Means-Tested Benefits and Tax Implications
The Government’s update on the Infected Blood Compensation Scheme (October 2025) included the following statements:
“Compensation payments made through the Scheme will not adversely impact means-tested benefits received by people who are either infected or affected.”
“Where compensation payments are awarded to an estate of a deceased infected person by IBCA and are received by estate beneficiaries on distribution of the estate, the compensation awarded will not impact on the recipient’s eligibility for means-tested benefits.”
The Infected Blood Compensation Authority (IBCA) website also states:
“You won’t have to pay tax on your compensation, and it won’t affect your benefits.”
Source: https://ibca.org.uk/compensation-infected/choosing-a-single-payment-or-regular-payments
What does this mean in practice?
For people who receive compensation and are entitled to means-tested benefits such as Housing Benefit, Pension Credit or Universal Credit, these protections are important.
Normally, savings or capital between £6,000 and £16,000 can reduce entitlement to certain means-tested benefits, while savings above £16,000 will in most cases remove entitlement altogether. However, compensation received through the Infected Blood Compensation Scheme, whether paid as a lump sum or through regular payments, is disregarded as capital indefinitely.
This protection applies to compensation paid to infected people, affected people and beneficiaries receiving compensation through an estate. As a result, individuals can continue to claim means-tested benefits while receiving compensation. In addition, compensation payments themselves are disregarded as income for benefit purposes.
Department of Works and Pension Example:
Stephen claims Universal Credit. He receives £20,000 from the estate of his late uncle. The money was originally paid to the estate under an approved infected blood compensation scheme because his uncle was infected through contaminated blood products.
As the payment received by Stephen is derived from compensation awarded under an approved blood scheme, the Decision Maker determines that the payment can be disregarded as capital indefinitely. Therefore, it does not affect Stephen’s Universal Credit entitlement.
Income generated from compensation
Any income generated from compensation payments is also disregarded for means-tested benefit purposes. This includes bank interest, rental income and investment returns.
The disregard continues if a person later claims Pension Credit on reaching State Pension age.
It is important to keep evidence showing that any income or savings have been derived from infected blood compensation payments, as this will help ensure the disregard continues to apply. Maintaining a clear paper trail, including receipts, bank statements and other relevant records, may make it easier to provide this evidence if needed.
An Important Exception:
There is one exception to this rule. Where a diagnosed person dies without a partner or children, and compensation is subsequently paid to a parent, a person acting in place of the diagnosed person’s parent, or a person who was acting in that role at the date of the diagnosed person’s death, the disregard applies only for a limited period. Specifically, the disregard begins on the date the payment is made and ends two years later.
For example, Edward received compensation but never had a partner or children. When he died, he left his estate to his parents. The compensation inherited by his parents is disregarded for means-tested benefit purposes for two years from the date they receive it. Once this two-year period ends, the inherited funds may be taken into account when assessing entitlement to means-tested benefits, such as Pension Credit.
Tax and savings considerations
Compensation payments are not subject to Income Tax, Capital Gains Tax or Inheritance Tax. However, any income or gains generated from investing those payments, for example in savings accounts, shares or property, may be taxable under normal tax rules.
Your bank or building society may notify HM Revenue & Customs (HMRC) of any interest earned on your savings. HMRC may use this information to determine whether tax is due, or you may be required to report it yourself through a Self-Assessment tax return.
| Scottish Income tax rates 2026 to 2027 | ||
| Taxable income | Tax rate | Band |
| up to £12,570 | 0% | Personal Allowance |
| £12,571 to £16,537 | 19% | Starter rate |
| £16,538 to £29,526 | 20% | Scottish basic rate |
| £29,527 to £43,662 | 21% | Intermediate rate |
| £43,663 to £75,000 | 42% | Higher rate |
| £75,001 to £125,140 | 45% | Advanced rate |
| Over £125,140 | 48% | Top rate |
Everyone has a Personal Allowance set by the Government. If your total taxable income exceeds this amount, you may be required to pay Income Tax. Certain benefits are taxable and count towards your total taxable income, including:
- Bereavement Allowance (previously Widow’s Pension)
- Carer’s Allowance (or, in Scotland, Carer Support Payment)
- Contribution-based Employment and Support Allowance (ESA)
- Incapacity Benefit (from the 29th week of payment)
- Jobseeker’s Allowance (JSA)
- Pensions paid under the Industrial Death Benefit Scheme
- State Pension
- Widowed Parent’s Allowance
You may also be able to earn a certain amount of interest on your savings before paying tax. The amount depends on your Income Tax band:
- Basic-rate taxpayers: £1,000 of savings interest tax-free
- Higher-rate taxpayers: £500 of savings interest tax-free
- Additional-rate taxpayers: No Personal Savings Allowance
Any savings interest above these allowances may be subject to Income Tax.
Individual Savings Accounts (ISAs) allow up to £20,000 to be saved or invested each tax year without paying tax on interest, dividends or capital gains generated within the account.
Further help
The UK Government provides online tools to help individuals determine whether they need to pay tax and how much may be due.
Haemophilia Scotland strongly recommends seeking independent financial advice before making significant financial decisions. Information is also available through the IBCA website and organisations such as Unbiased.
Please note: This article provides general information only and should not be considered financial, tax or legal advice. Individual circumstances vary, and professional advice should be sought where appropriate.
Sources:
The Universal Credit Regulations 2013, reg 76(1)(a)(i); ADM para H2061- 1.1.b)
https://www.gov.uk/income-tax/taxfree-and-taxable-state-benefits
https://www.lloydsbank.com/savings/help-and-guidance/personal-savings-allowance.html
https://haemophilia.org.uk/support/voluntary-financial-guidance/
This page was last updated on 9th July 2026.