Shall I report someone who is faking Mental Illness to get on Benefits and Direct Payments from Government?

Your best cause of action is to invite him round, explain that his actions and your knowledge of them are actually causing your condition to be worsened and that you are going to have to do something about it. Give him 6 weeks to sort out his own affairs, Being in the mental health feild myself I am afraid that even if he tried to come clean because he has been sectioned it would take months of tests to actually establish if he was actually telling the truth or simply acting up because of his "condition". Either way let your neighbour know your intentions and have a friend there with you when you tell him as a witness. you do not deserve to live in fear especially as you only wish to do the right thing. Alternitively talk to a counseller who is obligated under law to report any abuse or illegal activity, that way your in the clear :))