Tax and rental of our annex and games room

[jennie]

Four years ago we purchased a new build which consisted of a main 5 bed house and a detached annex (1 bed first floor flat with its own kitchen and bathroom), to enable my father to come and live with us, independantly.

Two years ago we converted our triple garage into a games/cinema room.

My father's health has deteriorated and he now lives in the main house with me and my family.

Two months ago we successfully managed to let both the flat and the 'games room' (as a studio) but are very unsure as to where we stand regarding taxation.

We don't seem to fit into either the buy-to-let landlord (as the property wasn't originally bought for this purpose) or rent-a-room scheme landlord (games room studio isn't strictly within our main house) category.

Can anyone clarify our position in terms of what relief we might be entitled to?

I did read an article recently about buying a London property with a self contained flat and splitting the mortgage as part private/part buy to let.

Would we need to go down this route when our fixed rate mortgage comes to an end to qualify for tax relief?

[Telometer]

It is a BTL scheme.

You should get the flat valued as at the time when first let. You could then raise money against it up to the value of the flat the interest on which would be tax deductible.

As it is, you probably will not change your mortgage (but have you informed your mortgage company; if not then you must). Provided they are happy for the mortgage to stay as it is, then you should pro-rate the current mortgage and offset the appropriate proportion against the rental income. I suggest that the ratio of value of the flat to the entirety of the property would be a good start. Otherwise, floor area.

Your lender may require you to obtain a BTL mortgage for the studio.

[jeffrey]

If the mortgagee demands not just split mortgage accounts but also separate mortgage deeds, be careful! Any future repossession/sale of part only of the whole property risks non-availability of cross-covenants/easements.