Why Brits are building their fortunes on sand

Goodbye Costa del Sol, hello Salcombe. 'Weekenders' prefer to buy beside the UK seaside, as Christopher Browne reports

It's an expensive reverie, though. The cost of a place by the sea has risen by as much as 300 per cent during the past decade, according to new research from the Halifax.

The property sun shines most brightly in Cornwall, where Falmouth has recorded the biggest average rise: 312 per cent since 1995. A home bought for £58,920 is now worth £242,483.

Penzance's growth is next, at 302 per cent, while Mevagissey sits pretty at 265.4 per cent.

Other hotspots include Brighton, up by 284 per cent; Bideford in Devon, 251 per cent; and Hythe in Kent, 242.5 per cent.

Such growth is in part down to the overall UK property boom, but "homebuyers are still prepared to pay more in order to enjoy living by the sea" says Colin Kemp, managing director of Halifax estate agents.

For second-home buyers, some towns are more attractive than others. Salcombe in Devon is the UK's number one hotspot, with 75 per cent of its houses and flats owned by "weekenders", according to a recent report by insurer Direct Line .

Other very popular spots include Windermere, where 16 per cent of homes belong to the weekenders.

Today, there are 328,000 second homes in the UK, and the numbers is set to rise at 3.2 per cent a year over the next 10 years - to 405,000.

"The days of ridiculously low property prices in France and northern Spain have gone and the Costa Del Sol has reached saturation point," says Frank Shaw, author of the report. "Prices are rapidly catching up with the UK and so 'second homers' are going local instead of overseas."

With warmer climates predicted, especially in the south of England, the appeal is set to endure, the report concludes.

But changes to the way we can save for retirement are likely to have an impact too.

From April 2006, people with a self-invested personal pension (Sipp) will be able to invest 50 per cent of their retirement fund in residential property.

With tax relief available from the state, higher-rate taxpayers could buy a £200,000 holiday home using just £120,000 of their pension pot - and £80,000 from the Government.

There are other perks too. "Putting your seaside home in a Sipp will mean you don't pay capital gains tax when you sell [the property] or income tax on any rental income you earn," says Melanie Bien, associate director of Savills Private Finance. Normally, both taxes are payable on second homes.

However, there is a downside: council tax payments. "The current 50 per cent discount for second homeowners is gradually being eroded to 10 per cent as more and more councils try to protect local properties from weekenders," she says.

For those looking to buy a second property but not to put it into a Sipp, there are still benefits on offer if you rent it out as it can acquire special tax status as a "holiday let"', potentially knocking thousands of pounds off a future capital gains bill, says John Whiting of accountants PricewaterhouseCoopers.

If your home is available for a holiday let 140 days a year, and you do so in blocks of 30 days or less, you'll only pay a fraction of the usual 40 per cent bill when you sell later on.

This can be as little as 10 per cent for higher-rate taxpayers if held for two years, says Mr Whiting. However, any rental income must be declared.