Why UK Taxpayers Should Consider "Borrowing Against Assets" In 2026
- MAZ
- 9 minutes ago
- 14 min read
Understanding Borrowing Against Assets: A Smart Move Amid Rising Tax Pressures
The Shifting Tax Landscape in 2026
Picture this: you've built up a portfolio of shares or property over the years, and now they're worth a pretty penny. But with capital gains tax rates climbing, selling them to free up cash feels like handing over a chunk to HMRC unnecessarily. That's where borrowing against assets comes in – a strategy that's gaining traction among savvy UK taxpayers in 2026. As a chartered accountant with 18 years advising clients from sole traders to company directors, I've seen how this approach can preserve wealth without triggering immediate tax bills.
In the 2025/26 tax year, CGT rates stand at 18% for basic-rate taxpayers and 24% for higher-rate ones on most assets, following the Autumn Budget 2024 changes. For business assets qualifying under Business Asset Disposal Relief (BADR), the rate rises to 18% from April 2026, up from 14% the previous year. This makes realising gains more costly, especially for those with multiple income streams or in Scotland, where income tax bands differ slightly but CGT aligns UK-wide.
Why Borrow Instead of Sell?
None of us enjoys tax surprises, but borrowing lets you access liquidity while keeping assets intact. Essentially, you secure a loan against your property, shares, or other valuables – think of it like a mortgage on investments. The key tax perk? Loans aren't taxable income, unlike sale proceeds that could push you into higher CGT brackets. In my practice, clients often use this to fund lifestyle needs or reinvest without the CGT hit, particularly as allowances remain frozen and thresholds bite harder.
For business owners, it's even more appealing. If the loan funds business expansion, interest might qualify for relief against corporation tax or income tax if you're a sole trader. Welsh variations are minimal here, but always check devolved rules for property-related borrowing.
Deferring CGT in a High-Rate Environment
Be careful here – with CGT on residential property at 24% for higher earners, selling a second home could cost dearly. Borrowing against it instead defers the gain, letting the asset appreciate further. I've advised clients facing emergency tax codes from multiple jobs where this avoids bumping up their effective rate. Remember, the annual exempt amount is £3,000 for 2025/26, so small sales are fine, but larger ones? Borrow first.
Hypothetical case: A client in Lahore – wait, no, let's say a London-based entrepreneur with £500,000 in shares. Selling incurs £100,000 CGT at 24%. Borrowing £200,000 against them at 5% interest keeps the portfolio growing, with potential deductions if used for business.
Inheritance Tax Angles: Reducing Your Estate's Value
Now, let's think about your situation if you're planning for the long term. From April 2026, pensions enter the IHT net, and agricultural/business property relief caps at £1m. Borrowing against assets deducts the debt from your estate for IHT purposes, potentially slashing the 40% charge. It's not avoidance if structured properly – HMRC allows it as long as the loan isn't artificially linked to relieved assets.
In one tribunal case, the Elborne executors succeeded with a 'home loan' scheme, where debt effectively reduced IHT without invalid avoidance. Contrast that with failed schemes; the key is genuine commercial purpose.
Business Owners: Leveraging for Growth Without Disposal
For company directors, borrowing against business assets can bridge funding gaps without selling shares and losing BADR. If you've held qualifying shares for two years, BADR cuts CGT to 18% on up to £1m lifetime gains from April 2026. But why sell when you can borrow? Interest on loans for trading purposes is often deductible, offsetting against profits.
Scottish business owners note: While income tax differs (e.g., higher rate at 42% from £43,663), CGT and reliefs match England. Multi-income scenarios? Borrowing avoids high-income child benefit charge adjustments by not realising gains as income.
Common Pitfalls: Unallowable Purposes and Interest Relief
I've seen many clients run into this problem – if HMRC deems your loan's main purpose tax avoidance, interest deductions could be denied under unallowable purpose rules. In the Syngenta case, a group loan was hit because tax advantage drove the structure. Always document commercial rationale, like cashflow needs.
For buy-to-let, mortgage interest relief is restricted to 20% tax credit, not full deduction – but borrowing against equity can still work if rates allow.
Practical Steps to Get Started
Start with valuation: Get your assets appraised to know borrowing capacity. Lenders like banks or specialist firms offer secured loans at 4-6% rates in 2026, depending on LTV (loan-to-value, often 50-70% for shares).
Check affordability: Model repayments against income. For PAYE vs self-assessment folk, ensure it doesn't trigger overpayments – use HMRC's calculator to verify.
2026-Specific Changes Driving This Strategy
With OBR forecasting higher borrowing costs and debt at 96% GDP, personal finance mirrors national trends. Carried interest shifts to income tax from April 2026 at up to 47%, pushing fund managers to borrow against holdings instead.
How Borrowing Against Assets Actually Works in Practice
Let’s get practical – because theory only gets you so far. In 2026, the most common routes are secured loans against shares (often called Lombard loans or margin loans from private banks) and remortgaging or further-advancing against property equity. Rates typically sit between 4.5% and 7%, depending on the loan-to-value ratio and your credit profile. For shares, lenders usually cap at 50–65% LTV; for property, it can go higher, up to 70–80% if residential.
The beauty is simplicity: no sale, no CGT trigger. The proceeds are debt, not income, so they don’t affect your personal allowance, push you into higher tax bands, or interact with the high-income child benefit charge. That’s particularly useful if you’ve got multiple income sources – PAYE from a job plus dividends or rental income – where even a modest gain realisation could cost you £1,000–£2,000 extra in child benefit clawback.
A Real-Life Example: The Family Business Owner
I had a client – let’s call him Mark – a 58-year-old director of a successful Midlands manufacturing company. He held £1.2 million in qualifying shares that had been building for 15 years. He needed £350,000 to help his daughter buy her first home and to cover some personal liquidity needs.
Selling would have triggered a large CGT bill. With the Business Asset Disposal Relief rate at 14% until 5 April 2026 (rising to 18% from 6 April 2026), and his gains well above the £3,000 annual exemption, the tax hit would have been around £75,000–£85,000. Instead, he took a secured loan against the shares at 5.8% interest, with repayments spread over 10 years. The interest was partly deductible against his self-assessment income as it related to business-related purposes (funding working capital indirectly). No immediate tax, portfolio kept growing, and he avoided a big one-off bill.
Mark’s Scottish residency made no difference here – CGT and BADR are reserved matters, so rates align across the UK.
Interest Deductibility: Where Most People Trip Up
Be careful here – interest relief isn’t automatic. For individuals, interest on loans used to buy, improve or maintain let property is restricted to a 20% tax credit (not full deduction), even in 2025/26. But if the borrowing is against non-rental assets and used for trading purposes, you can often get full relief against income tax or corporation tax.
Common mistake number one: assuming all interest is deductible. HMRC looks at the purpose of the borrowing, not just the security. If the loan funds personal spending (new car, holidays), no relief. If it funds business expansion or working capital, relief is usually available.
Common mistake number two: forgetting to claim it. Many clients come to me with three years of unclaimed relief – that’s thousands left on the table.
Inheritance Tax Planning – The Overlooked Benefit
Borrowing also reduces your estate for IHT purposes. The outstanding debt is deducted from the value of the secured asset when calculating your estate at death. With pensions now generally within the IHT net from April 2027 (following the 2025 announcements), and the agricultural/business property relief threshold increased to £2.5 million per person from April 2026, many families are looking for ways to manage larger estates.
A genuine commercial loan – not an artificial scheme – is fully deductible. Contrast this with some older “home loan” or double-trust schemes that HMRC challenged aggressively. In the 2025 Upper Tribunal case of Executors of Elborne v HMRC, the tribunal upheld a properly structured home loan arrangement, allowing the debt to reduce the IHT value of the property. The key? The loan was real, documented, and not contrived purely for tax avoidance.
That said, HMRC remains vigilant. If the loan appears to lack commercial substance or is circular, they may apply anti-avoidance rules under s.103 Finance Act 1986.
Risk Management: What Can Go Wrong?
None of us likes surprises, especially market-related ones. The biggest risk is a margin call on share-backed loans if values drop sharply. Lenders set LTV covenants – breach them and you must repay part of the loan or add more security. I’ve seen clients forced to sell in a falling market, crystallising losses and CGT at the worst possible time.
Mitigation steps:
● Keep LTV conservative (50% or below on shares)
● Have a cash buffer for interest payments
● Stress-test against a 30–40% drop in asset values
Another pitfall: early repayment charges or arrangement fees that eat into the benefit. Shop around – specialist lenders often beat high-street banks on flexibility.
Checklist: Before You Borrow Against Assets
Here’s a practical checklist I give clients before proceeding:
Get independent asset valuations (shares or property) – don’t rely on lender’s figure alone.
Model the full cost: interest rate + fees + potential early repayment penalties.
Confirm the purpose – document how proceeds will be used (vital for interest relief).
Check affordability – run scenarios with interest rates 2% higher.
Review existing tax position – does this push you into higher bands or affect reliefs?
Consider alternatives – ISAs, pensions, or selling small parcels within the £3,000 exemption.
Speak to a specialist lender or broker familiar with tax-efficient borrowing.
Keep records – HMRC enquiries can come years later.
When This Strategy Isn’t Right for You
If your assets are already highly leveraged, or you’re uncomfortable with debt, this isn’t the answer. Equally, if you need the cash permanently (e.g., to pay off a mortgage or fund retirement spending), borrowing just kicks the can down the road – eventually you’ll need to repay or sell.
But for those with strong cash flow and growth assets, it’s one of the most powerful tools available in 2026. The following widget gives a visualisation of borrowing against assests makes sense for the UK taxpayers.
Comparing Borrowing to the Main Alternatives in 2026
Most people facing a cash need first think of three options: sell assets, use savings, or take unsecured borrowing. In the current environment, borrowing against assets often beats the others once you run the numbers properly.
Selling assets
Immediate CGT at 18% or 24% (or 18% on qualifying business assets from April 2026) plus potential loss of future growth and possible stamp duty / SDLT implications if reinvesting in property.
Unsecured personal loans / credit cards
Interest rates commonly 7–15%+ in 2026, no tax relief on interest for personal use, and the debt sits on your credit file affecting future borrowing power.
Borrowing against assets
Lower interest (typically 4.5–7.5%), interest potentially tax-deductible when used for qualifying purposes, no immediate CGT, preserves asset ownership and future appreciation, debt reduces IHT estate value.
The maths usually favours secured borrowing when you need more than £50,000–£100,000 and expect to hold the underlying assets for at least another 3–7 years.
Scottish and Welsh Readers – What’s Different?
Very little changes for this strategy.
Capital gains tax rates, annual exempt amount (£3,000), Business Asset Disposal Relief rules, and inheritance tax treatment are all reserved matters – exactly the same across England, Scotland and Wales.
The main differences you might notice are:
● If you are a higher-rate or additional-rate taxpayer in Scotland, your income tax rate is higher (42% or 47% vs 40%/45% in England & NI). This makes interest relief more valuable when the loan is used for a purpose that qualifies for deduction against trading or property income.
● The Scottish starter, basic, intermediate and higher bands are different, so the point at which child benefit charge or personal allowance taper begins can differ slightly from England. Borrowing avoids creating a taxable gain that could interact with these rules.
In practice, very few of my Scottish or Welsh clients have found the devolved taxes to be a material factor when deciding whether to borrow against shares or property.
Timing – When to Act in 2026
Several dates make early 2026 particularly attractive:
● 6 April 2026 – Business Asset Disposal Relief rate rises from 14% to 18% for qualifying disposals
● 6 April 2026 – Lifetime limit for BADR remains £1 million (no change announced)
● Autumn 2026 – Next Budget could bring further tightening of IHT debt relief rules or changes to interest deductibility
● April 2027 – Most unused pension funds enter the IHT estate (already legislated)
Clients who secured borrowing in late 2025 or early 2026 have locked in today’s relatively benign interest rates and wider debt deductibility rules before any potential future clampdown.
A Second Real-World Scenario – The Property Investor
Sarah, a 49-year-old self-employed consultant in Bristol, owned a buy-to-let flat worth £475,000 with only £120,000 remaining on the mortgage. Rental income covered the mortgage and gave her a modest profit, but she wanted £180,000 to invest in her own business (launching a small consultancy practice).
Selling the flat would have triggered:
● CGT on the gain (likely at 24% higher rate)
● Loss of future rental income
● SDLT on any replacement property
● Possible high-income child benefit charge movement if the gain pushed her over £60,000 adjusted net income
Instead she arranged a further advance on her residential mortgage plus a separate secured loan against her share portfolio. Combined borrowing cost averaged 5.4%. Because a significant portion was used for her new trading business, she could claim interest relief against her self-employment income – reducing her tax bill by roughly £3,800–£4,200 per year.
The property continued to appreciate and produce rent, the shares continued to grow, and she avoided a large one-off tax payment.
Final Warnings – When HMRC Gets Interested
HMRC tends to scrutinise three types of arrangement particularly closely:
Loans between family members or connected companies that appear to lack genuine commercial terms
Arrangements where the borrowing is immediately routed back into an exempt or relieved asset in a circular manner
Situations where the taxpayer claims full interest relief but the loan proceeds are predominantly used for personal (non-qualifying) expenditure
The First-tier Tribunal and Upper Tribunal cases over the last few years (particularly those involving family investment companies and home loan schemes) show that documentation, board minutes (for companies), clear commercial purpose and arm’s-length terms are essential.
Summary of Key Insights
Borrowing against assets lets you access liquidity without triggering an immediate capital gains tax bill in a period when CGT rates are historically high.
No tax arises on the loan proceeds themselves – unlike selling assets or taking certain other forms of receipt.
Interest can often be tax-deductible when the borrowing is used for trading or qualifying property purposes, creating an annual tax saving.
The outstanding debt reduces the value of your estate for inheritance tax purposes – a valuable planning point with pensions entering the IHT net from 2027.
Business Asset Disposal Relief remains very valuable but becomes slightly less attractive from 6 April 2026 when the rate rises to 18%.
Conservative loan-to-value ratios (50% or below on shares) significantly reduce the risk of margin calls during market downturns.
Scottish and Welsh taxpayers face almost identical rules for CGT, BADR and IHT – only income tax band differences apply.
Proper documentation of commercial purpose is essential to defend interest deductibility and debt deductibility for IHT.
Early 2026 is a particularly attractive window before potential future tightening of debt-related reliefs in future Budgets.
This strategy works best for taxpayers who are comfortable with debt, have strong cash flow for interest payments, and expect to hold the underlying assets for several more years.
If your circumstances match several of these points, borrowing against assets deserves serious consideration as part of your 2026 financial planning.
None of this is formal advice – every situation is different and professional advice tailored to your own facts is essential. But after nearly two decades helping clients navigate these choices, I can tell you this approach has quietly become one of the most effective tools available to higher-net-worth individuals and business owners in the current tax environment.
FAQs
Q1: What are the key tax perks of borrowing against assets instead of selling them outright?
A1: Well, it's worth noting that the big draw here is dodging an immediate capital gains tax hit, which can be hefty at 24% for higher-rate taxpayers in the 2025/26 tax year. By borrowing, you're not realising any gains, so your assets keep growing tax-deferred, and the loan itself isn't treated as income. In my experience advising clients, this has saved many from unnecessary bills when they just need short-term cash for things like home improvements.
Q2: Can borrowing against shares help avoid pushing into a higher tax bracket?
A2: Absolutely, and I've seen this play out with several high-earning clients juggling salaries and investments. Selling shares might bump your taxable income up, triggering higher rates or even the high-income child benefit charge if you're over £60,000. Borrowing keeps everything steady – no extra 'income' to report, letting you access funds without the bracket creep headache.
Q3: How does borrowing against assets impact inheritance tax calculations?
A3: In my practice, this is a game-changer for estate planning. The outstanding loan gets deducted from your estate's value for IHT purposes, potentially slashing that 40% charge. But be genuine about it; I've had clients where HMRC questioned contrived setups. For 2025/26, with pensions now in the IHT mix from 2027, borrowing earlier can lock in deductions before any rule tweaks.
Q4: Is interest on loans against assets deductible for self-employed people?
A4: Yes, if the loan's for business use, like expanding your freelance setup – think a graphic designer in Manchester borrowing against property to buy equipment. The interest counts as a trading expense, reducing your self-assessment bill. Just document it properly; I've caught clients out who mixed personal and business spends, losing the relief.
Q5: What if someone has multiple income sources – does borrowing help manage tax codes?
A5: Spot on for those with side gigs or rentals alongside PAYE. Borrowing avoids adding 'gains' that could mess up your tax code or trigger emergency rates from HMRC. One client, a teacher with Airbnb income, borrowed against shares to fund a car without inflating her bands – kept her child benefit intact too.
Q6: Are there any Scottish variations when borrowing against assets?
A6: Not much, really – CGT and IHT are UK-wide, so the core benefits hold. But if you're a higher-rate Scottish taxpayer at 42%, deductible interest on business loans packs more punch against your income tax. I've advised Edinburgh clients where this offset the devolved rate differences nicely.
Q7: Can employees under PAYE borrow against investments without tax surprises?
A7: Certainly, as long as it's not seen as income. For a standard PAYE worker, say in Bristol, borrowing against a share portfolio means no extra tax return hassle – unlike selling, which might require self-assessment. Just watch affordability; I've seen over-borrowing lead to forced sales later.
Q8: How does borrowing against assets work for gig economy workers?
A8: It's a clever move for unpredictable incomes, like an Uber driver in Leeds borrowing against savings bonds for vehicle upgrades. No CGT trigger means steady cash flow without tax volatility. Pitfall? If gigs dry up, repayments bite – always buffer with three months' earnings.
Q9: What risks come with borrowing if asset values drop suddenly?
A9: Ah, the dreaded margin call – lenders might demand more collateral or repayment if your shares tank. I've had a client in 2022's market dip who had to scramble, crystallising losses. In 2026, with volatile rates, aim for 50% loan-to-value max to cushion shocks.
Q10: Is borrowing against crypto assets tax-efficient in the UK?
A10: Tricky, but yes – no disposal for CGT purposes when pledging crypto as collateral. For a tech-savvy trader in London, this defers taxes on gains. HMRC's watching closely though; ensure the loan's arm's-length to avoid reclassification as a sale.
About the Author
Maz Zaheer, AFA, MAAT, MBA, is the CEO and Chief Accountant of MTA and Total Tax Accountants, two premier UK tax advisory firms. With over 15 years of expertise in UK taxation, Maz provides authoritative guidance to individuals, SMEs, and corporations on complex tax issues. As a Tax Accountant and an accomplished tax writer, he is renowned for breaking down intricate tax concepts into clear, accessible content. His insights equip UK taxpayers with the knowledge and confidence to manage their financial obligations effectively.
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