Financial advice needed - tax and compensation payment

[Fox]

My grandmother (82) may be receiving a compensation payout for the death of my grandad caused by asbestos. It is likely to be in the region of £35k upwards but she has been told by Citizens Advice that it will be likely to affect her pensions credit and her housing discount. (Not withstanding she has lived in the same house and paid rent on it for over 50 years, she could have bought it many times over by now)
She has little else in the way of savings, doesn't own her house etc.

Despite the fact its compensation will she also be taxed under income or capital gains tax?

Does the situation change if she plans to give some of it away to relatives etc?

Any suggestions or advice anyone can give would be greatly appreciated. I am going to seek proper legal/financial advice soon but just wanted to have some idea of what might happen. It makes me really angry to think that she will lose her entitlements and that the grubby tax man will get his hands on money which is supposed to help her after the death of her husband

 

[Rich_L]

Yes it will affect her benefits as when calculating how much benefits at the time they will take into account her financial circumstances - when this changes due to a large lump sum being awarded she will be much better off.

It won't be subject to capital gains or income tax when she receives it AFAIK but it does affect the benefit situation, but the solicitor in conjunction with the CRU (compensation recovery unit) will work this out so she won't have to do anything herself.

If she gives away the money then presumably it will be subject to the usual rules of giving away money re: inheritance tax and suchlike.