Foreign property costs could be helped by endowment policies

A recent study has shown that having a second property in the sun can leave you more than just sun burnt - for it can leave you financially burned too.

Whilst owning a home abroad can be a way of leaving stress behind and seek hotter climes, financial costs and woes could catch you up and leave you feeling rather chilly instead.

Research from a financial and exchange firm suggested that the money involved in maintaining homes located in other countries has increased over the last year.

This hike in expenses means that more and more second home owners are struggling to finance their holiday properties and are in desperate need of extra cash. As a result, many are now turning to their endowment policies to raise the funds needed.

Chris Radford, chief executive officer of aap, the UK's biggest buyer of endowment policies, said some of its customers who found the costs of maintaining their homes to sky rocket have decided to sell their underperforming endowment policies to get extra money.

The survey exposed that 85% of overseas property owners polled reported that the amount of money they have to spend to keep their residences has risen over the last 12 months.

In addition, over a fifth (21%) are struggling to meet these extra expenses, meaning their dream homes in the sun may no longer be a suitable option and packing up could be the right decision.

Conveyancing, local taxes, maintenance costs and utility bills were identified as some of the avenues of expenditure such residences involve.

According to Sarah Chambers from a leading UK holiday rental site, further expenses need to be taken into account, with the average costs for a holiday property and rental management running up to £2,000 per annum.

She pointed out that additional costs include painting, furnishings, insurance, and more recently, green improvements such as installing low-flow shower heads or energy efficient fixtures like light bulbs.

Mr Radford added that some of its customers, who wanted to keep their holiday properties but were struggling with the costs, had decided to sell their unwanted endowment policies so they could raise extra funds.

He noted that should his firm make an offer to purchase an endowment policy, it will always pay more than the surrender value offered by the insurance company.

It is predicted that more than one million UK consumers own a house or apartment overseas, with France and Spain being the most popular abroad destination.

Tax Penalty

If these costs were thought to be extortionate then the recent news of holiday home owners being taxed is even worse.

More than one million people face penalties in a crackdown on offshore and other foreign earnings, starting this week. It is predicted that they may have to repay 100% of the tax owed.

Individuals with holiday homes who run a foreign bank account to pay their bills are in particular danger, accountants have warned.

With the Government's debts out of control, efforts are being made to pull in tax revenue. Therefore demand for information from banks of offshore accounts has been twinned with an incentive for people to come forward between September 1 and November 30.

Those who do so will see the penalty levied capped at 10% of the money owed. Those who do not come forward and are later identified through the bank disclosures face penalties of up to 100%.

Dawn Register, senior tax manager at an accountant company urged second homeowners to get advice: "Many British people with holiday homes abroad will have a foreign bank account to help run the property.

"If this account earns interest and has not been declared to the Revenue, they need to seek advice about making a disclosure."

Conveyancing solicitors have claimed that holiday home owners are struggling to cope with the increasing financial rises abroad. Therefore, many are selling their endowment policies to cope with these soaring expenses.