Hi maizie
I am no supporter of benefit fraud, and your aunt ought to stop doing what she has been doing and make efforts to repay the money back. There would be no tax liability for the rental income, as she can claim exemption under H M Revenue & Customs "Rent a Room" scheme which allows a lodger to pay up to £4,250 per year without attracting a tax liability. The money would, of course, affect her benefit as she well knows.
Why not try asking your IP to accept bank statements showing the cash withdrawals which you are paying your aunt. Her benefit fraud is her problem, but you should not suffer as a result. I do not feel that you would be eligable for council housing, as you are single and not homeless, but is may be worth a try and should be done before you enter into the IVA as the rental amount may differ from that you are currently paying.
From your IP's view, all he wants is evidence of the money you are paying out, so the bank statements ought to be sufficient.
Regards, Melanie Giles, Insolvency Practitioner for over 20 years.
For further details contact me at
http://www.melaniegiles.com and view my IVA blog at:
http://melaniegiles.blogs.iva.co.uk