Compensation awarded following a personal injury or medical negligence claim can be substantial, particularly if it is compensating for huge losses for the rest of your life such as pain and suffering, impact to daily life, care needs, lost earning, medical treatment and rehabilitation, specialist equipment or adaptations to the home. Personal injury damages are not intended to be a reward or a windfall.
The purpose of compensation is to place the injured person, so far as money can, in the position they would have been in had the injury not occurred. It is therefore natural to have concerns about how large sums of money like that may affect yours or your family’s wider financial situation.
Tax and Financial Considerations
Although personal injury compensation is itself not taxable for the person who has received it, there are tax implications for any interest accrued or capital gains on the original compensation. There are also implications if the damages are used for the benefit of anyone other than the person who received the compensation even children, spouses or family members, as well as potential implications on any future means-tested benefits claims or local authority care funding when you are older.
There are various legal provisions in place which protect personal injury compensation from being treated as a large windfall, in practice this can sometimes be difficult to demonstrate and trace. As such, where there are circumstances which may cause it to affect other aspects of your finances, it is typically advisable to place the compensation into a personal injury trust. This is a special form of trust which provides the legal protections to guarantee the compensation in it is protected and treated as compensation should be.
A Recent High Court Decision
A recent High Court decision, CGT v West Sussex County Council [2026] EWHC 293 (Admin), has provided some helpful clarification on this issue. The case considered how compensation held in a personal injury trust should be treated when a local authority assesses someone’s contribution towards their care costs if being funded by the local authority.
CGT was a young adult with severe disabilities caused by a brain injury sustained in infancy. He received more than £3.5 million in compensation, which was placed into a personal injury trust to support his long-term needs.
Years later, an application was made to the local authority for assistance with care costs. The Council decided that CGT had “too much capital” because of the Trust and should therefore pay for his care himself. It also sought repayment of over four years of previously funded care.
The High Court found that the Council’s approach was unlawful. The court confirmed that under the Care and Support Regulations 2014, funds held in a personal injury trust must be disregarded during financial assessments. Local authorities cannot treat those funds as ordinary capital, revisit how damages were calculated, or refuse statutory support because compensation has been awarded. The council’s decision was quashed, and it was required to repay care costs that had wrongly been taken from the Trust.
The decision reinforces that personal injury compensation exists to meet the needs arising from an injury. It is not intended to replace public support or to relieve pressure on local authority budgets. If compensation is wrongly treated as ordinary savings, funds intended to support someone’s lifelong needs can be depleted far too quickly. The case therefore provides reassurance that, when compensation is structured correctly, the law recognises its purpose and provides protection.
Protecting Compensation for the Future
Cases such as this highlight the importance of obtaining specialist advice not only when bringing a personal injury claim, but also to ensure the compensation can be properly managed once it is obtained. Importantly, future considerations like this should never affect any decisions to pursue a claim, or limit the compensation that should be awarded.
Taking advice from solicitors experienced in these issues will ensure that compensation is both successfully recovered and properly protected for the future. For any help with issues such as these, please contact our specialist team for advice.