Selling property can create unexpected tax headaches, especially when you face tight deadlines for paying Capital Gains Tax.
With HMRC now requiring payment within 60 days of completing a residential property sale, many investors find themselves rushing transactions or scrambling for funds. This pressure often leads to accepting lower sale prices or missing out on prime buying opportunities.
Bridging loans can be used to offer a smarter approach.
These short-term lending solutions can help you time your property transactions more strategically.
By using bridging finance wisely, you can maintain better cash flow, potentially reduce your overall tax burden through careful timing, and avoid forced sales at unfavourable prices.
This article explores how property owners can use bridging loans to manage CGT timing effectively, extracting capital without triggering immediate tax liabilities.
Understanding Capital Gains Tax on Property
When you sell a house or flat that’s not your main home (your own home is exempt), you need to pay Capital Gains Tax (CGT) on the profit.
For UK property owners, this means comparing what you paid for the property against what you sold it for, with some allowable deductions for improvement costs, buying and selling expenses.
Higher rate taxpayers currently pay 28% on gains from residential property, while basic rate taxpayers pay 18%. For commercial property, the rates are 20% and 10% respectively. These percentages represent a significant chunk of your profit, which is why timing matters so much.
What catches many property sellers off guard is the payment deadline:
For residential sales you must report and pay any CGT due within 60 days of completing the sale of UK property
This tight window can create real cash flow problems if you’re not prepared.
Several reliefs might reduce your bill, including Principal Private Residence relief if you’ve ever lived in the property, Business Asset Disposal Relief for certain business premises, or Replacement of Business Asset Relief which allows for deferring the gain when reinvesting in new business assets.
HMRC has been tightening the rules around property CGT in recent years, making it even more important to plan accordingly.
How Bridging Loans Work
Bridging loans are short-term secured loans designed to ‘bridge’ gaps in funding, they are similar to a mortgage. When you need money quickly for a limited period, these loans provide a convenient solution that’s hard to better.
They use property as security and usually run for between 3 and 24 months.
There’s normally no need for any monthly payments, everything is paid back when the loan term ends.
You can get bridging finance as either a ‘first charge’ loan (where there’s no existing mortgage) or a ‘second charge’ loan (sitting behind an existing mortgage).
Speed and Flexibility
Bridging loans stand alone in their speed and flexibility.
Loans can be approved in just a few days and used for almost any purpose. This quick turnaround makes them perfect for time-sensitive situations, including those involving tax planning.
One key element to understand is that the exit strategy, how you plan to repay the loan, is absolutely central.
Lenders need confidence that you have a workable plan, whether that’s through selling the property, refinancing to a long-term mortgage, or using other incoming funds.
Let’s talk bridging loans!
Using Bridging Finance to Time Property Transactions
Short-term bridge loans give you extra flexibility when timing your property transactions, which can be quite helpful for managing CGT.
Instead of rushing to sell one property before buying another, you can use a bridging loan to fund your purchase, then sell the original property when market conditions are more favourable.
This approach works because CGT is only triggered when you actually sell an asset – not when you buy one.
By using bridging finance, you gain control over when that sale happens, potentially pushing it into a new tax year or aligning it with other income changes that might affect your tax rate.
It’s worth emphasising that this is legitimate tax planning, not avoidance.
HMRC recognises that taxpayers have the right to arrange their affairs efficiently, provided they stay within the law. Using bridging loans to time transactions doesn’t dodge tax obligations – it simply gives you more control over when those obligations arise.
The cost of bridging finance needs careful comparison against potential tax savings.
Sometimes paying the CGT immediately makes more sense, but often the flexibility gained through bridging can lead to better overall outcomes.
Residential Property Examples
For residential property investors, bridging loans offer several strategic options.
Consider a landlord with several rental properties who wants to restructure their portfolio. By using a bridging loan to buy a replacement property before selling an existing one, they might time the sale to fall in a tax year where their other income is lower, potentially keeping them in a lower tax band.
Similarly, someone with a second home might use bridging finance to buy a new main residence, then move into their former second home for a period before selling it. This could maximise the Principal Private Residence relief they can claim, reducing the eventual CGT bill.
Many people wrongly assume these strategies only work for large portfolios or very expensive properties. While the benefits can be greater with higher value assets, even modest property investors can find value in this approach if the numbers stack up.
Commercial Property Considerations
For commercial property, the tax planning picture gets even more interesting.
Business owners might qualify for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), reducing the CGT rate to 10% on qualifying assets.
Mixed-use properties, like shops with flats above, present unique opportunities. By using bridging finance strategically, owners can time sales to maximise available reliefs or to coincide with business restructuring that might affect their tax position.
Commercial transactions often involve higher values, making the potential tax savings more significant. A specialist broker familiar with both commercial lending and tax planning can help identify opportunities that general brokers might miss, ensuring you get finance terms that align perfectly with your tax planning goals.
Extracting Capital Without Selling
One of the most powerful ways to use bridging loans is to extract capital from your property without actually selling it – meaning no CGT is triggered at all.
Why is there no tax? Because at this point you still own the property.
If you own a property with substantial equity, a bridging loan secured against it gives you access to that capital without disposal.
You can use these funds for other investments, business purposes, or even to buy additional property before refinancing onto longer-term lending.
Tax Benefits and Considerations
The tax benefits here are clear: while interest on the loan isn’t tax-deductible for personal purposes, no CGT becomes payable because no sale has occurred.
Before taking this route, you’ll need an accurate property valuation to understand how much you can borrow. Most lenders offer up to 70-75% of the property’s value, depending on circumstances.
The main challenge lies in planning how you’ll exit the bridging loan.
This is something that you will need to explain, in detail, when making your application.
Common approaches include refinancing to a long-term mortgage, using income from investments made with the extracted capital, or planning for future funds you know will arrive. Having this exit strategy clearly mapped out before you take the loan is essential for approval.
Who Should Consider This Strategy?
This approach works best for property owners with specific circumstances.
You’re likely a good candidate if you own multiple properties, face significant potential CGT bills, and have flexibility in your transaction timing.
The strategy makes most sense when the potential tax saving or deferral outweighs the cost of the bridging finance. For smaller gains, the cost-benefit balance might not work in your favour, but for substantial property profits, the savings can be considerable.
Risk Assessment
Your risk tolerance matters as bridging loans are secured against property, so there’s always the risk of losing your asset if things go wrong. Having fallback options or significant financial reserves makes this approach safer.
Contrary to common belief, you don’t need to be extraordinarily wealthy to benefit.
Even investors with a couple of properties can use this strategy effectively, particularly if they’re higher rate taxpayers or have gains that would push them into a higher bracket.
Alternatives
While bridging loans can help with tax planning, they’re not the only option. Sometimes simply paying the tax when due makes financial sense, especially if you have the funds available and bridging costs would exceed your potential savings.
For long-term property investors, holding assets within an SPV limited company structure might offer tax advantages, though the initial setup costs and complexity need careful consideration. Similarly, certain trust arrangements can help with inheritance tax planning alongside CGT considerations.
And bridging loans aren’t the only way to raise capital.
You could approach your existing lender for a further advance, or use a capital-raising remortgage with a new lender. Either of these will be cheaper, but take longer to process and are based on your income and affordability.
The Value of Expert Advice
The intersection of property finance and taxation is complex, making professional guidance essential. Working with advisers who understand both areas ensures you don’t miss opportunities or make costly mistakes.
Tax Advice Before Action
Getting proper tax advice before you make any plans is absolutely essential.
Tax rules change regularly, and strategies that worked well in the past might no longer be effective or compliant. A qualified tax adviser can assess your specific situation and confirm whether using short-term finance for tax planning makes sense for you.
The best time to speak with a tax professional is before you’ve committed to any property transactions.
They can review your whole tax position, not just the specific property deal you’re considering. This broader view might reveal opportunities or risks you hadn’t considered.
Many property investors make the mistake of seeking tax advice after they’ve already committed to transactions. At this point, your options may be limited, and you might have already locked yourself into a less tax-efficient position.
Early consultation lets you structure your deals with tax efficiency in mind from the start.
How Brokers Add Value
Specialist bridging brokers add value through their market access and experience.
They know which lenders will be receptive to your circumstances and can negotiate better terms than you’d likely achieve directly. They also understand how to present your exit strategy convincingly, increasing approval chances.
When these professionals work together, you get a coordinated approach where the finance supports the tax strategy and vice versa. This joined-up thinking often leads to better outcomes than dealing with each aspect in isolation.
The best brokers maintain relationships with both lenders and tax advisers, facilitating smoother communication and more integrated planning.
Next Steps
Using bridging loans to manage property tax offers owners valuable flexibility in an increasingly regulated tax environment.
By controlling when you sell assets and when gains are realised, you can potentially reduce your tax burden while maintaining your investment strategy.
Remember that individual circumstances vary enormously. What works brilliantly for one property investor might be unsuitable for another. There’s no one-size-fits-all approach to tax planning with bridging finance.
If you’re intrigued by these possibilities, your first step should be a conversation with a specialist broker who can explain how bridging loans might work specifically for your property portfolio.
They can help you understand whether the potential tax benefits would outweigh the costs of the bridging finance.
Next, consult with an experienced property tax expert before making any decisions. They’ll ensure your plans are both tax-efficient and allowable.
FAQ
Capital Gains Tax (CGT) is a tax on the profit you make when you sell a property that’s not your main home. In the UK, you’ll pay tax on your gains from residential property based on your level of income tax. Everyone gets an annual tax-free allowance before CGT applies.
Learn more: www.gov.uk/tax-sell-property
Since 2020, you must report and pay any CGT due on UK residential property sales within 60 days of completion. This is done through HMRC’s UK Property Account service. For other assets, CGT is reported and paid through your annual Self Assessment tax return.
Yes, bridging loans don’t reduce the rate of tax, but they can help you time your property sales more strategically. By allowing you to spread sales across different tax years, you can use multiple annual allowances and potentially stay in lower tax brackets, reducing your overall CGT liability.
No, HMRC accepts that taxpayers can arrange their affairs to minimise tax legally. Timing when you sell assets is legitimate tax planning, not avoidance, as long as all transactions are properly declared and the correct tax is paid. The strategy focuses on when you pay tax, not whether you pay it.
Yes, though it’s generally more beneficial for those with multiple properties. For a single property, bridging finance might still help if you need to time the sale for tax reasons (such as using your annual allowance) or to achieve a better sale price without rushing.
If you’ve used the property as your main home for any period, that proportion of your ownership period is exempt from CGT, plus the final nine months automatically. Bridging finance can help you time the sale to maximise this relief, especially if delaying the sale would increase your exempt period.
Yes, though the CGT rules differ slightly. The CGT rates for commercial property gains are lower (10% for basic rate and 20% for higher rate taxpayers), but the bridging finance principles remain the same.
Absolutely. The bridging loan doesn’t affect your tax allowances or reliefs. In fact, one of the main benefits of this strategy is being able to use your annual CGT allowance more effectively by spreading sales across different tax years.
Yes.
Absolutely, and this is a common use for CGT, IHT, VAT and Corporation Tax.
In the context of a property sale it can help to raise funds if you haven’t planned for a tax bill, or are short on cash. As with all bridging, you just need a suitable property with enough equity.
