Will personal injury compensation affect my benefits?

This guide explains how personal injury compensation could affect your benefits and the steps you can take to reduce this risk.

Get free impartial advice with no obligation
A risk-free, No Win No Fee service
Experienced solicitors available nationwide

Call 0800 470 0474 Request a Callback

We are a claims management company regulated by the Financial Conduct Authority.

Does Personal Injury Compensation Affect Benefits?

Understanding the potential impact of personal injury compensation on your benefits is crucial, especially if you’ve suffered harm and financial losses due to someone else’s negligence. While it’s your legal right to start a personal injury compensation claim, it’s important to consider how this might affect your benefits.

If you’re currently reliant on state benefits and expect to receive more than £6,000 in compensation, it’s important to consider various factors. These include the nature of your compensation and whether your benefits are means tested or non-means tested. These factors will play a role in determining how your benefits might be affected.

In this guide, we will explain how compensation may affect your benefits and what you can do to prevent it. For further questions, do not hesitate to contact a friendly legal adviser for a free consultation by calling 0800 470 0474 or using our online claim form. They will let you know if you have a valid claim, how personal injury compensation may affect your benefits, and answer any other questions you may have.

Find out if you can claim

Call 0800 470 0474 now or request a call back below:

By submitting this form you agree to be contacted by our partners. Find out how we handle your data in our privacy policy. With no win no fee you typically pay 25% of your compensation if your claim is successful, but the fee can vary. Termination fees may apply if you fail to co-operate with your solicitor.

Table of Contents

What are state benefits?

Benefits are financial support the government provides to people in certain circumstances to help with the cost of daily living. They aim to support individuals with low incomes, disabilities, or other needs. Some of the benefits awarded are considered part of income and taxed at the applicable income tax rate. Other benefits are not subject to income tax and are provided to cover specific needs or expenses. Examples include welfare, child benefit and disability benefits. Benefits can also fall into two main categories, those that are means-tested and those that are not.

Means-tested benefits

The government provides these based on your financial situation and income level. To qualify for means-tested benefits, you must prove that your income and other assets (such as savings, property and shares) fall below a certain threshold. Examples of means-tested benefits include:

Jobseeker’s Allowance (JSA) – Financial support for people who are unemployed and actively seeking work
Employment and Support Allowance (ESA) – Financial assistance for those who have a disability or health condition that affects their ability to work
Universal Credit – A monthly payment to help with living costs if you’re on a low income or out of work
Income Support – This financial support is available to people who are not required to work, such as those with very young children
Housing Benefit – Help with housing costs for individuals on low incomes or who are receiving certain other benefits

Benefits that are not means-tested

These are provided regardless of your financial situation. Eligibility for these benefits is based on other criteria, such as age, family set up or level of disability. Examples include:

Attendance Allowance – Financial support for those who have reached the state pension age and have a disability severe enough to need someone to help look after them
Disability Living Allowance (DLA) – Financial assistance for children under 16 with disabilities or long-term health conditions
Personal Independence Payment (PIP) – Financial support for people with long-term health conditions or disabilities to help with the extra cost of disability

Does compensation affect my benefits?

Whether your compensation payment will affect your benefits depends on your circumstances. If you currently receive means-tested benefits such as Universal Credit or something similar, a successful personal injury claim will likely impact your entitlement to the state-funded benefit or the amount of benefit you can get.

When you make a successful personal injury claim, you typically receive a lump sum of compensation for your pain, suffering and financial losses. If this is transferred directly to your bank account, it will be deemed as savings or capital and considered when calculating your entitlement for certain benefits. However, there are ways to ensure your compensation will not affect your benefits, such as setting up a personal injury trust.

However, your compensation claim should not affect your benefits if these are non-means-tested. Therefore, it is difficult to answer the question, ‘Will compensation affect my benefits?’ without knowing all the details of your case. During the claims process, your solicitor will discuss your situation and any benefits you receive to advise you on the best way forward.

What amount of compensation will affect my benefits?

Another essential factor is the amount of compensation awarded to you. Generally, means-tested benefits are available to people with less than £16,000 in savings. If you receive state benefits and a payment of over £6,000 for your personal injury, this will affect your entitlement to various benefits, such as Universal Credit, Housing Benefit, and ESA. However, many claims are settled for less than this amount.

While having £6,000 or more in savings will affect any means-tested benefits, it will not affect your benefit entitlement. You can still receive some of the benefits until you reach the savings limit of £16,000. If your capital exceeds £16,000, you could lose your benefits entirely. However, your solicitor should be able to help you keep both your benefits and compensation payment by setting up a personal injury trust in your name.

What benefits can be affected?

If your compensation is transferred directly to your bank account, it will be taken into account for the assessment of means tested benefits, such as:

Jobseeker’s Allowance
Income Support
Housing Benefit
Council Tax Reduction
Pension Credit
Tax Credits
Universal Credit
Cold Weather Payment
Employment and Support Allowance
Child Tax Credit
Working Tax Credit

However, your compensation settlement would not impact other state benefits that are not means-tested and are not affected by your savings, such as:

Disability Living Allowance (DLA)
Personal Independence Payment (PIP)
Attendance Allowance
Carer’s Allowance
Child Benefit
Industrial Injuries Disablement Benefit
Bereavement Support Payment
Maternity Allowance

Should I claim compensation if it affects my benefits?

If you have suffered a personal injury due to someone else’s negligence, you should almost certainly pursue your legal right to claim compensation. If you receive a considerable settlement, you may not need to rely on benefits anyway. If the compensation award is under £6,000, it will not affect your entitlement to benefits in any case.

A problem may arise if your compensation award is over £6,000 but not as substantial as to last you a lifetime. Let’s say you receive between £20,000 and £30,000. While this is a lot of money, it will not last forever, and losing your benefits because of it could be a real setback. Under such circumstances, there are ways of mitigating this risk, such as setting up a personal injury trust.

What is the 52 week grace period?

This grace period is a rule stating that the government will ignore any compensation you receive for the first 52 weeks. That means it will not be considered as income or capital when assessing your eligibility for means-tested benefits like Universal Credit. The purpose of this period is to give you time to adjust to the change in your financial circumstances without it immediately affecting your eligibility for benefits.

You may use this time to set up a personal injury trust so the compensation award will not affect your eligibility for benefits once the 52 weeks have passed. However, you can not just spend the compensation money during this period or give it away to keep your benefits. If any of your expenditures are not considered reasonable, you will be treated as still having the money, and you may lose your entitlement to benefits altogether.

How can I protect my personal injury compensation?

One way to ringfence your compensation so that it will not impact your entitlement to benefits is by setting up a personal injury trust. This is a legally binding arrangement for holding and managing the funds received when making a successful compensation claim. The trust will be managed by two or more trustees (excluding yourself) according to specific rules. Trustees can be family members, friends, or professionals, such as solicitors.

Once your compensation is in the trust, it will no longer be considered income, savings or capital. This way, you can pursue the maximum settlement you are entitled to without worrying about how it will affect your benefits. You can make small, irregular payments from the trust and remain eligible for benefits as long as these are below the savings limit.

Contact us for more information

To conclude, there is no one answer to the question ‘Does personal injury compensation affect benefits?’. It all depends on the type of benefits you receive, the amount of compensation you receive and other several other factors.

However, by hiring an experienced personal injury solicitor, you can make a claim for compensation without worrying about how it may impact the benefits you are entitled to. Your solicitor will guide you through the process and can help you set up a personal injury trust to mitigate the risk of your compensation affecting your benefits.

If you have had an accident that wasn’t your fault and would like to find out if you can make a claim, please call 0800 470 0474 or use our contact form to request a free consultation with an experienced legal adviser. As well as finding out if you have a valid personal injury claim, you can also discuss any concerns you have about the impact that claiming compensation could have on the benefits you receive.

Last edited on 3rd Feb 2025

With over 15 years’ experience in the legal sector, Nicholas Tate (LLB Hons, LLM in Health Law) has extensive experience across all areas of personal injury and medical negligence claims.