Can DWP Take My Compensation?

William Ford

Universal Credit Claims and Personal Injury Compensation

Under current Universal Credit rules, individuals are generally not entitled to claim Universal Credit if they have capital exceeding £16,000.

However, there are important exceptions to this rule, particularly where compensation has been received as a result of a personal injury claim. In these cases, certain amounts may be legally disregarded when calculating eligibility for benefits.

When can personal injury compensation be disregarded?

The Universal Credit Regulations 2013 (Regulation 75(1) and (4)) state that if a sum is awarded or agreed in consequence of a personal injury, and is held in trust, both the capital and any income generated from the trust are to be disregarded when assessing a person’s entitlement to Universal Credit.

This rule is grounded in fairness. It recognises that individuals should not lose access to benefits simply because they have received compensation for harm they have suffered.

However, the legislation does not provide a precise definition of what qualifies as compensation “in consequence of a personal injury”—leading to uncertainty in more complex claims.

Common issues with personal injury trusts

Specialist companies often set up personal injury trusts to help protect compensation awards from affecting benefit entitlement. However, in some cases, it is unclear whether the compensation truly relates to a personal injury.

One grey area arises in claims against the Home Office for unlawful detention. Individuals—often asylum seekers—may bring claims for false imprisonment, sometimes accompanied by claims for psychiatric injury, aggravated damages, and even exemplary damages. Settlements are often made out of court, and it can be difficult to determine how the total compensation award is allocated between the various heads of claim.

Case law: Somasuntharam v Secretary of State for Work and Pensions

This issue was examined in the case of Somasuntharam v Secretary of State for Work and Pensions (Ref: SC154/18/03105), heard by the First-Tier Tribunal (Social Entitlement Chamber).

Case Background

The Appellant, an asylum seeker, was unlawfully detained by the Home Office and suffered significant psychiatric harm. In October 2015, he received a £40,000 out-of-court settlement, which included:

• Damages for false imprisonment
• Psychiatric injury
• Aggravated damages

After legal fees and expenses, £26,526 remained, which the Appellant placed into a personal injury trust on professional advice. He later applied for Universal Credit, but the Department for Work and Pensions (DWP) refused the claim, citing capital above the £16,000 threshold.

Tribunal Findings

The Tribunal agreed on several points:

• Psychiatric injury compensation was clearly in consequence of a personal injury and should be disregarded.
• Damages for false imprisonment (also called “basic damages”) were not in consequence of a personal injury and should be counted.
• Aggravated damages were disputed.

The DWP argued that aggravated damages could not be classified as personal injury compensation. However, the Judge disagreed, relying on Thompson v Commissioner of the Metropolis [1997]. The Judge found that in this case, the aggravated damages did stem from the psychiatric injury and were therefore to be disregarded.

As a result, the Appellant’s capital—after excluding the personal injury-related damages—fell below £16,000, and he should have been eligible for Universal Credit.

Key Takeaway

Each case must be assessed on its individual facts. There is no hard-and-fast rule for when aggravated damages qualify as personal injury compensation. In out-of-court settlements, it’s often necessary to examine “without prejudice” correspondence between the parties to understand how the total award was calculated.

Trust Structure: Discretionary vs Bare Trusts

The Appellant also argued that his compensation was held in a discretionary trust, which would have had different implications for benefit entitlement.

However, the Tribunal concluded that the trust was a bare trust, not a discretionary one. A discretionary trust involves a duty on trustees to decide which beneficiaries receive what, as set out in Mettoy Pension Trustees Ltd v Evans [1991]. In this case, the Appellant was the sole named beneficiary, meaning the trust lacked the key features of a discretionary trust.

Only sums within the trust that were awarded in consequence of a personal injury could be excluded from the Universal Credit capital assessment.

Need Expert Advice?

If you’ve received a compensation award and are concerned about how it may affect your entitlement to benefits, Osbornes Law can help.

We advise on:

• Setting up personal injury trusts
• Interpreting complex settlements
• Challenging DWP decisions
• Protecting your entitlement to Universal Credit and other benefits

Contact us today for expert, confidential advice.