Universal Credit Claims and Personal Injury Compensation
News article published on: 6th November 2019
The general rule on entitlement to Universal Credit is that a person is not entitled if they have capital of over £16,000.
However, there are various scenarios in which capital can be disregarded. One such scenario is where the claimant has capital that has been paid to them in consequence of a personal injury. Regulation 75(1) and (4) of the Universal Credit Regulations 2013 provide as follows:
75.—(1) This regulation applies where a sum has been awarded to a person, or has been agreed by or behalf of a person, in consequence of a personal injury to that person.
(4) If the sum is held in trust, any capital of the trust derived from that sum is to be disregarded in the calculation of the person’s capital and any income from the trust is to be disregarded in the calculation of the person’s unearned income.
The principle behind this is clear. A person who has suffered a personal injury should lose their entitlement to benefits simply because they have received compensation for that personal injury. However, the legislation leaves open the question of what counts as a sum awarded in consequence of a personal injury.
There are various companies who specialise in setting up trusts for people who have been awarded compensation, with a view to protecting those monies from being counted as capital for the purposes of entitlement to welfare benefits.
However, in my experience these companies are often instructed to set up trusts in circumstances that are unclear as to whether the compensation has been paid in consequence of a personal injury. A good example of this is claims against the Home Office for false imprisonment. Where immigrants have been unlawfully detained, purportedly under immigration rules, they are entitled to bring a claim for false imprisonment. Such claims are often settled out of court, and will often involve claims for psychiatric injury, aggravated damages and exemplary damages in addition to damages for false imprisonment. It can be very difficult to ascertain from a global settlement how the damages are to be divided. Further, can all of these heads of damages be considered capable of being awarded in consequence of a personal injury.
These were the issues that came before the First Tier Tribunal (Social Entitlement Chamber) in the recent case of Somasuntharam v Secretary of State for Work and Pensions (Ref: SC154/18/03105).
The Appellant had been unlawfully detained by the Home Office whilst he was an asylum seeker. He suffered significant psychiatric injury as a result. On 29 October 2015 he was awarded £40,000 by the Home Office in an out of Court settlement by way of compensation. This sum comprised damages for false imprisonment, psychiatric injury, and aggravated damages.
After deductions for legal costs and other expenses at the time the Appellant placed the damages in a personal injury trust in December 2016 (having been advised to do so) the total sum was £26,526. This sum was not in dispute in the appeal. The Appellant and a distant cousin were the trustees of the trust, and the Appellant was the sole beneficiary. This meant he could not make withdrawals without the consent of the other trustee. The Appellant then claimed Universal Credit on 26 January 2017. The claim was rejected by the Department of Work and Pensions (“DWP”) on the basis that the Appellant had over £16,000 of capital.
There were various delays in the appeal process but judgement was finally given on the appeal on 1 July 2019.
It was agreed between the parties that the damages for psychiatric injury that formed part of the settlement were in consequence of a personal injury. It was also agreed between the parties that any compensation received specifically in relation to false imprisonment (also referred to as “basic damages”) could not be in consequence of a personal injury.
This left the issue of aggravated damages. The DWP argued that these damages could not be considered to be awarded in consequence of a personal injury. However, the Judge disagreed and held that, applying the case of Thompson v Commissioner of the Metropolis  3 WLR 403, the aggravated damages were in consequence of a personal injury, and were thus to be disregarded for the purposes of entitlement to Universal Credit. As a result of this finding, at the time of applying for Universal Credit the Appellant’s capital was less than £16,000 and his claim should have been allowed.
However, it should be noted that whether aggravated damages can be held to be in consequence of a personal injury are likely to depend on the facts of each case. There is no bright line between damages for false imprisonment (which cannot be in consequence of a personal injury) and aggravated damages. Each case is likely to be determined on its specific facts. In cases where the damages have been awarded in an out of court settlement it can be difficult to ascertain exactly how the award has been reached. In the present case it was possible to work out an approximation of the relative percentages of the global award that related to each head of damages by examining the without prejudice save as to costs correspondence between the parties, which had quantified each head of damages.
The Appellant had also advanced an argument that the monies were held in a discretionary trust. Monies held in a discretionary trust are ignored by the DWP until such time income or capital are paid out of the trust. However, this ground of appeal was dismissed. The Tribunal Judge found that the trust that had been set up was in fact a bare trust, rather than a discretionary trust. The definition of a discretionary trust is set out in the case of Mettoy Pension Trustees Ltd v Evans  2 All ER 513. This confirms that a discretionary trust is one where the trustee is “under a duty to select from a class of beneficiaries those who are to receive, and the proportions in which they are to receive, income or capital of the trust property.
The Judge found that the purpose of the trust was as a personal injury trust. As there were no other beneficiaries named in the trust, or the potential for other beneficiaries, the trust was ruled to be a bare trust rather than a discretionary trust. This meant that the only sums of money in the trust that could be disregarded were those that were the received in consequence of a personal injury.
William Ford, Partner in the Housing and Social Care Department, represented the Appellant in the Tribunal proceedings described above.