A flat in flat rate?

I was very interested to read Neil Warren's article 'Happy anniversary!' (Taxation 17 April 2008) concerning issues relevant to the flat rate scheme. It alerted me to a particular concern in relation to a management consultant client who trades as a sole trader but who also owns a residential property in his own name as well. The property is rented out to students under a 'buy-to-let' arrangement.

In his article Neil mentions that the flat-rate percentage applicable to a business (which is 12.5% for my client) is also applied to exempt and zero-rated income earned by the business — and that rental income is exempt from VAT. But can this income be ignored as far as the flat rate scheme is concerned? Although the property is non-business and is effectively held as an investment it is still registered in my client's own name; i.e. the same...