Personal Injury Trust

Who it’s for

Individuals on means-tested benefits, for example Income Support and Council Tax Support, who receive personal injury compensation.

Note: Disability benefits are non-means-tested and unaffected.

Problem

• Capital over £6,000 reduces benefits.
• Capital over £16,000 stops benefits entirely.
• Receiving a compensation award can adversely affect benefits.

Solution: Personal Injury Trust

Purpose

• Allows continued receipt of benefits while accessing compensation.
• Not treated as deliberate deprivation.

How it works

• Appoint two trustees, usually including yourself and a trusted person.
• Trustees manage the trust and control decisions.
• Trust types include Discretionary Trust, Life Interest Trust, or Disabled Person’s Trust, recommended for those with disabilities and providing IHT and CGT advantages.
• Funds invested by trustees do not affect benefits.
• Withdrawals to your account must keep capital below the benefit limit.
• Withdrawals should be irregular to avoid arguments about regular income entitlement.

On death

The trust ends and assets are distributed according to the trust deed.

Considerations / Downsides

Income tax

Trust income is taxed at 45%, requiring complex tax returns.

Consider investing in an Investment Bond. The growth will be treated as capital and not income. This avoids the 45% tax charge.