Look out for the impact on means tested benefits when settling a claim for damages

Posted: 11/04/2016

Anyone involved in bringing a personal injury or clinical negligence claim will know that they can take a lot of time and are not often straightforward. Getting to the end of the process and recovering damages can therefore feel like a big achievement. 

But those advising claimants should take into consideration the impact that any recovery of damages may have on any means tested benefits that the claimant is receiving before handing over the damages. The receipt of the damages could remove the claimant’s ability to receive those benefits, thus eating up the damages with no real financial gain to the claimant. 

There is also the risk that a claimant who is unaware of the regulations and does not declare the receipt of damages to the Benefit Agency could end up subject to prosecution. 

This article looks purely at the issue of means tested benefits, although similar provisions apply to an individuals’ entitlement to local authority social care (which is also means tested). 

Often claimants are in receipt of disability related benefits and in the main these are ‘disability tested’ rather than ‘means tested’ and so will not be affected by the recovery of damages. However, where the claimant is receiving benefits such as Employment and Support Allowance (ESA), Pension Credit or Housing Benefit and other employment-related benefits - which can often be the case where someone has suffered a significant injury and cannot work - these are all means tested and could be affected by the recovery of damages. 

Benefits reduced for more than £6,000 of capital

The current rules provide that, once someone has £6,000 of capital, their entitlement to benefits starts to be affected and reduces on a sliding scale such that anyone who holds £16,000 or more in capital is not eligible for any means tested benefits. 

It is therefore likely that anyone with a serious injury will find that their damages remove their entitlement to their means tested benefits. Claimants need to be aware of this and their obligations to declare receipt of the damages while their solicitors will need to consider the options available to preserve their benefits. 

There is a small ‘window of opportunity’ in that the rules provide for a period of 52 weeks from the date the client receives their damages during  which the damages received are not taken into account for the purposes of means testing.  For some claimants this resolves the issue as they can use their damages in the short term to cover lost income, pay off their mortgage, purchase aids and equipment, pay for care or medical expenses etc. But for anyone with a substantial damages award, the 52 week period simply defers the problem. 

The other issue to consider with the 52 week rule is that it runs from the first payment of damages and not the final settlement. Thus if the claimant receives a small early interim payment – for example to fund some treatment needed - the 52 weeks start to run from that date. This can mean that, by the time the claim is finally settled, the 52 week period has already expired and the damages received are to be taken into account immediately. 

Two options to consider

The first option for those deemed to lack capacity to litigate and/or manage their finances is that their damages will be held under the auspices of the Court of Protection. Damages held/managed by the Court of Protection with a deputy in place are currently excluded from consideration when assessing means tested benefits. Consequently, for a number of claimants with serious injuries, recovery of substantial damages will not preclude them from receiving means tested benefits. 

The second option is to consider a personal injury trust. This can be created for any individual who recovers damages by way of an injury claim but a trust can only be set up for the individual who suffered the injury. The option is not therefore available to those, for example, who recover damages for gratuitous care provided to the injured person or where a claim for damages or dependency is brought arising out of the death of an individual. 

Once a PI trust is set up,  as long as the damages are held under the trust, the damages award has to be disregarded when assessing entitlement to means tested benefits. 

It is therefore important that claimants and their solicitors discuss the claimant’s existing entitlement to means tested benefits and consider the likely impact of the recovery of damages upon that. If it looks likely that the recovery of damages will affect entitlement, then careful consideration needs to be given to assessing the cost of setting up a PI trust against the benefits that would be lost without it and the need to ensure that any such steps are taken before the 52 week period expires. 

For those representing individuals who lack capacity, the protection provided by the appointment of a deputy and involvement of the Court of Protection means that this is something to consider early on, particularly if interim payments are likely. 

Penningtons Manches’ private client team works with many of the clients of the clinical negligence and personal injury team to provide advice on PI trusts and deputyships – as well as tax planning and wills advice arising out of the recovery of damages.

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