Universal Credit and trusts: important changes

Abigail Cuffe of Vincents Solicitors highlights how trusts and income received from a trust are assessed for new Universal Credit claims.

By Abigail Cuffe, Vincents Solicitors 13 March 2024

Since its introduction, Universal Credit, which aims to support individuals who are on low incomes, are unemployed or can’t work, has replaced all means-tested (income-based) benefits for new claimants. The implementation of Universal Credit has resulted in various changes to the ways in which certain trusts and income from trusts are treated in respect of benefit claims.

Abigail Cuffe of Vincents Solicitors highlights the key changes that deputies and trustees need to be aware of, and the potential impact on clients and their families.    


Personal injury trusts

Personal injury (PI) trusts continue to be disregarded under Regulation 75(4) of the 2013 Universal Credit regulations. Any income received by a claimant from a PI trust is fully disregarded for the purposes of a Universal Credit claim. There is no time limit for placing funds in a PI trust as long as the funds form part of the compensation award. This means that any funds placed in the trust after the 52-week disregard has expired should have no detrimental impact on the client in terms of a means test.  


Discretionary trusts and deprivation of capital

Discretionary trusts were previously disregarded for the purposes of income-based benefits. However, this is no longer the case: these trusts are increasingly being treated as deprivation of capital – i.e. using the trust to purposefully reduce capital in order to be eligible for Universal Credit benefits.  

The guidelines state that when working out if a trust will be treated as capital, decision makers should consider who the beneficial owner of the trust is and who has an interest in the trust, including contingent interest. As such, all trusts and their documentation need to be disclosed as part of a Universal Credit claim. The terms of the trust will then dictate if it can be disregarded for the purposes of Universal Credit.  


Trust income

As there was previously no specific guidance on how trust income should be considered in relation to a means test, payments made to a claimant who is a beneficial owner of a trust have, unless significant, been treated as ‘voluntary payments’ for the purposes of income-based benefits.  

However, under Regulation 66 (i)(j) of the Universal Credit regulations, all regular income a claimant receives from a trust must be declared as ‘unearned income’. The Universal Credit award will then be reduced by the amount that is received from a trust. In other words, if a claimant receives a monthly income from the trust that exceeds the Universal Credit award, they will not be able to claim any benefits.  

Regulation (1) (j) also states that if the trust yields any income – for example interest, dividends or rental payments – this also needs to be declared in full as ‘unearned income’ and will be regarded as either income or capital for the purposes of the Universal Credit claim. The only exception to this regulation relates to PI trusts, as mentioned above.  


Next steps

These changes may affect an individual’s ability to claim Universal Credit.  Deputies and trustees should seek specialist advice if they have any concerns about a client’s eligibility to state benefits.