A client held £2 million of shares bought for £400,000 fifteen years ago. He needed £600,000 for a business investment. His accountant told him to sell and pay £320,000 in capital gains tax. We showed him a different approach.
We arranged a securities backed loan for £600,000 at 4.5% per year. Annual interest cost: £27,000. Tax payable immediately: £0. He kept his shares, continued receiving £45,000 annual dividends, and avoided permanently destroying £320,000 of capital to pay tax.
Even after 10 years of interest payments totalling £270,000, he's still £50,000 better off than if he'd sold. And he still owns £2 million of shares.
Here's the reality: most investors don't know securities backed lending exists, and most accountants instinctively recommend selling because that's the conventional approach. This guide shows you when borrowing against shares makes financial sense versus selling them, with particular focus on UK tax implications that completely change the economics.
The Tax Reality of Selling Shares in the UK
Selling shares triggers capital gains tax on any profit above your annual CGT allowance. For many investors holding appreciated shares, tax becomes the largest single cost of accessing their wealth. In our experience, clients are consistently shocked when they calculate the actual tax bill on a sale they're considering.
How Capital Gains Tax Works (2025/26 Tax Year)
- Annual CGT allowance: £3,000 (reduced from £6,000 in 2023/24)
- CGT rates: 10% basic rate taxpayer, 20% higher/additional rate taxpayer
- Business Asset Disposal Relief: 10% on qualifying business disposals up to £1 million lifetime limit
- No indexation allowance (removed for individuals from 2008)
For additional rate taxpayers (income over £125,140), selling £1 million of shares originally bought for £200,000 creates £800,000 of capital gain. After the £3,000 allowance, you pay 20% CGT on £797,000 = £159,400 in tax.
Worked Example: £1 Million Share Sale
Scenario:
You own shares currently worth £1,000,000. Original cost: £250,000. You're an additional rate taxpayer. You need £600,000 cash for property purchase.
| Item | Amount |
|---|---|
| Current share value | £1,000,000 |
| Original cost (base cost) | £250,000 |
| Capital gain | £750,000 |
| Annual allowance | (£3,000) |
| Taxable gain | £747,000 |
| CGT at 20% | £149,400 |
| Net proceeds after tax | £850,600 |
To receive £600,000 cash after tax, you actually need to sell £703,500 of shares, paying £103,500 in CGT. You've permanently destroyed £103,500 of capital to tax.
The Permanent Cost of Capital Gains Tax
CGT is not a deferral. It's a permanent cost. Once paid, that capital is gone forever. Unlike income tax which you pay annually anyway, CGT is a discretionary tax you only trigger when you choose to sell. Avoiding or deferring this tax has significant long term wealth implications.
Loss of Dividend Income
Beyond CGT, selling shares permanently ends your dividend income from those shares. If your £1 million portfolio yields 2.5% annually (£25,000), selling the entire portfolio costs you £25,000 per year in lost income forever.
Over 20 years, that's £500,000 of lost dividend income (ignoring dividend growth). Here's what actually happens: people focus entirely on the CGT bill and completely miss the fact that they're giving up decades of future income. The true cost of selling isn't just the CGT, it's the CGT plus perpetual loss of income.
How Stock-Based Loans Work (Securities-Backed Lending)
Securities backed lending allows you to borrow money using your share portfolio as collateral. The shares remain in your name, you continue receiving dividends, and you pay no capital gains tax because you haven't sold anything.
The Structure
- You pledge shares as security for a loan (shares are "charged" to the lender)
- Lender advances cash (typically 50% to 70% of portfolio value)
- Interest charged on the loan (typically 3% to 6% per year for quality portfolios)
- You continue to own the shares and receive all dividends
- You can usually sell shares with lender consent (proceeds reduce the loan)
- When you repay the loan, the charge is released and shares return to your full control
What Shares Qualify?
Not all shares can be used as loan security. Lenders typically accept:
- FTSE 100 and FTSE 250 stocks (highest loan to value ratios)
- Major international blue chip stocks (US, European)
- Investment grade bonds and gilts
- Highly liquid ETFs tracking major indices
- Diversified managed portfolios from major institutions
Lenders are cautious about concentrated positions (more than 20% of portfolio in one stock), illiquid AIM stocks, or highly volatile shares. The more liquid and diversified your portfolio, the higher the loan to value ratio offered.
Loan to Value Ratios
| Portfolio Type | Typical LTV | Example |
|---|---|---|
| FTSE 100 blue chips (diversified) | 60% to 70% | £700k loan on £1M portfolio |
| FTSE 250 stocks (diversified) | 50% to 60% | £600k loan on £1M portfolio |
| International blue chips | 50% to 65% | £650k loan on £1M portfolio |
| Concentrated position (1-3 stocks) | 40% to 50% | £500k loan on £1M portfolio |
| AIM stocks or small caps | 30% to 40% | £400k loan on £1M portfolio |
Conservative LTV ratios protect both you and the lender from market volatility. A 60% LTV means your portfolio can fall 40% before reaching the lender's margin call threshold.
Interest Rates
Securities backed lending rates depend on loan size, portfolio quality, and your overall relationship with the lender:
- £1 million+ facilities with major banks: 3% to 5% per year
- £500k to £1M facilities with specialist lenders: 4% to 6% per year
- £250k to £500k facilities: 5% to 7% per year
- Below £250k: 6% to 8% per year (or not economic for lenders to offer)
These rates are significantly lower than unsecured lending (8% to 15%) because your shares provide substantial security. The rates are higher than mortgages (4% to 6%) because shares are more volatile than property.
Side by Side Comparison: Borrow vs Sell
Let's compare the financial outcomes of borrowing versus selling using a realistic scenario. We run this analysis dozens of times per year for clients, and the numbers consistently favour borrowing when you have significant unrealised gains.
Starting Position:
- Portfolio value: £1,000,000
- Original cost: £300,000
- Capital gain if sold: £700,000
- Dividend yield: 2.5% (£25,000 per year)
- You need: £600,000 cash
- Your tax rate: Additional rate (20% CGT)
Option 1: Sell Shares
| Item | Amount |
|---|---|
| Shares to sell (after CGT) | £750,000 |
| Capital gain on £750k sale | £525,000 |
| CGT at 20% | £105,000 |
| Net proceeds | £645,000 |
| After taking £600k needed | £45,000 remaining |
| Portfolio remaining | £250,000 |
| Annual dividends remaining | £6,250 |
Outcome: You have your £600,000 cash but have paid £105,000 in CGT and reduced your annual dividend income from £25,000 to £6,250 (loss of £18,750 per year).
Option 2: Borrow Against Shares
| Item | Amount |
|---|---|
| Loan amount | £600,000 |
| LTV on £1M portfolio | 60% |
| Interest rate | 4.5% per year |
| Annual interest cost | £27,000 |
| CGT paid | £0 |
| Portfolio value | £1,000,000 (unchanged) |
| Annual dividends | £25,000 (unchanged) |
| Net annual cost (interest minus dividends) | (£2,000) |
Outcome: You have your £600,000 cash, paid zero tax, kept your full portfolio, and your dividends almost cover your interest cost (net cost £2,000 per year).
10 Year Comparison
Scenario: Holding period of 10 years
Selling Shares
- Immediate CGT paid: £105,000
- Lost dividends: £18,750 × 10 = £187,500
- Total cost: £292,500
- Remaining portfolio: £250,000
- Net wealth position: (£292,500) worse off
Borrowing Against Shares
- Interest paid: £27,000 × 10 = £270,000
- Dividends received: £25,000 × 10 = £250,000
- Net cost: £20,000
- Remaining portfolio: £1,000,000
- Net wealth position: £272,500 better off
After 10 years, borrowing against shares leaves you £272,500 better off than selling, even after paying 10 years of interest. And you still own the full £1 million portfolio which may have grown significantly over that decade.
When Borrowing Makes Sense vs When Selling Makes Sense
Borrow Against Shares When:
- You have significant unrealised gains and would pay substantial CGT (£50,000+)
- You believe your shares will outperform the loan interest cost over your holding period
- You need liquidity but don't want to exit your investment positions
- Your shares pay dividends that offset some or all of the interest cost
- You want to preserve holdings for estate planning (shares receive CGT rebasing on death)
- You need cash temporarily but expect to repay within 3 to 7 years
- Interest rates on securities lending are reasonable (below 6% for quality portfolios)
Sell Shares When:
- You fundamentally want to exit the position regardless of tax (investment thesis has changed)
- Your shares have minimal or no capital gains (bought recently, or losses offset gains)
- You're in a low income tax year and can use your full CGT allowance efficiently
- The shares pay no dividends and you don't expect significant growth
- You need permanent capital, not temporary liquidity
- You're unable or unwilling to service loan interest payments
- Your portfolio is too concentrated or illiquid to support meaningful borrowing
The Break Even Analysis
Borrowing makes financial sense when: (CGT saved) + (dividends received over loan term) > (interest paid over loan term)
In our example: £105,000 CGT + £250,000 dividends over 10 years = £355,000 benefit vs £270,000 interest cost. Borrowing wins by £85,000.
Risks and Considerations of Stock-Based Loans
Securities backed lending is sophisticated and carries risks that selling shares does not. Understanding these risks is critical before choosing this option. In our experience, the clients who succeed with this strategy are those who borrow conservatively and maintain reserves. The clients who struggle are those who borrow to the maximum and have no buffer.
Margin Call Risk
If your portfolio value falls below agreed thresholds, the lender may require you to either pledge additional collateral or partially repay the loan. If you cannot meet the margin call, the lender can sell your pledged shares.
Example:
You borrow £600,000 against a £1 million portfolio (60% LTV). Markets fall 30%. Your portfolio is now worth £700,000 but you still owe £600,000 (now 86% LTV). Lender requires you to reduce LTV back to 65% by either adding £240,000 collateral or repaying £145,000 of the loan.
Mitigation:
- Borrow conservatively (50% to 60% LTV, not maximum)
- Maintain cash reserves to meet potential margin calls
- Diversify your portfolio to reduce volatility
- Monitor your LTV ratio regularly
- Understand your lender's margin call triggers and process
Interest Rate Risk
Most securities backed lending is variable rate. If interest rates rise significantly, your annual interest cost increases. A 2% rate rise on a £600,000 loan costs an extra £12,000 per year.
Opportunity Cost
The interest you pay is an opportunity cost. If you pay 4.5% interest but your shares only grow at 3% per year, you're losing money economically (though potentially still winning on tax).
Complexity
Securities backed lending requires ongoing management. You need to monitor your LTV ratio, manage interest payments, and potentially rebalance your portfolio within lender constraints. This is more complex than simply selling shares and being done.
Alternative Strategy: Phased Selling Combined with Borrowing
You don't have to choose entirely between borrowing and selling. A hybrid approach often makes most sense.
The Hybrid Strategy
- Borrow against shares for immediate liquidity (avoid CGT now)
- Sell small portions of the portfolio annually using your CGT allowance (£3,000 per year)
- Use annual sales proceeds to gradually repay the loan over 5 to 10 years
- Minimize total CGT paid while maintaining portfolio exposure
Example:
You borrow £600,000 against your £1 million portfolio. Each year, you sell £30,000 of shares (creating £21,000 capital gain after cost basis), use your £3,000 allowance, pay CGT on £18,000 (£3,600 tax), and repay £26,400 of the loan.
Over 20 years, you've repaid the full loan through phased sales, paid only £72,000 total CGT (vs £105,000 immediately), kept your portfolio largely intact, and received dividends throughout.
Frequently Asked Questions
Explore Securities-Backed Lending for Your Portfolio
We arrange stock-based loans for portfolios from £500,000 to £50 million. Speak to our team to understand what's achievable with your specific holdings and whether borrowing makes sense versus selling.