Can anyone advise me if we have to make a payment under the Home Loss Payment scheme is it taken into account for any benefit?

Call me numb Margaret but what is it ?

We are proposing to demolish one of our sheltered schemes and we have to make a payment to the tenants for the loss of their home and apparently this is what the payment is called. In theory I would assume that it is to buy new carpets etc when they move and the monies probably won't last long but our LA think that it will be taken into account as capital.

I think you can argue that it should be disregarded under Sch5 para 9 of the HB Regs:
"9. Any sum–
(a) paid to the claimant in consequence of damage to, or loss of the home or any personal possession and intended for its repair or replacement; or
(b) acquired by the claimant (whether as a loan or otherwise) on the express condition that it is to be used for effecting essential repairs or improvement to the home, which is to be used for the intended purpose, for a period of 26 weeks from the date on which it was so paid or acquired or such longer period as is reasonable in
the circumstances to effect the repairs, replacement or improvement."

We have recently been decanting and Blackburn with Darwen HB have advised me that they disregard home loss payments for at least 26 weeks, to give time for tenants to set up their new home.