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Holiday-let property

I am a full-time GP who retired for 24 hours in May to take my NHS pension and lump sum. I plan to retire fully in 2013. I wish to invest these benefits in a holiday-let property. Ideally the house will be in my wife's name as she has only £10,000 income a year. Some of the purchase cost will be paid by taking out a mortgage. The bank will allow the home to be in her name if my name is on the mortgage as well.

I do not know what will be the most tax efficient arrangement for the next four years or until the mortgage is paid off. Also, the tax relief allowances for holiday lets are changing in April 2010.

Can mortgage interest plus improvements, repairs and furnishing costs be offset against the income from the holidays? Which of us should own the property? Should we set up a company to run the property from April 2010?

I can only give you generic advice so ask your own accountant for specific guidance. The benefit of a rental property being treated as a UK holiday let is that, if you make a loss on the property, this can be offset against other earnings to reduce the tax payable.

However this will not be possible from 6 April 2010. If you are likely to make a profit from holiday lets, as your wife is a basic rate tax payer it is preferable for the property to be in her name as she would pay 20 per cent tax at as opposed to the 40 per cent you would pay.

If you incur expenses in running the property you will be able to offset these against the rental income.

Typical expenses are letting agents' fees, mortgage interest, buildings/contents insurance, accountancy fees, maintenance and repairs improvements and servicing costs cannot be offset against the income.

Also you cannot claim for capital costs such as property improvements. If you buy furniture and equipment you can claim a wear and tear allowance each year of 10 per cent of the net income or you can either claim capital allowances (for depreciation).

You need specific advice about setting up a limited company, but I suspect doing this would not be advantageous taxwise. For more about tax on property/rental income, go to the tax and benefits section at www.direct.gov.uk

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