Personal Injury Trusts Explained

A personal injury trust is a trust set up to hold money received as compensation for an injury or illness, so that trustees look after it for the injured person rather than it sitting in their own name.

Its main purpose is practical. Held in the right way, compensation can be disregarded when means-tested benefits or council-funded care are assessed, where it would otherwise count as the person's own savings. This guide explains what a personal injury trust is, how it interacts with benefits, how one is set up, and the tax and registration points. It sits alongside our wider Trusts Explained guide. Figures are current as at July 2026 and are subject to change.

What is a personal injury trust?

A personal injury trust is a legal arrangement where trustees hold compensation from a personal injury or illness claim for the benefit of the injured person. The money is kept separate from their ordinary savings, usually in a distinct account, and the trustees manage it under the trust's terms. It is generally the compensation, and things bought with it, that go into the trust rather than unrelated assets.

Why do people set up a personal injury trust?

The common reason is to keep a compensation payment from disrupting means-tested support. When benefits or council-funded care are assessed, a person's capital is counted, and a large lump sum can reduce or stop entitlement. Compensation held in a properly set up personal injury trust can be disregarded from that assessment, so many people who rely on such support choose to consider one.

• Benefits. Keeping compensation separate can preserve means-tested benefits that a lump sum might otherwise interrupt.
• Care assessments. Trust funds may be left out of a local-authority financial assessment for care, depending on the circumstances.
• Management. Trustees can help look after money for someone who finds handling a large sum difficult.

How do you set up a personal injury trust?

A personal injury trust is created by a written trust deed and by moving the compensation into a separate trust account. In outline the steps are as follows. Because the disregard and the wording matter, this is one area many people handle with a solicitor rather than a template, and the timing around the benefit disregard can be important.

1. Confirm the source. The trust should hold money that comes from the personal injury or illness compensation, which is what the disregard is tied to.
2. Choose trustees. Often the injured person plus one or more trusted people; trustees are legally responsible for looking after the fund.
3. Sign a trust deed. A written deed sets out the trust's terms and who benefits.
4. Open a separate account. The compensation is paid into a distinct trust account, kept apart from personal savings.
5. Mind the timing. For Universal Credit the compensation is disregarded for 12 months, after which a trust or annuity is what keeps it out of the assessment (gov.uk, as at July 2026, subject to change).

Tax and trust registration

A personal injury trust does not carry a special tax rate of its own; it is taxed according to the type of trust it is, so the income tax, capital gains tax and inheritance tax position depends on how it is structured (gov.uk, trusts and taxes, as at July 2026, subject to change). Because tax on trusts can be involved, this is an area many people discuss with a qualified professional before deciding on the form.

On registration, many personal injury trusts are excluded from the Trust Registration Service. A trust deriving from a personal injury payment is, subject to conditions, excluded from registration as an express trust where the funds are disregarded capital for benefit purposes (gov.uk, HMRC TRS manual, as at July 2026, subject to change). Whether the exclusion applies depends on the facts, so it can be worth confirming rather than assuming.

Personal injury trusts and care fees

Compensation held in a personal injury trust may be left out of a local-authority financial assessment for care, in a similar way to the benefits position, though the care rules are assessed separately (gov.uk, trusts for vulnerable people, as at July 2026, subject to change). A personal injury trust is set up to manage genuine compensation, not to deliberately give assets away to avoid paying for care. Local authorities can look at deprivation of assets where they believe someone has deliberately deprived themselves of capital, so a trust used for that purpose could be challenged. Framed properly, this is about limiting the impact of care fees on money awarded for an injury, and it can be worth discussing with a qualified professional. For the wider context, see our note on how inheritance affects benefits.

Personal injury trusts in Scotland and Northern Ireland

The benefits rules that make personal injury trusts useful are largely UK-wide, so the Universal Credit capital limits of £6,000 and £16,000 apply across the UK (gov.uk, as at July 2026, subject to change). What differs is the surrounding trust and succession law. Scotland has its own trust and succession rules, and some social security is devolved, so the detail can vary. Northern Ireland has a separate but broadly similar system to England and Wales. Where a trust touches more than one UK nation, it can be worth taking advice in each. For the broader picture, see our estate planning guide.

Frequently asked questions