Will an injury compensation claim affect my benefits?

Updated: 2 Oct, 2025
By Chris Salmon

If you win a work injury claim and receive compensation, the payment could affect some of your means-tested benefits. The impact depends on how much compensation you receive, how it is managed, and whether steps like setting up a personal injury trust are taken.

At a glance

  • Around 2.8 million people currently receive health and disability benefits in the UK, including ESA and Universal Credit (Source: DWP statistics published 2024)
  • Compensation counts as capital and may affect means-tested benefits if it pushes you above savings thresholds.
  • If your capital exceeds £6,000, some benefits are reduced. Over £16,000, most means-tested benefits stop entirely.
  • Some benefits such as Disability Living Allowance and Tax Credits are not affected.
  • A personal injury trust can protect your award and preserve your benefit entitlement.
  • You have a 52-week grace period before compensation affects your benefits.

Compensation and capital

Your entitlement to benefits is based on income, savings and assets, collectively called capital. If compensation increases your capital beyond £6,000, some benefits may be reduced. Smaller settlements that keep you below this threshold will not usually affect your entitlement.

Some benefits are means tested and a payout can affect them. Ask your solicitor about a personal injury trust before settlement so the award is ring fenced. Getting advice early can protect your benefits.

John Kushnick

Legal Operations Director (NAL)

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

If your compensation pushes your capital above £6,000, your means-tested benefits could be reduced by £1 per week for every £250 over the threshold. Benefits that may 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 capital exceeds £16,000, you will no longer be entitled to these benefits until your savings fall below that limit and you make a new application.

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Are any benefits unaffected?

Yes. Some benefits are not based on savings and will not be reduced. These include:

  • Incapacity Benefit
  • Disability Living Allowance (DLA)
  • Working Tax Credit
  • Child Tax Credit

However, receiving a lump sum could affect your entitlement to free prescriptions, dental care, and eye tests, and may also change how much you contribute towards home care.

What if I already receive benefits because of my injuries?

If you already receive benefits related to your illness or injury, your settlement may be reduced to prevent double payment. This applies to schemes like the Diffuse Mesothelioma Payment Scheme and the Pneumoconiosis etc. (Workers’ Compensation) Act 1979.

Will my benefits agency be informed about my compensation?

Yes. Insurers must notify the Department for Work and Pensions (DWP) of your claim and any interim or final payments. You must also declare your compensation to your benefits agency. Failing to do so could amount to benefit fraud.

Setting up a personal injury trust

A personal injury trust allows you to protect your compensation award from being counted as capital. This keeps your benefits safe. A trust is managed by two or more trustees and only the compensation award can be paid into it. You can then draw funds in a way that keeps you below the capital limit.

Trusts are also useful for vulnerable claimants, children, or those needing help managing large sums of money.

The first year – a 52-week grace period

Any compensation you receive is ignored for benefit calculations for the first 52 weeks. This gives you time to set up a trust. However, if you deliberately spend your award during this period to stay below the capital threshold, you could be penalised.

Your solicitor can help

Your solicitor will explain how to protect your benefits when making a claim. This may involve setting up a personal injury trust or advising on how to manage your award responsibly.

FAQs

New to claims? Start with our work injury claim guide, or see the full work injury claim FAQs.

Will all of my benefits stop if I get compensation?

No. Only means-tested benefits are affected. Disability-related and tax credits are not reduced by compensation payments.

Can I spend my compensation within the 52-week grace period?

You can, but if the spending appears deliberate to avoid losing benefits, the DWP may treat it as ‘deprivation of capital’ and still reduce your entitlement.

Do I pay tax on benefits affected by compensation?

No. The reduction in benefits is based on capital thresholds, not tax liability. Personal injury compensation itself is tax-free.

Is a personal injury trust mandatory?

No, but it is strongly recommended if you rely on means-tested benefits. Without one, your award may affect your entitlement once the grace period ends.

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

One quick call can give you clarity and confidence about your options after a work accident. A specialist advisor will:

  • Give free, confidential and impartial advice
  • Explain clearly how No Win, No Fee works
  • Connect you with the right solicitor for your case

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About the author

Chris Salmon is a legal commentator and co-founder of Quittance Legal Services. He has written extensively about workplace accidents, employment rights and the claims process. Chris's work has been cited in national media and he regularly contributes practical guidance to help injured workers understand their options.

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Last reviewed October 2025 by Chris Salmon