If you've been awarded personal injury compensation - or you're about to be - and you receive (or expect to receive) any means-tested benefit, you almost certainly need a Personal Injury Trust. Without one, your lump-sum settlement counts as capital for the DWP's means-test calculation, and can wipe out Universal Credit, Housing Benefit, Council Tax Support, Pension Credit and other income-related entitlements. A properly-constituted PIT keeps the compensation disregarded for benefits purposes - permanently - without any 'deliberate deprivation of capital' risk.
If you've been awarded personal injury compensation - or you're about to be - and you receive (or expect to receive) any means-tested benefit, you almost certainly need a Personal Injury Trust. Without one, your lump-sum settlement counts as capital for the DWP's means-test calculation, and can wipe out Universal Credit, Housing Benefit, Council Tax Support, Pension Credit and other income-related entitlements. A properly-constituted PIT keeps the compensation disregarded for benefits purposes - permanently - without any 'deliberate deprivation of capital' risk.
This guide explains how PITs work, the 52-week disregard that makes timing important, the four trust structures and which one fits your situation, the trustees' role, and the tax position. Every client we work with who is close to the capital threshold is advised on PITs as part of standard practice.
Do I need a Personal Injury Trust? - quick decision tree
You probably need a PIT if all of the following apply:
- You receive (or expect to receive) a lump-sum compensation payment, even if it's an interim payment rather than the final settlement.
You probably don't need a PIT if:
- Your total settlement is below the lower capital limit and will remain so.
If you're unsure, it's almost always worth setting one up as a precaution. A PIT costs a few hundred to a couple of thousand pounds to establish (claimable as special damages against the claim) and preserves benefit entitlement indefinitely. See general vs special damages.
The 52-week disregard - why timing matters
Personal injury compensation is disregarded from capital for means-tested benefit purposes for 52 weeks from the date of the first payment - whether that's an interim payment or the final settlement. This is the initial 'disregard period' under the Social Security (Claims and Payments) Regulations 1987 and the Universal Credit Regulations 2013.
Two important practical points:
- The clock starts with the first interim payment, not the final settlement. A claimant who receives a £100,000 interim payment in Month 6 of a claim has their 52-week clock start then - even if the final £500,000 settlement doesn't arrive until Month 30.
Where an interim payment is expected, the PIT is usually set up before or immediately after the interim arrives. For settlement-only cases, the PIT can be established as part of the settlement process. Your solicitor plans this timing - leaving it until the 52-week clock is about to expire is the commonest avoidable mistake.
How a Personal Injury Trust works - the basic mechanics
A Personal Injury Trust is a trust fund specifically holding compensation monies (and assets purchased with them) for the benefit of the injured person. The compensation is transferred from the solicitor's client account into a trust account in the names of two or more trustees. The trustees hold and manage the money for the beneficiary's benefit - paying out when the beneficiary asks or when costs arise.
The DWP treats the PIT capital and income as disregarded for means-tested benefits purposes, provided the money placed in the trust is traceably derived from a personal injury payment. This disregard is explicit in the relevant benefits regulations - it's not a loophole, it's built into the rules as a recognised protection for injury claimants.
Importantly, placing compensation in a PIT is NOT deemed 'deliberate deprivation of capital' under DWP rules. The regulations specifically carve out PI trusts from this rule; the DWP has confirmed the position repeatedly in guidance. You cannot be penalised by the DWP for legitimately setting up a PIT.
The four types of Personal Injury Trust - which one fits you?
1. Bare trust
The simplest and most common PIT. The beneficiary is the absolute owner of the trust property; the trustees hold it on their behalf. The beneficiary can demand the assets at any time (subject to any age-at-entitlement terms for minors). Tax is assessed against the beneficiary as if they owned the property directly.
Best for: most adult claimants with capacity; most straightforward situations; children where the settlement is going to be held until they reach 18 (standard Court Funds Office-style arrangement).
2. Discretionary trust
The trustees have discretion to pay income or capital to one or more beneficiaries. Useful where the beneficiary should not have direct control over the money (e.g. because of vulnerability, addiction, or ongoing family tensions), or where the beneficiary's circumstances might change and flexibility is desirable. More complex tax treatment - potentially subject to 10-year 'periodic' charges under inheritance tax rules on larger funds.
Best for: beneficiaries where protection from themselves, from others, or from future means-testing scenarios is paramount. Larger settlements where the tax complexity is manageable.
3. Life interest (interest in possession) trust
The beneficiary ('life tenant') is entitled to income only during their lifetime, with capital going to 'remaindermen' after death. Now less commonly used for PITs since the 2006 tax reforms, but still relevant in some estate-planning scenarios.
Best for: situations where long-term estate planning is important alongside benefit protection. Usually advised on with private-client input.
4. Disabled person's trust
A specialised form of trust used where the beneficiary meets the statutory definition of a disabled person (under Finance Act 2005 / Inheritance Tax Act 1984). Offers favourable tax treatment (like a bare trust for income tax, CGT and IHT purposes) while allowing some trustee discretion. Increasingly popular for catastrophic-injury claimants.
Best for: beneficiaries who meet the statutory 'disabled person' definition - typically those qualifying for the enhanced rate of the daily-living component of PIP, or those in receipt of Attendance Allowance or the high-rate care component of DLA.
Protected parties - PITs and the Court of Protection
Where the claimant lacks mental capacity to manage their own affairs (within the meaning of the Mental Capacity Act 2005), the choice of holding structure is more complex. Two routes:
- A Personal Injury Trust run by suitable trustees (sometimes including a professional trustee or trust corporation).
In most catastrophic cases, deputyship is preferred because the Court's supervisory role gives reassurance about long-term management. Deputyship fees are themselves recoverable as special damages - see general vs special damages.
For moderate cases where capacity is borderline or expected to recover, a PIT with professional or family trustees may be appropriate. Your solicitor takes advice from a private-client specialist before recommending.
Who are the trustees?
A PIT needs at least two trustees (one of whom can be the beneficiary, except where the beneficiary is a minor or lacks capacity). Common structures:
- Beneficiary + spouse / adult child / close relative - the simplest and cheapest arrangement for most adult claimants.
Trustees have statutory duties under the Trustee Act 2000, including the duty to exercise reasonable care, act in the beneficiary's best interests, and invest prudently. Family trustees are usually not paid for acting, though reasonable expenses are recoverable.
How a Personal Injury Trust is set up
- Discussion with your solicitor. Usually before your interim payment arrives, or as part of the settlement process. Your solicitor will recommend a structure based on your circumstances and the size of the expected compensation.
Tax treatment - mostly neutral, but compliance matters
The tax position depends on the trust structure:
- Bare trust - income and capital gains are taxed as if owned by the beneficiary. Usually a neutral position for most claimants.
Trustees are responsible for filing annual tax returns for the trust and keeping HMRC up to date via the Trust Registration Service. Using a solicitor or accountant to handle this - funded from the trust itself - is standard practice for anything beyond the simplest bare trust.
What can I spend the PIT money on?
Almost anything the beneficiary would have spent ordinary savings on. Trustees pay out from the trust either to the beneficiary or directly to providers for:
- Living costs and daily expenses.
Spending patterns can be as flexible as the beneficiary's needs require. For benefit-disregard purposes, the key point is that the money is transferred out of the trust for the beneficiary's specific benefit - regular, traceable payments into the beneficiary's own bank account for daily spending are fine. Large sums sitting long-term in the beneficiary's personal account could start to count as capital again, which is why big-ticket purchases (house, car) are typically paid directly by the trustees to the vendor.
