Personal Injury Trusts — Protecting Your Compensation
Receiving compensation is meant to put you back in the position you would have been in but for the accident. For many claimants — particularly those on Universal Credit, council tax support, or other means-tested benefits — that aim is undermined if the compensation itself counts as capital and pushes them over the eligibility threshold. UK law has a long-established solution: the Personal Injury Trust. It holds your compensation separately so it is disregarded for benefits assessment, while still being available to you for the purposes the compensation was awarded for.
In this guide
- What Is a Personal Injury Trust?
- Who Needs a Personal Injury Trust?
- The 52-Week Disregard — A Critical Time Limit
- Types of Personal Injury Trust
- How a Personal Injury Trust Works in Practice
- What a PI Trust Will Cost
- What a PI Trust Does Not Do
- When to Set Up the Trust
- Common Questions About Personal Injury Trusts
- Related Guides
- Our Partner's Fees Explained
- Check If You Could Claim Compensation For Your Injury
This guide explains who needs a Personal Injury Trust, how they work, the different types available, and how to set one up.
What Is a Personal Injury Trust?
A Personal Injury Trust (sometimes called a “PI Trust” or “Compensation Protection Trust”) is a legal arrangement that holds your personal injury compensation separately from your other money. The compensation is held by trustees — usually a combination of the claimant, a trusted family member, and a professional adviser — for the benefit of the injured person. Because the money is held in trust rather than personally owned, it is disregarded by the Department for Work and Pensions and by local authorities when assessing means-tested benefits and care contributions.
PI Trusts are recognised by:
- The Income Support (General) Regulations 1987
- The Universal Credit Regulations 2013
- The Care Act 2014 (for adult social care financial assessments)
- The Council Tax Reduction Schemes (England) Regulations 2012
- Most other means-tested benefit regimes
Who Needs a Personal Injury Trust?
A PI Trust is worth considering if any of the following apply:
- You receive Universal Credit, Income Support, Pension Credit, or housing benefit
- You receive council tax reduction (sometimes called council tax support)
- You receive local authority help with care costs
- You expect your compensation to push you over £6,000 (the lower capital threshold for most benefits) or £16,000 (the upper threshold)
- You expect to need any of these benefits in the future
- Your compensation is more than £6,000 and you want to protect your eligibility
If you receive no means-tested benefits and have no expectation of needing them, a PI Trust may not be necessary — though many claimants set one up anyway for the additional protections it offers. For very small compensation amounts (under £6,000) the protection may not be needed.
A PI Trust is NOT needed for compensation received as a result of certain non-means-tested benefits such as State Pension, Personal Independence Payment (PIP), Attendance Allowance, or Carer’s Allowance. These are unaffected by capital limits.
The 52-Week Disregard — A Critical Time Limit
For many means-tested benefits, compensation is automatically disregarded for 52 weeks from the date of receipt — even without a PI Trust. After 52 weeks, the compensation counts as capital like any other money, and the £6,000 / £16,000 thresholds apply.
This means:
- For minor injury claims where the compensation is spent within a year on immediate needs, no PI Trust may be necessary
- For more substantial settlements that need to last longer, a PI Trust should be set up within the 52-week window to protect the funds going forward
- For settlements that include lifetime care costs or future loss of earnings, a PI Trust is almost always essential
A specialist solicitor will advise on the right timing — but as a rule of thumb, if your compensation is more than the trivial level and you have any means-tested benefits exposure now or in the foreseeable future, a PI Trust should be in place before the 52 weeks expire.
Types of Personal Injury Trust
The most common types are:
1. Bare Trust (Absolute Trust)
The simplest form. The trust holds the compensation absolutely for the benefit of the injured person. They have the right to call for the money at any time, but for benefits purposes it is held by trustees. Suitable for most adult claimants with capacity.
2. Discretionary Trust
The trustees have discretion about when and how to distribute money to the beneficiary (and sometimes to other family members). Provides more flexibility and asset protection. Suitable for higher-value settlements, particularly where there are concerns about the beneficiary’s ability to manage money or where there are wider family considerations.
3. Disabled Person’s Trust
A specific type of trust under the Inheritance Tax Act 1984 designed for people with serious disabilities. Provides additional inheritance tax advantages and is often used in catastrophic injury cases. The Court of Protection may need to be involved for claimants lacking mental capacity.
4. Personal Injury Trust Where the Claimant Lacks Capacity
For claimants who lack mental capacity to manage their own affairs (typically due to severe brain injury, severe cerebral palsy, or other catastrophic injury), the Court of Protection appoints a Deputy who manages the funds. A PI Trust can be combined with this structure — see our serious injury hub for more.
How a Personal Injury Trust Works in Practice
Once set up:
- Trustees are appointed — typically you (the beneficiary), a trusted family member, and a professional (solicitor or accountant)
- A separate trust bank account is opened — the compensation is paid into this account, not your ordinary current account
- You can spend the money — on anything the compensation was awarded for: rehabilitation, accommodation, vehicle adaptations, lost earnings replacement, household bills, leisure
- The trust account is kept separate — the money does not mingle with your personal funds
- You notify DWP and the local authority — providing them with the trust documentation. They then disregard the trust funds in benefits assessment
- Trustees keep simple records — receipts and bank statements showing what was spent. Annual review of the trust is good practice but not legally required for simple PI trusts
You do not lose control of your compensation — you remain a trustee (and usually the principal beneficiary) and can spend the money on anything reasonable. The trust is a protection mechanism, not a restriction.
What a PI Trust Will Cost
Typical costs:
- Setting up a simple PI Trust — typically £500 to £1,500 plus VAT (often deducted from the compensation as part of the settlement process)
- Setting up a more complex Disabled Person’s Trust — typically £1,500 to £3,000
- Annual review or maintenance — sometimes a modest annual fee, often nothing for simple trusts
- Tax compliance — minimal for most PI trusts, which are largely tax-neutral
For most claimants the cost is a fraction of the compensation protected. For example, a £15,000 settlement put in a £750 trust avoids potential ongoing benefit losses worth thousands per year — the trust pays for itself many times over.
What a PI Trust Does Not Do
A PI Trust is a specific legal mechanism for benefits protection. It does not:
- Avoid income tax on any interest earned (though the amounts are usually small)
- Protect compensation from creditors in personal insolvency (different rules apply)
- Protect compensation from claims by an ex-spouse in divorce proceedings (the family court can still take it into account)
- Reduce inheritance tax automatically (though Disabled Person’s Trusts can have IHT benefits)
- Hide the compensation from public view — a trust is a legal arrangement but not a secret one
For broader asset protection needs, a specialist financial adviser should be consulted alongside the PI Trust.
When to Set Up the Trust
The right time is shortly before or shortly after settlement. The compensation can be paid directly into the trust account at settlement, avoiding any period where it sits in your personal account. Your solicitor will coordinate this — typically by ensuring the trust is set up in the weeks before settlement is finalised, so the bank account is ready to receive the payment.
For older settlements where no PI Trust was set up at the time, it is still possible to set one up later — but the 52-week disregard for compensation payments has its own rules and a specialist should advise on the right approach for retrospective trusts.
Common Questions About Personal Injury Trusts
Do I lose control of my compensation if I put it in a trust?
No. As a trustee and the beneficiary, you remain in effective control. You can spend the money on anything reasonable — rehabilitation, accommodation, household bills, leisure, family support. The trust is a protection mechanism that keeps the money separate from your other capital for benefits purposes; it is not a restriction on what you can do with the money.
I do not currently receive benefits. Do I still need a trust?
Not necessarily, but worth considering. Circumstances change — job loss, illness, or family changes can mean you need means-tested benefits later. Having a PI Trust in place protects your future eligibility even if you do not need benefits now. For settlements over £16,000 most claimants set up a trust as a default precaution.
Will HMRC look at me differently if I have a PI Trust?
No. PI Trusts are an established, recognised legal arrangement. They have specific recognition in benefits law and HMRC has no separate concerns about them. Trust income (typically just bank interest) is taxed according to normal trust rules, but for most PI trusts this is straightforward and the trustees handle any tax returns.
Can the trustees refuse to give me my money?
For a bare trust, no — you have an absolute right to call for the money. For a discretionary trust the trustees have discretion, but in most family-set-up PI trusts you (the beneficiary) are also a trustee, so refusal of your reasonable requests is not really possible. The discretionary structure exists more for asset protection and tax efficiency than to control your spending.
What happens to the trust money when I die?
For a bare trust, any unspent funds form part of your estate and pass under your will or the intestacy rules. For a discretionary trust or disabled person’s trust, the funds may pass to the named “remainderpersons” (often family members) according to the trust deed. A specialist solicitor will draft the trust to reflect your wishes.
Can I set up a trust years after receiving my compensation?
Yes, but with limitations. The 52-week disregard rule means that compensation that has been in your personal account for more than a year already counts as capital. Putting it into a trust now does not retrospectively reset the clock. A specialist solicitor or financial adviser can advise on whether retrospective trust planning is worthwhile in your specific circumstances.
Related Guides
How the Personal Injury Claim Process Works
Will Compensation Affect My Benefits?
Serious & Life-Changing Injury Claims
How Much Compensation for Personal Injury?
How Long Does a Personal Injury Claim Take?
Personal Injury Time Limits Explained
Check If You Could Claim Compensation For Your Injury
If you were injured in an accident that wasn’t your fault, you may be entitled to compensation. Start a free claim check in minutes — no upfront cost. No win, no fee if your claim is accepted.
