Legal advice on recovering debt from neighbour

ThisIsWeird

Hi Lu.
She's no longer a neighbour? What about her partner - have they both left?
Anyhoo, nothing at all wrong with you emailing(?) asking for repayment installments. I also see nothing wrong with following that up in a couple of weeks - assuming they don't reply - with a 'letter before action'. (The wording for this should be Googleable).
And finally a MoneyClaim.org. This will cost around £40-odd, I think? 
So, very little to lose, but potentially a lot for them, if a CCJ will mess up their lives - hard to rent, difficult to get credit and loans, etc.
Pretty good chance, I think, that they'll crack before then, and begin to repay. 
If not, whether to then escalate is up to you - you should have a fair idea whether it's worth it closer to the time.
Would the sum involved make this worthwhile, or is it mainly to teach them a well deserved lesson?
I wouldn't worry about how these repeated loans might reflect on your 'judgement' in other people's eyes; that just shouldn't be an issue, provided you have clear evidence that these were loans, and not gifts. You were being thoughtful and kind, and someone has taken advantage of this. It's easy, in your situation, to keep thinking 'they will soon be in a position to repay it all - they only want a little more this time...'. That's normal. But for them to presumably intentionally withhold what they owe you is not. 
You have evidence of these payments, that they were loans, and that they acknowledged receipt of them. But, do you also have any evidence that they have not repaid them? Eg, do some of these messages 'apologise' for failures to repay - before they then ask for more...? What were the contents of the last messages you had from them, after you presumably asked for the loans to be repaid?
I'm just wondering how you could counter if they just claim, "it was all paid back in full..."?
I would keep issues like benefit payments, potential tax evasion, smokin'&drinkin' out of it, at least for now. Should this actually get to court or arbitration, then possibly you can mention this if, say, they claim to have no income; you can relate, as verbatim as possible, what they have told you.