Residential property investors suffer a harsh capital gains tax regime and so selling properties that have increased significantly in value often results in a tax bill that is just too hard to take!

As an alternative, investors may instead choose to borrow against their assets - as a sale hasnt occurred there is no CGT to pay. This article looks at how landlords can access their equity tax-efficiently using a borrowing rather than selling strategy.

Withdrawing capital introduced into your property rental business
Generally, property investors use debt finance (AKA other peoples money) to buy property. However as lenders generally require a 20-30% deposit from the investors own funds, this means that the investors own cash needs to be tied up in a purchase - and that usually restricts portfolio growth unless an infinite supply of deposit cash is available!

Most lenders require that the initial deposit funds come from the investors own resources (meaning, the lender doesnt want the investor to borrow the deposit funds). However, investors are free to replace the original equity (deposit) with further debt finance, and receive tax relief on all the interest up to the limit of the capital introduced.

Example: An investor buys a property for £100k, financed by a mortgage of £80k, and £20k cash deposit. The capital introduced is therefore £100k and the investor could potentially replace the £20k of equity in the rental business with £20k of further borrowings (from any source) and substitute the loan for the equity in the rental accounts.