Beware of hidden extras when buying abroad

We all know we will face extra costs when buying abroad - buying, selling and maintaining a property incurs hefty sums. But there are ''hidden'' costs - such as taxes the agent conveniently forgot to mention in the sale price, or Moroccan VAT which rose recently from 14 per cent to 20 per cent - that can catch buyers by surprise.

New research by foreign exchange specialist Moneycorp shows that 45 per cent of buyers budget £9,000 to cover unforeseen costs which, in fact, amount to an average £19,000 - but 24 per cent of participants in the research admitted to incurring costs that were preventable.

One in five blamed lack of knowledge and research, and one in seven thought language difficulties led to the high level of unexpected costs incurred, with legal costs and unforeseen bank charges and taxes the greatest culprits.

While emerging markets - where transparency may not yet be high on the agenda - can be the source of some surprises, the countries where we buy in greatest numbers can also blow the budget. In Italy, France and Greece, buying fees will add 15-17 per cent to the purchase price and in Spain about 10-12 per cent. In Britain, the figure is about 5 per cent.

So where are the hidden costs that are catching buyers out - and how can they be avoided? Moving your money around is a good place to start. "Most people haven't sent money abroad before and aren't aware that brokers offer far better rates than banks," says Stuart Rogers, from Moneycorp, which, according to latest figures, charges up to £3,600 less for buying €100,000 (£78,400) with sterling than some high street banks.

Bank costs can also catch investors unawares. While UK banks do not generally charge to receive money in your account, other countries - notably Spain, whose receiving fees are among the highest in the world - will charge up to 0.5 per cent to receive the money, which means you lose £500 if you are sending £100,000.

"It's always worth negotiating with the bank before you make the instruction," says Rogers. "Ask what they will charge and agree on an amount beforehand, or get a euro draft, which we would accept and the foreign bank won't charge for."

Buying newbuild properties can also throw up some unexpectedly high sums. New homes in Italy and France carry VAT of nearly 20 per cent (in Spain, it's 7 per cent). And while some developers add that tax into the headline price, others don't. "Always check straight away whether VAT is included in the sale price, otherwise you could get a nasty shock," says James Price, from Knight Frank.

Buy-to-let investors should be similarly attentive - in their case, to promised rental yields, says Price. "A developer will advertise some incredible rental guarantee on their project, but establish whether that figure is gross or net and do some close calculations. There are often substantial charges which can take up to 50 per cent off that rental income."

It is not just at the buying and selling stage that investors can be hit. The ongoing maintenance of properties can throw up some surprises, says Price, particularly if you have bought on a typical Spanish or Portuguese urbanisation.

"Each owner pays community taxes to share the cost of lighting, maintenance and infrastructure. If it's a new development with no track record, they can only estimate the annual maintenance costs. And if it's an old development, you could face some significant infrastructure costs and a hefty bill soon after you move in."

As Price says, there shouldn't be any hidden costs when dealing with overseas property. Everything should be transparent and buyers should do their homework. "But there is the odd hidden cost such as Spain's wealth tax, a nominal annual amount which applies to foreign owners, that the agent probably hasn't touched upon and no one else has mentioned to you. They're the ones that creep up and bite you.

"Some of these costs are more punitive than others - and nothing replaces some damn good legal advice."

Safety first: How not to get sold short when buying overseas

Buying

Brokers offer far better rates than banks when moving your money abroad. Break down the asking price of the property as much as possible to unearth any hidden costs such as hefty agents' fees. Check whether VAT is included in the asking price on newbuild properties. Establish whether the rental guarantee is net. If gross, calculate exactly how much will be deducted in service charges. Don't forget extras such as legal fees - far higher in France than the UK, for example - mortgage brokers' fees, life insurance policies that may be necessary and drawing up a will to cover the foreign property. Don't skimp on essential costs such as getting a survey or using a lawyer: it could prove a fatal false economy.

Maintaining

Ask for details of past years' community costs on urbanisations (complexes) and find out if any big infrastructure projects are likely to present a big bill. Ongoing bank fees, commission and changes to exchange rates can add a considerable amount to your outgoings over the course of your mortgage, so seek advice from foreign exchange companies such as Moneycorp, Currencies Direct or HiFX or an emerging-markets adviser such as Validus (www.validus-invest.com). Make sure your property is adequately insured. Some ordinary home insurance policies are not valid for holiday homes. Swot up on the tax laws on rental income on your foreign property as failing to pay could prove costly.

Selling

Check whether you will be penalised with higher capital gains tax if you sell within a certain time frame. Germany imposes high penalties, for example. Look at other ways to reduce that tax bill such as by buying through a company.

Full story from www.telegraph.co.uk