogson says:

    Hi Mark,
    I was just enquiring about how you set up a trust fund as in the next few months, I will be in receipt of over £16,000 compensation, which i want to keep separate for my rehabilitation .
    Thanks
    Lynda

    • Mark Thompson says:

      Dear Lynda,
      I suggest you visit this page on my website which is a general version of my first email or letter to clients who may need a trust to protect compensation.
      The page explains the points you must think about and also sets out the information and documents I will need to help you.
      Deal with the trust document first and then think about the bank account.
      Mark

  31. Marie Drinkwater says:

    Hello Mark,
    My son has had compensation from a personal injury claim held by his solicitor & we have asked him for the full amount but he is now saying we will be charged for him to do this!
    I thought this money should be readily available plus he has had this money in his account for a few months thus earning the interest?
    Please can you advise on this?
    Thank you.
    Marie

    • Mark Thompson says:

      Money held by a solicitor in client account is money belonging to the client. If there are reasons to hold back some or all of this money you should have a written explanation of the reasons.
      Interest is payable to you when “fair and reasonable” which is too vague. The greater the sum of money and the longer it is held, then the more likely interest must be paid to you by your solicitor.
      The rules with which solicitors must comply are on the website of the Solicitors Regulation Authority.

  32. Lee Rowton says:

    Hi Mark,
    Thanks for the advice regarding the mortgage from the trust.
    I have one more question,
    My partners son wants to buy me a minibus to start up my own business abroad so is this possible out of the trust fund without penalties?
    Kind Regards
    Lee Rowton

    • Mark Thompson says:

      The answer to this type of question always lies in the trust deed. Trusts will often include a power to lend or borrow money and a power to invest in a business. The trustees must take care that your prospective business is a reasonable investment and the business will be good for the repayment of the loan and whatever interest is agreed. If you or your partner are a trustee you must ensure you are being fair to your partner’s son. What you propose should be possible, but care must be taken the best interests of the compensated son are protected.

  33. Lee Rowton says:

    Hi Mark,
    My partner’s son has a trust deed & is in the process of opening a trust bank account but wants to pay off his mum’s mortgage, is he ok doing this from this account without being penalised by the benefits agency?

    • Mark Thompson says:

      Provided the mortgage is paid off once a trust is set up and the compensation is held by the trustees in a separate account there should not be a problem. Make sure the payment is direct from the trust account and does not pass through a personal bank account.

  34. Laura says:

    Hi my mums recieved a compensation payout of 20,000 and is looking at putting it into a trust fund so her benefits don’t get stopped, she is looking at paying off her debts and buying things she needs like a cooker, fridge freezer, washing machine as she rents these at the moment… would these purchases be classed as frivolous? Also when putting this money into a trust fund would it be taxed? Thankyou

    • Mark Thompson says:

      The answer is to set up a trust. You will need a trust deed. Then the trustees should open a separate bank account into which the compensation should be paid. Make sure all expenditure is made direct from that trust account and there will be no problem with the expenditure.
      Expenditure made from personal accounts can be assessed as to reasonableness, but not the expenditure made from a trust.

  35. Jack says:

    Hi. If someone om benefit received a compensation payment of less than 10k but more than 6K, how does the benefits office for, say, ESA collect the information other than by honest notification by the claimant? If that notification is the only method, doesn’t it encourage fraudulent non-reporting by those in receipt of benefit. Could you offer brief explain of what means tested benefits are /are not. Thanks great site! JackDA52

    • Mark Thompson says:

      When a personal injury compensation claim is made the insurance company which deals with it must inform the Department of Work and Pensions (DWP). When compensation is paid the insurance company must inform the DWP and repay any benefits you have received as a result of the accident.
      If a bank account is opened the tax authority, HMRC, are informed.
      So the benefit agencies do not depend on you telling them money has been received.
      Means-tested benefits are those which depend on how much money you have. Examples are Employment and Support Allowance income-related, Income Support, Housing Benefit and Council Tax Reduction. These are only a few examples.

  36. Paul says:

    Great site and thank you for your valuable advise and time, I am in receipt of funds 23K from a car accident claim 3 years ago, it is not a compensation for loss of income just for the damage done and physical compensation etc. As I have read hear that it does not need to be included for income for tax credit calculation as it is capital rather than income awarded.

    We do not claim any other benefit other than child allowance and tax credit. Does this mean I need to advise DWP even though its not an income loss award as the solicitor letter states I need to advise the DWP even though its not income compensation related? They also advise that it could affect my entitlement to benefit!

    Are they just covering their back or to whom do I have to notify out of the above, I have checked the HMRC website and it states nothing on insurance compensation as a valid income for tax credits unless I missed something…

    https://www.gov.uk/guidance/tax-credits-working-out-income#other-income

    I am self employed so in notifying the DWP will it be added to my income for tax purposes even though it was not compensating for this.

    Sorry for the questions, it just seems a bit of mixed bag! Any advise greatly appreciated, as my wife is likely to be awarded more than myself and ideally we do not want to have the complication and cost of a trust if necessary.

    Kind regards.

    • Mark Thompson says:

      You have received personal injury compensation following an accident. The compensation is not taxable and it is not treated as income for tax or benefit purposes.
      Receipt of child benefit depends on the household income, so receipt of compensation makes no difference.
      For tax credits compensation makes no difference. Tax credits depend on your income, so only the income/interest you receive on the compensation is relevant. You can read more here.
      If you only receive child benefit and tax credits you do not need to notify any agency the compensation.
      The more difficult question is do you need to hold the compensation in a trust. If in the future you need to claim means-tested benefits then a trust will keep the compensation outside the means test. If you take a cautious approach about the future you will set up a trust, but if you feel confident your financial position will not falter you will see a trust as unnecessary. The right answer is only available with hindsight, the action you take depending on your approach to the future.

      • Paul says:

        Hi Mark

        Thank you for your time and advise. acknowledged concerning future investments ect. but for now I’ve still got to deal with the wifes injury claim as she was hurt much more than I was.

        Best wishes.

  37. Tom Ryan says:

    I have followed your comments on Personal Injury’s Payouts with regard to claiming benefits. My question is, “Is paying off a HP on a car classed as reasonable or a credit card?
    Many thanks
    Tom

    • Mark Thompson says:

      I think you are asking if using a credit card to pay off hire purchase on a car is reasonable. The answer depends on the interest rates, but I think you are asking something else.
      You could pay off the hire purchase with a cheque from a trust rather than use the credit card as an extra step.

      • Tom Ryan says:

        Mark, maybe I didn’t make myself clear so here goes again.

        I paying off a car already on finance is classed as reasonable. Likewise is paying off a credit card classed as reasonable.?
        Thank you.
        Tom

        • Mark Thompson says:

          There are no clear rules on what expenditure the benefit agencies will accept as reasonable. I think they will accept payment of genuine debts, by which i mean business debts. Trying to persuade them you owe a family member or friend money is a waste of breath.
          If you have received compensation and repayment of debts will bring your total funds below £6,000 there is no harm asking. You should still be within the 52 week period when your compensation will be ignored, so if you get an unhelpful response you can always set up a trust.
          Beware the 52 week disregard is not a period in which you can blow the money. Any expenditure within that period will be analysed. It is a period of time to allow you to set up a trust.

  38. Pauline says:

    My father may be getting compensation for an injury in hospital he is now in a nursing home due to this injury , how can I stop him having to pay for all the care once he receives this money as it will be over what he is allowed ?

    • Mark Thompson says:

      Hi Pauline. The answer is for your father to place the compensation in a trust. A trust will protect entitlement to means-tested benefits and also keep the compensation outside the financial assessment the local authority will undertake to decide if he should pay for, or contribute to the cost of his residential care.

  39. Cheryl says:

    Dear Mark

    I have been awarded compensation and receive a monthly figure of £1400 to manage my bills etc. I have been told that I cannot claim ESA or any other benefits because of this income. Is this correct?

    Cheryl

    • Mark Thompson says:

      The short answer is yes. If money is paid into your hands, it is your personal income and will be taken into account when assessing your eligibility for benefits. It does not matter that the income might be part of personal injury compensation, as in your hands it is your money.

      The only way to protect personal injury compensation, whether it be paid as a lump sum or as an income, or interest or income on invested compensation, is to hold the compensation and income in a trust. Compensation is also protected if held under the supervision of a Court.

  40. Hannah Jiggens says:

    My mother has just been given a Bereavement award of £14,000 due to her husband (my dad) dying in a traffic accident. She is currently claiming housing benefit and a small amount of money to live on, some sort of employment benefit? She does not work because she has had kidney failure for the last 5 years and dialyses 3 times a week (she is very poorly) Will receiving this amount affect her benefits, if so, how?

    • Mark Thompson says:

      The law only allows the injured person to set up a trust to protect benefits from the financial assessment for benefits. I do not believe your mother will be able to create a personal injury trust. She has suffered a tragedy, but she is not the injured person.
      Your mother’s benefits will stop if she has £16,000 in personal funds and be stopped to a degree if she has more than £6,000.
      There may be payments she must make which may be accepted by the benefit agencies which handle her claims. I cannot guarantee what payments will be accepted, but would suggest funeral expenses, repayment of debts (to businesses rather than individuals) and necessary maintenance on the home (necessary rather than improvements).

  41. Annie says:

    Hi I am in the middle of a personal injury claim for a minor car accident.I have been offered 2,800 which I’ve been told to accept.I am in receipt of working tax credits, housing benefit and council tax benefit. Will I need to open up a trust fund and how will this affect my benefits?
    Thankyou

    • Mark Thompson says:

      Tax credits are based on your income and receipt of compensation will be seen as capital rather than income, so not a problem for tax credits.
      Housing benefit and council tax support can be received in full if the household capital is below £6,000. If you remain below that figure you do not need a trust. The household can hold up to £16,000 at which point the benefits are stopped. If the compensation takes you over £6,000 you should set up a trust.
      Whether you need a trust do tell the council about receipt of the compensation as you must tell them about the change in your circumstances.

  42. Teresa says:

    Hi.
    I am in the middle of a personal injury claim following a motor accident. It was a minor injury and as far as I am aware, the claim will be well below the £6000 figure.
    I am in receipt of working tax credits as a single working parent.

    Am I right to assume this is unlikely to affect my benefits.
    As for the spend of it, if it is used to pay off debts, eg credit card or car purchase loan, is this deemed as blowing the money or spending it sensibly to clear debts.

    Thank you for your advice.

    • Mark Thompson says:

      You are receiving only working tax credits, so receipt of £6,000 compensation is not an issue. Working tax credits is based on your income and compensation is not income. If you earn interest or income on the compensation that will be taken into account, but not the compensation itself. If compensation is held in trust the income from the trust should be ignored for tax credits purposes, but any interest you earn is likely to be small, so unless your entitlement is borderline that interest will make no difference.
      A trust would make sense if other benefits are received by your household, such as housing benefit or council tax reduction, or if a change in circumstance is likely. You have to weigh up the position of the household. On the basis no other benefits are received and as you are going to spend all or most of the compensation on debts, a trust seems unnecessary.

  43. mick says:

    I have received a large sum for personal injury. The benefits i am on are not means tested so do i need to inform the DWP. The money has been placed in a trust fund so is it ring fenced ??

    • Mark Thompson says:

      The purpose of holding personal injury compensation in a trust is to allow you to claim means-tested benefits. The compensation held in trust is ignored, or disregarded to use the correct phrase, by the benefit agencies.
      If your current benefits are not means-tested the short term answer to your question is you do not need a trust.
      The reason why this answer is short term is that a trust can provide wider protection. It protects the compensation for other “benefits” such as tax credits and pension credits. A trust will also ensure the compensation is ignored if you require financial support for care from a local authority.
      So you see, a decision should not be made just for today, you must look ahead. I always advise caution, a trust at the earliest opportunity being the best way to protect your financial future.
      One pessimistic point is that benefits which are not means-tested today may become means-tested in the future.

  44. Jay says:

    Thanks for the advice. It’s very helpful.

    We don’t plan to drip feed the funds through her bank account. She just wants to make some particular purchases. As £5000 is under the savings limit, that would be overlooked for benefit purposes right? If we were to make irregular deposits into her account, a few times in the year for example,what would the limitations be?

    She wants to buy a TV but Curry’s and Richer Sounds etc don’t list cheque as a payment option. How would she buy it?

    This is what we want to know most of all- It’s a 25k personal injury payout. Most of it will remain in trust, for the future. She wanted to buy the TV and installation and a Blu-ray player. Then use 5k deposited into her account for our new house. How can this be done?

    One last thing, can I be a trustee along with my partner who gets the payout? Or would I need to do that with someone else, my brother for example? Thanks for your time.

    • Mark Thompson says:

      Your question is a good one as it helps with a misunderstanding of the £6,000 household limit used by most benefit financial assessments.
      So let me set this out for you. You receive £25,000 in compensation and put £5,000 in your personal bank account and £20,000 in a trust. After three months you spend most of the money in your personal account so top up with another £5,000 from the trust. You think you are ok as your personal funds have always been below £6,000 but then a benefit agency reviews your claim and asks to see bank statements for your personal account. They are entitled to ask how you have spent your money and they will decide if this expenditure is reasonable for someone claiming benefits. If the expenditure is not considered reasonable you will be treated as still having the money and that may take you over the £6,000 and your benefits will be reduced.
      The more money you transfer from the trust the greater the risk. It is for this reason I advise that expenditure be made direct from the trust fund. I suggest you talk with a supplier and once they find you plan to spend quite a lot of money they will find a way to accept a cheque. They could supply the items once the cheque had cleared for example.

  45. Jay says:

    Hi Mark,

    My partner is due for a personal injury payout and we will be setting up a trust immediately. There are a few things that I don’t understand.

    We are moving into a new house and need to spend some of it on furniture and decorating. So we will probably take out just under £6000. If we spend this, that is acceptable? If we take out £6000 when is it possible to make another withdrawl before it affects her benefits? Is it once a year or multiple times a year as long as it doesn’t exceed £6000 per time?

    Not many places take a cheque these days. Is there any other way to make more expensive purchases without withdrawing or transferring the money? Would pre paid credit cards work if they were topped up via cheque?

    Finally, is spending a large sum in a short period of time a bad idea? Should we spread the cost of doing the house over a few years or is monthly acceptable? Or even in one month? Should we keep all receipts and take notes of all purchases? Sorry for so many questions. Thanks.

    Jay.

    • Mark Thompson says:

      Lets start with the basics. You will need a trust deed before you open a bank account. Many people wrongly think setting up a trust is a banking transaction. So the right way to approach this is to have a trust deed drawn up for you and once it is signed and witnessed the trustees should open a bank account.
      When you set up a trust you are creating a device which holds the compensation to keep it quite separate from the personal funds of a compensated person. As soon as compensation passes from the trust to the compensated person it is no longer ignored for benefits purposes and any transferred funds, even if they are used quickly, will be taken into account by the benefit agencies. Expenditure from personal accounts will be assessed as to reasonableness, but expenditure direct from the trust is none of the benefit agencies’ business. So unless absolutely vital make any expenditure direct from the trust and do not channel the funds through the compensated person’s personal accounts.
      Regular transfers from the trust to personal accounts are fatal to the trust and must be avoided. If transfers have to be made they must be inconsistent. So your plan to drip feed money from the trust into personal accounts is not a good idea.
      Cheque book only accounts can cause inconvenience as we no longer have cheque guarantee cards to support them. You will be pleasantly surprised how many businesses will accept a cheque, but you might have to wait for the cheque to clear before the goods are provided.
      A pre-loaded credit card looks like personal funds in the hands of the cardholder to me. However, there is nothing wrong with a trust account cheque being used to pay off a credit card bill.

  46. chris says:

    Hello Mark,

    I have a relative who needs to set up a Personal Injury Trust They are in the United Kingdom but maybe you can clarify for me or explain how i get the clarification for these questions. any explanation would be helpful though thank you.

    If your in receipt of benefits, Which benefits does the 52 week disregard not apply to?

    If you do not inform the benefits agencies straight away from once you received the compensation when would it become a problem?

    If your on benefits, Once you have received the compensation the 52 week rule starts, can you invest in anything in the period and then put in a trust?

    • Mark Thompson says:

      Good question, as the 52 week rule is confusing. I do not advise relying on this 52 week period. If it looks like you are going to need a trust set it up on day one.
      The 52 week period was introduced to allow compensated people time to decide if a trust is right for them. Under the previous rule compensation had to go straight into a trust otherwise the benefit agencies would treat it as yours.
      When you receive compensation you should notify any agency which pays you means-tested benefits. The compensation will then be ignored for 52 weeks. The danger of the 52 weeks is that any expenditure during this time will be open to examination by the agencies and if the expenditure is not treated as reasonable you will be treated as still having the money. So blowing some or all of the compensation within 52 weeks is dangerous. One distinct benefit of a trust is the freedom to use the money as you wish, so if you have a number of purchases in mind it is much safer to set up the trust first and pay for what you need from the trust bank account.
      Please note you have only one 52 week period during which compensation is ignored. The clock starts to run from receipt of the first payment of compensation, so a small interim payment early on in the case may mean your 52 weeks has already expired.
      My final concern about the 52 week period is that only compensation can be paid into a trust to protect benefits. Once the compensation is put in bank accounts and investments along with your own private funds it is difficult to know what is actually compensation.
      If you have enough money to be thinking about investments you should set up the trust now as there is no benefit in delay.

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