Accidental Landlord

[maccer]

I bought a flat in 2003, then in 2010 bought a house and moved into the house. The sale of the flat fell through and I was unable to find another buyer. After 6-months paying for both the flat and house while looking for a buyer, the outgoings proved too expensive to sustain, so I had no choice but to rent out the flat until the market for selling flats in my area improves.

My original mortgage was secured on both the house and flat, this gave me a good rate as my LTV ratio was <50%. This year I remortgaged but the new lender refused to secure the loan on both properties and instead preferred to have the loan secured on only the house, resulting in a LTV ratio of 70% and a poorer rate.

Until the market improves, I figure I have a potential tax bill for the rental income. Will this be treated as an investment/income, as I've lost a lot of money on this already. By the time I eventually sell the flat I'll still be out of pocket despite the rental income.

My mortgage is £1600pcm and the rental income £595pcm.

[Snorkerz]

You really need to get advice on this. You seem to have made a mistake removing the mortgage form the let property, as the interest you paid on that was allowable against tax. Obviously, maintenance and many other costs will remain tax allowable - but an accountant would be able to fine tune things to avoid as much tax as possible.

The rental income (less allowable amounts) will be added to your other income and you will be taxed on the joint amount at your normal rate.

You may also want to start drawing up some plans regarding CGT if you have your eye on selling the flat.