If you look back some of my earlier posts, or my website articles like: http://www.hbadvice.co.uk/articles/Y...e_November.pdf you'll find this issue is a bit of an old chestnut. Some councils do have something of a mindset when dealing with tenancies/liabilities involving family members, frequently denying benefit wrongly. There is nothing illegal or improper in claiming Housing Benefit to assist the tenant (your relative) meet their contractual rental obligations. But where family members are involved councils must examine the relationship closely to ensure: firstly, there's a libilty; secondly, the liability has been created on a commercial basis; and thirdly hasn't been created simply to abuse the HB scheme.
Demonstrating a liability exists is relatively straightforward, especially where an AST has been created between the parties, including a rental charge which is "commercial" i.e. comparable with the market rent for that size of property in your area. Have a read at a recent Upper Tribunal case I dealt with: http://www.hbadvice.co.uk/articles/U...H_McArthur.pdf.
Most difficulties arise when trying to demonstrate the arrangement is "commercial". Problems occur when family members download an AST from a website and fail to record details of the rent; including rent frequency; fail to set up formal & transparent payment arrangements; fail to pursue significant rent arrears etc. I dealt wih one case recently where the mother (the tenant) was asked to examine the AST and she didn't know what it represented or how much she was due to pay her daughter monthly.
My advice to clients thinking of renting to a mother/father or daughter/son is to ask an estate or Letting Agent to handle all the formalities, including the terms of the AST, amount of rent due, collection of rent payments and the associated pursuit of the debt when the tenant defaults. This way the chances of receiving payment of HB rise considerably.