How Capital Gains Tax Affects Bridging Loans for Borrowers

Bridging loans are all about speed and flexibility, and tax is often an afterthought. When a client uses bridging to fund a property purchase or renovation, capital gains tax (CGT) might apply on sale, and that bill can come as a surprise.

For brokers, understanding how CGT affects bridging loans means you can help clients plan better and avoid unexpected costs. Remember, however, you are not a tax adviser, so you cannot provide advice. Your clients should always consider speaking to a specialist property tax adviser, particularly if they have a portfolio of investment properties.

Key CGT considerations when using bridging finance

The most important factor is whether the property is your client’s main residence. CGT doesn’t usually apply to a principal home, but it does apply to second homes, investment properties, and inherited property sold for a profit. Even a main residence can be affected if it’s let out, used differently, or held long after moving.

Timing matters too. If a client renovates and sells soon after, any gain could be taxable. The current tax-free CGT allowance is £6,000, with gains above that taxed according to income. It’s useful to understand the scale of planned work, expected uplift in value, and when the property is likely to be sold.

Some borrowers assume that renovation costs or bridging loan fees can offset CGT, but not all expenses qualify. That’s why early conversations around tax planning can make a real difference, particularly where profit margins are tight or exit plans depend on the sale proceeds.

Supporting better outcomes for bridging clients

Bridging loans offer speed and agility, but they can also introduce complexity, especially if the client plans to sell the property. Raising CGT early in the process helps ensure clients go in with their eyes open.

As tax rules and thresholds evolve, keeping up with CGT allowances, tapering, and available reliefs becomes increasingly important. A quick refresher or reminder can make a big difference when reviewing a case. It’s also worth checking whether internal lending policies reflect the needs of developers and landlords who flip or rework properties more frequently.

Importantly, CGT should not be viewed as a barrier to bridging. With proper planning, it’s simply one part of the bigger picture. Helping clients factor tax into their exit strategy shows a more complete level of support and builds trust over time.

Scenarios to keep in mind

It’s not just professional investors who use bridging loans. Homeowners and landlords might also be affected by CGT.

For example:

• Letting out a former home can reduce private residence relief
• Converting a home to a rental may limit which reliefs apply
• Renovations or change of use can increase value and gains

In all these cases, CGT could be a factor. Prompting clients to take tax advice can help them avoid complications later.

Using bridging loans in inheritance cases

Some clients use bridging loans to access equity from inherited property and settle inheritance tax before probate is granted. It can be a smart solution, especially where time is short. But if that property is then sold for a profit, CGT may also apply.

The outcome depends on how and when the property is used or sold, and who inherits it. In these cases, it’s especially helpful for clients to get tailored tax advice.

Capital gains tax checklist for bridging cases

A few useful questions to consider:

• Is the property their main residence or a second home?
• Will the sale happen soon after the loan is repaid?
• How much value will the refurbishment work add?
• Will the gain fall within the CGT allowance?
• Has the client spoken to a tax adviser?

Even a short conversation around these points can help clients feel more prepared.

Practical pointers for brokers

• Flag CGT early if a sale is part of the plan
• Encourage clients to take professional tax advice
• Keep up with changes to CGT thresholds and rules
• Be especially alert with short-term flips or refurb-to-sell deals

Why this matters in bridging

Bridging loans offer huge flexibility. But if CGT is not considered, the overall return can be reduced, sometimes significantly. Helping clients understand the full picture means they can make better decisions and plan their next move with confidence.

That kind of insight builds stronger relationships and can lead to more repeat business over time. Want to explore how bridging could help your clients? Visit Alternative Bridging Corporation to learn more.