Fingers can get burnt in the sun

Holiday homes abroad may look cheap but they can involve lots of extra costs dsf

The burgeoning feel-good factor coupled with highly favourable exchange rates will tempt many a Europhile Brit to take the plunge and buy that dream property abroad this summer.

Abbey National, which has companies in France, Italy, Spain and Gibraltar, says there has been a marked increase in the level of inquiries about buying on the continent. Specialist lawyers Cornish & Co reports more confidence in the southern European holiday home market.

But aspiring Peter Mayles should be aware of the heavy financial burden of buying, maintaining and eventually selling a property abroad and think carefully before signing on the dotted line.

Property in many parts of Europe is cheap compared with the UK. In parts of France pounds 10,000 will buy you a house with a couple of acres; on the Costa del Sol, two-bedroom flats and small chalets are currently available for pounds 40,000-pounds 50,000. But with high costs involved, buyers should not view their dream pads as strong investments and should only buy because they love the place.

Purchase costs alone vary between 11 per cent and 14 per cent, depending on the country. These costs typically consist of agency fees, stamp duties, legal fees and notary fees. The French annual local taxes may be less than those in the UK in some regions but in Italy charges can be 6 per cent or higher each year. You should also add in utilities bills, maintenance bills and travelling costs.

When you come to sell, agency fees are, in general, higher than in the UK. Capital gains tax for non-residents with properties France is 33.33 per cent, and 35 per cent in Spain. Sellers are also obliged to pay notary fees.

If you plan to let your home expect to pay tax on rental income. This is charged at 25 per cent in Spain, and non-residents pay the same in France. If you are paid discretely in cash, of course, it is possible the tax authorities may not find out about it.

According to Adrian Hill, managing director of Abbey National Bank, Italy, taxes may be due in theory but in practice people find a way round it.

Should you die, inheritance taxes can be heavy. In France, succession tax is charged at between 5-60 per cent and there is no tax-free transfer of assets between husband and wife. Succession laws in France ensure most of the home's value goes to the children. The heir cannot simply be nominated in the will, as here.

Specialist legal advice is essential to avoid coming a cropper in the purchase process. The Law Society has a list of specialist lawyers dealing with foreign conveyancing, wills and personal finance. Alternatively try and find a local lawyer with a good grasp of English.

Stephen Smith, head of the French law department at solicitors Prettys warns, for example, of less than scrupulous French estate agents who bludgeon unknowing Brits into signing contracts obliging them to buy upfront, without having them checked for dodgy clauses, and without any prior land searches or surveyors reports.

Another scam practiced in France and Spain is to present an artificially low sales price to the notary - the state lawyer who oversees the sale - to reduce the tax bill. But buyers should beware: if they agree to this approach they could be clobbered with an almighty capital gains tax bill when they come to sell.

In Italy, where breaking planning permission regulations is common, individuals should ensure thorough searches are carried out, to avoid being caught in periodical blitzes by local authorities who may ask you to dismantle parts of your building.

Individuals hoping to buy in Spain must also look out for existing charges on the property. Under Spanish law, unless action is taken, loans remain leveraged on the property, rather than leaving the property with the previous owner.

Around 60 per cent of Brits buying abroad do so with cash, with the remainder taking out mortgages. Probably the cheapest and simplest method of taking out a loan is to remortgage your main residence in the UK, releasing capital with which to buy outright the new foreign pad. If, for whatever reason, this is unsuitable, two UK lenders - Woolwich and Abbey National - have foreign lending businesses. Otherwise turn to European banks, or UK offshore lenders. Conti Financial Services specialises in arranging loans on foreign properties, in local currency or in sterling.

Accountants Blackstone Franks is offering copies of its books, Living in France, Spain or Portugal, to Independent on Sunday readers at a special price of pounds 3 (normally pounds 6.99): cheques payable to Blackstone Franks at 26-34 Old Street, London EC1V 9HL. Free factsheets on buying in Europe are available from Cornish & Co 0181 478 3300; Abbey National 0171 612 4404; Prettys 01473 232121; Conti Financial Services 01273 772811; Property Insurance Abroad 01788 550294; AA 01795 472345. Dido Sandler works for `Financial Adviser'.