Will an injury compensation claim affect my benefits?

Updated: September 14, 2020

If you win a work injury claim and are awarded a lump sum, the money you receive could prevent you from claiming certain benefits, and other benefits may be reduced.

Whether your benefits will be affected by a successful work accident claim will depend on several factors.

Compensation and capital

Your eligibility to claim benefits is calculated by taking into account your income, assets and savings, which, added together, are known as ‘capital’.

If your household’s total capital exceeds £6,000, then you will not be eligible to claim certain benefits.

If you receive compensation that, when added to your existing capital, pushes you over this £6,000 limit, your benefits may be reduced. If you receive a relatively small amount of compensation that does not push you over the £6,000 limit, your benefits will usually not be affected.

What if my compensation takes me over the £6,000 threshold?

Your means-tested benefits could be reduced by £1 per week for every £250 in capital that you have over £6,000.

Means-tested benefits that can be reduced include:

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

If your total capital exceeds £16,000 after your compensation award, then you will no longer be entitled to state benefits until your capital falls below £16,000, at which point you would need to make a new application.

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Are any benefits unaffected?

Yes. Some benefits are not affected by personal injury compensation payments.

These include incapacity benefit and disability living allowance. Working Tax Credit and Child Tax Credit are also not affected, as these are not based on savings.

If you receive your compensation as a lump sum, this could also affect your entitlement to free prescriptions, dental care and eye tests. Compensation could also affect the amount you pay towards care you receive at home.

Find out more: What benefits can I claim after a work accident?

What happens if I already receive benefits because of my injuries?

Your settlement award may be reduced if you already receive state benefits as a direct result of a disease caused by work.

This process is intended to reimburse the government for money you have already received and includes payments made under the Diffuse Mesothelioma Scheme and the Pneumoconiosis etc. (Workers Compensation) Act 1979.

If the compensation was not reduced, you would effectively be receiving double compensation.

Will my benefits agency be informed about my personal injury claim?

When you make a personal injury claim, the insurance company that receives your claim will notify the Department for Work and Pensions (DWP). The DWP will also be notified of any interim payments that you receive and when your compensation is paid in full.

It is your responsibility to notify your benefits agency of your change in financial circumstances if you receive compensation. If you fail to disclose this, you are at risk of committing fraud.

If you wish to make a personal injury claim, the prospect of losing access to state benefits may seem off-putting. However, it is still possible to make a compensation claim without it affecting your benefits and your solicitor will explain the best way to proceed.

Setting up a personal injury trust

Getting your solicitor to set up a personal injury trust is one way to stop your compensation payment from affecting your benefits.

Setting up a trust would entitle you to a small lump sum of cash immediately, while the rest of your compensation is invested into a trust fund. This fund is separate from your bank account and managed by two or more trustees.

The money in your personal injury trust fund is held separately from your other assets, so will not be counted towards your capital. You can only put the money you’ve received as compensation into this account, and you’ll still pay tax on it.

You can draw a small amount from this account each year, as long as it doesn’t take you over the capital limit, so it is an ideal solution for those who wish to make a personal injury claim but cannot afford for their benefits to be affected.

Your solicitor can advise you about setting up a personal injury trust during the injury claim process.

The first year - a 52 week grace period

Any payments that you receive as a result of your personal injury claim are subject to a 52-week 'grace period', during which time they will not count towards your capital and will therefore not affect your benefits.

This grace period comes into effect from the first payment that you receive. You should set up your personal injury trust during this time.

The lump-sum may be intended to support you over the course of several years. If you receive and spend your lump sum within the one-year grace period, and you continue to claim benefits, you may be penalised for deliberately spending your compensation quickly so that the sum doesn’t affect your benefits.

Your solicitor can help you

It’s essential that you’re open and honest throughout your compensation claim. The government will be notified of any payments you receive, and your benefits agency will be informed.

Your solicitor can help you to navigate the whole process of your personal injury claim, as well as helping you to set up a personal trust fund. Where possible, these steps will help you to keep your personal injury compensation without it affecting your benefits.

Have you been injured at work?

If you have been injured at work in the last 3 years, you may be able to claim financial compensation.

Find out more about making a work accident claim:

  • Do you qualify?
  • How much compensation could you get?
  • How does No Win, No Fee work?

Read more: Work accident claim guide

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