A personal injury trust is a legal arrangement that holds compensation from an accident or clinical negligence claim separately from your own savings, so the payout does not count as your capital when the Department for Work and Pensions or your local authority assesses you for means-tested benefits. You stay the beneficiary and the money is still spent on your needs, but it sits under the control of appointed trustees in a dedicated account. Without that structure, a settlement above £16,000 generally ends entitlement to Universal Credit, Housing Benefit, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, and Income Support.1GOV.UK. Benefit and Pension Rates 2026 to 2027
The protection extends to compensation for physical or psychological injury, whether it comes through a court award or an insurance settlement. Both the capital inside the trust and any income it generates are disregarded by the DWP and by local authorities assessing contributions toward social care or housing.
The 52-Week Deadline
Personal injury compensation is automatically ignored for benefits purposes for 52 weeks, and the trust has to be in place before that window closes. The clock starts from the date the first payment reaches your solicitor, not the date you personally receive the final sum. Interim payments start the countdown.
If the window expires with the money still sitting in your personal account, the DWP will treat the whole lot as your capital and your entitlement will drop or stop. Payments that arrive after the 52-week mark do not get the same automatic grace period and should be kept separate from any qualifying earlier money already held in trust. In practice, most solicitors handling the injury claim will raise the trust well before settlement, and there is no advantage in waiting.
Bare Trust or Discretionary Trust
Two forms are used for personal injury compensation, and the choice shapes how much control you keep over the money.
Bare Trust
A bare trust gives you an absolute right to the capital and any income it earns. The trustees hold the account and administer it, but they cannot refuse a request from you to spend or withdraw. For tax, the trust is transparent: income and capital gains are treated as yours, reported on your own return, and taxed at your personal rates.2HM Revenue & Customs. Trusts, Settlements and Estates Manual – TSEM1563 The trustees do not have to file a separate return for trust income.3HM Revenue & Customs. Capital Gains Manual – CG34320 – Bare Trusts: Main Principles and Effects
This is the common choice when you can manage your own money and simply need the legal structure to shield your benefits. Costs stay low and you keep direct access.
Discretionary Trust
A discretionary trust puts the decisions in the trustees’ hands. You have no automatic right to withdraw; the trustees assess your needs and release funds accordingly. This suits beneficiaries who are vulnerable, who have a brain injury that affects financial judgement, or who are at risk of being pressured by others.
The trade-off is heavier administration and a different tax position. A periodic inheritance tax charge applies every ten years on the value of the trust above the nil rate band of £325,000, and exit charges can apply when capital leaves the trust between those anniversaries.4GOV.UK. Trusts and Inheritance Tax Most moderate settlements will not reach the threshold, but a solicitor should model the figures for a larger award before you commit to this structure.
Choosing Your Trustees
A trustee must be at least 18 and have the mental capacity to manage money on someone else’s behalf. The common recommendation is at least two trustees and no more than four. Two provides a check on decisions and continuity if one trustee becomes unavailable. A frequent pairing is a family member who knows your daily life alongside a solicitor or accountant who brings technical knowledge.
The Trustee Act 2000 requires every trustee to exercise the care and skill that is reasonable in the circumstances.5Legislation.gov.uk. Trustee Act 2000 A professional trustee is held to a higher standard than a lay person because experience and expertise are expected of someone acting in the course of their profession.6Legislation.gov.uk. Trustee Act 2000 – Explanatory Notes – Part 1 In practice, trustees have to invest the money sensibly, keep clear records of every transaction, and never mix trust money with their own. A trustee who causes losses through negligence or self-dealing can be personally liable.
Family Members or a Professional
Family trustees cost less and understand your situation without needing to be briefed. The weakness is that most relatives have no background in trust accounting, investment, or the compliance work that comes with the role, and they can find it hard to refuse requests or to manage family dynamics around money.
A professional firm brings investment expertise and regulatory experience, and keeps emotional distance from spending decisions. The distance helps when the beneficiary is vulnerable. Professional trustees usually charge an annual fee calculated as a percentage of the trust’s assets and may be harder to reach outside office hours. For large settlements or long-term incapacity, that cost is usually worth paying; for smaller awards where the beneficiary manages well, a bare trust with family trustees is often enough.
Setting Up the Trust
The trust deed is the document that creates the trust. It needs the full names and residential addresses of you as the settlor and of every trustee, which satisfy anti-money laundering and bank compliance checks. It must record the exact settlement amount and the date of the award, with a copy of the court order or settlement agreement to verify the figures.
Beyond the basics, the deed sets out the type of trust, the trustees’ powers, any limits on investment or spending, and what happens to any remaining money when the trust ends. Getting this right at the drafting stage saves cost later. You and all trustees sign the deed in the presence of a witness, and each signature is separately attested.7GOV.UK. Practice Guide 8: Execution of Deeds
With the deed signed, the trustees open a dedicated trust bank account. Most high-street banks offer them, though some will require an appointment and want to see the deed before approving. The bank will ask for the original signed deed and photo identification for every trustee. The account has to stay completely separate from any personal finances. Mixing money across accounts undermines the legal separation and can lead the DWP to treat the whole balance as your capital.
The settlement is then transferred from the solicitor’s client account directly into the trust account, and the trustees register the trust with the HMRC Trust Registration Service.8HM Revenue & Customs. Register a Trust as a Trustee Non-taxable trusts created after 6 October 2020 must be registered within 90 days. The penalty for failing to register is a fixed charge of £5,000.9GOV.UK. When HMRC Will Issue a Penalty Charge for Not Registering or Maintaining a Trust Registration goes through the Government Gateway, and the record has to be kept current if details change.
Spending the Money Without Losing Benefits
No rigid list dictates what trust money can go toward, but if you claim means-tested benefits, how you spend matters. Benefits are meant to cover everyday living: food, utilities, ordinary clothing. The trust should pay for the things benefits are not designed to fund — medical treatment, home adaptations, a vehicle, mobility equipment, buying a property, clearing existing debts, or a holiday. Paying directly from the trust account rather than drawing cash makes it easier to show where the money went if the DWP reviews your claim.
The main restriction is the deprivation of capital rule. If the DWP decides you spent trust money recklessly, or gave large sums away to keep claiming benefits, it can treat you as still holding that capital. The test is whether the spending was reasonable in your circumstances. A wheelchair-accessible vehicle after a spinal injury is clearly reasonable. A £50,000 gift to a relative with no connection to your care is not. Trustees should keep receipts and records for every payment, because a paper trail is the simplest defence.
Regular fixed payments to yourself catch people out. If withdrawals look like a second income, the DWP could treat them as income rather than capital movements, which cuts your entitlement. Irregular lump sums drawn for a specific purpose sit more safely with the benefit rules.
What a Trust Costs
Setup is modest against the protection the trust buys. A solicitor’s fixed fee to draft the deed and advise on administration typically starts around £500 plus VAT for a straightforward bare trust. Discretionary trusts cost more because the drafting is more involved and the ongoing compliance heavier. If the solicitor who ran the injury claim also sets up the trust, their familiarity with your case helps keep the bill down.
Running costs depend on the structure. A bare trust with family trustees has very little overhead: occasional bank charges and whatever an accountant charges if you want help with your return. A discretionary trust with a professional trustee carries annual management fees based on a percentage of the trust value. On a small settlement those fees can erode the capital faster than it earns, so the trust type and trustee choice should match the size of the award.
What Happens When the Beneficiary Dies
With a bare trust, the remaining money forms part of your estate for inheritance tax and passes under your will, or by the intestacy rules if there is no will. Because you always had an absolute right to the capital, HMRC treats it like any other personal asset.
A discretionary trust works differently. The trust fund still counts as part of the beneficiary’s estate for inheritance tax where the beneficiary was a potential recipient, which in a personal injury trust is always the case. The remaining money does not pass under the beneficiary’s will though; the trustees distribute it according to the deed, which usually names other family members such as children or a spouse. Periodic and exit charges may have applied during the trust’s life, and a final charge can arise when it winds up.4GOV.UK. Trusts and Inheritance Tax