Sami
A mother of three recently raised concerns online about whether she would continue to qualify for Universal Credit after receiving a £20,000 compensation payment.
The sum stems from a personal injury claim, and she expressed uncertainty about how this windfall might impact her benefit eligibility.
Her Situation: Home Improvements vs Losing Benefits
The woman shared on Reddit that she expects to receive £20,000 following a car accident earlier in the year.
Her intention is to use the money for vital home upgrades, particularly to make her garden more accessible for her three children with disabilities.
She stated:
“I plan to use this money to make my garden accessible for my three children with disabilities, along with some home improvements.”
However, she’s aware of the Universal Credit savings rules, specifically the £6,000 threshold, above which benefit deductions begin, and the £16,000 limit, beyond which eligibility ceases.
Her concern:
“If I’m not eligible for Universal Credit, I’ll have to use the money to live on, rather than for what I planned.”
Universal Credit Capital Rules in Detail
To remain eligible for Universal Credit (UC), claimants must typically have less than £16,000 in capital, including savings and investments.
How UC Deductions Work Based on Capital
| Capital Amount | Impact on Universal Credit |
|---|---|
| Up to £6,000 | No effect on benefit entitlement |
| £6,000 to £16,000 | £4.35 reduction for every £250 over the £6,000 threshold |
| Over £16,000 | Not eligible for Universal Credit |
Importantly, personal injury compensation is disregarded for the first 12 months after being received.
What Others Advised Online
Several Reddit users provided helpful insights:
- Commenter 1: “Personal injury compensation would be disregarded for 12 months. You can choose to put it into a personal injury trust and then it would be disregarded indefinitely.”
- Commenter 2: “Even though it’s disregarded, if you have more than £6,000 on the last day of a UC assessment period, you must declare it and explain what it is. The DWP will verify the funds and should disregard them if related to a personal injury claim.”
Official Government Guidance
According to the gov.uk website, the Department for Work and Pensions (DWP) confirms:
- Compensation for personal injury or illness is not counted for 12 months following payment.
- After this 12-month period, only funds held in a trust or used to buy an annuity will continue to be disregarded.
Receiving a £20,000 personal injury payout doesn’t automatically disqualify someone from Universal Credit, but it does trigger specific rules. If the compensation is used or placed in a trust within 12 months, it won’t count against your savings limit.
However, it’s essential to report the funds and clearly identify them as compensation. For long-term protection of your benefits, setting up a personal injury trust could be the most secure option.
Frequently Asked Questions
Will I lose Universal Credit if I get a £20,000 compensation payout?
Not immediately. The payout is disregarded for 12 months, but must be reported. After that, it must be placed in a trust or used appropriately to avoid disqualification.
What happens if I don’t use the money within 12 months?
After 12 months, if the money isn’t in a trust or annuity, it will be counted as savings and could reduce or end your Universal Credit entitlement.
How much Universal Credit is reduced between £6,000 and £16,000?
Your Universal Credit is reduced by £4.35 for every £250 above the £6,000 savings threshold.