Really think I have messed up and don't know what to do

[Gloria42]

I think I have a tax problem going back years and don't know where to start to fix it. I'm really scared.
Basically when DP and I moved in together, I didn't sell my flat. Initially we rented it cash in hand to a friend's elderly dad. When he died, my Gran moved in. Her rent is paid in full by the local council.
We subsidise the rent for her, as she's family, so make a loss each month after mortgage, insurance etc. (Keeping the flat was always meant to be a long-term investment and it was great to be able to help her out)
I was under the impression that this lack of profit meant that I didn't need to declare anything to HMRC. Now I understand that's not the case, but can't find anywhere to tell me clearly what to do. Can anyone help?

There may be someone more knowledgeable along, but I would say that (recalling my tax from long ago) you can off set the mortgage interest against the rent income plus something for repairs. I dont think you can of set the capital repayments though. So you may have some income tax to pay. Also as you are not living in it there may be a liability to capital gains if/when you sell it. However I think you can reduce this if you did go back and live in it.
I think you would also neeed to tell your mortagage company and insurance.

Thanks for replying so quickly.

Capital Gains I was aware of and both the mortgage and insurers know the current status of the property. It's the tax issue I have no idea about. Now that I know there's a problem I think it will be better if the contact with HMRC comes from me rather than them chasing me down. But I have no idea where to start.

You can only offset the interest payments on a mortgage against the income not any capital repayments and should do a tax return even just to demonstrate there is no profit to be taxed. You need to contact your tax office for advice as they can investigate and reclaim back several years. Frankly I'm surprised the council will pay rent for a relative too, presumably the HB people are aware of you being the landlord ?.

I dont think the council allows rent to be paid to relatives - in fact here I am sure it cant be.

I am assuming you didnt have to fill in tax credit forms or self assessment forms over the past few years. I am fairly sure that on all of these it advises that income from rental has to be declared or expained (as LIZS says you can offset the interest against profit but the interest part of your mortgage may be lower than you realise). But as you can tell I am not expert but these may be other things to consider.

As a recipient of housing benefit, your Nan must declare the relationship between herself and her landlord. Also, to qualify for HB at your flat, it must be demonstrated that you are renting the flat out for commercial reasons. i.e. That you would be renting the flat out regardless of who was living there.

We rent our house from my Uncle, but he is a landlord with a portfolio of properties, so it is ok.

Thanks for the replies. Re HB, I am a registered private landlord with the local council and my Gran stated our relationship on her application so no problems there.
I have not previously received Tax Credits but it was via a query on their helpline that I realised the errors in what I had thought correct.

How many years do you think it all goes back?

If you receive rent for a property regardless of whether you make a profit you have to fill in a tax return as it is counted as earned income even though you say you have never made a profit.

If you are paying a mortgage only the interest payments part of a repayment mortgage can be offset against the rent. If it is interest only you can offset it all.

Now I don't know what you should do about the years that you should have filled in a return and possibly paid tax. You could contact an accountant (this is prob what I would do) or you could call the inland rev direct. You will be fined but I don't know how much

sorry just realised Liz above answered it all!