One of the most common questions from property owners is whether remortgaging and taking out equity triggers Capital Gains Tax. The answer is no — and understanding why clarifies an important principle about how CGT works.
CGT applies to disposals, not borrowing
Capital Gains Tax arises when you dispose of an asset — typically by selling it, gifting it, or otherwise transferring ownership. When you remortgage, you borrow money secured against a property you still own. No ownership changes hands, no disposal occurs, and no CGT arises.
The amount you borrow through a remortgage is debt. You owe it back to the lender. It is not income (so no Income Tax). It is not a gain (so no CGT). It is a liability on your balance sheet.
Equity release works the same way
Equity release schemes — including lifetime mortgages and home reversion plans — also frequently prompt questions about CGT.
A lifetime mortgage involves borrowing against your home with no repayment until you die or go into care. No disposal occurs; no CGT arises on drawing the loan.
A home reversion plan is different: you sell a share of the property to the plan provider in exchange for a lump sum (typically less than market value). This is a disposal of part of your property. If the property is not your main home, this could trigger CGT. If it is your main home and PRR fully covers the gain, there is nothing to pay.
When withdrawing money from a property does trigger CGT
There is one scenario where extracting value from a property can create a CGT event: if you transfer ownership, or a share of ownership, to another person.
For example:
- Transferring a share to a spouse before a sale: this is a disposal (though usually at no gain/no loss between spouses living together)
- Gifting a share to a child: this is a disposal at market value — CGT may arise
- Selling a share of the property to a third party: disposal, CGT applies
In these cases, CGT is not triggered by the movement of money but by the change in ownership. The cash you receive as part of a genuine ownership transfer is the proceeds of the disposal, unless it is to a connected person where market value applies.
The mortgage on a CGT computation
Although borrowing is not itself a CGT event, mortgages are relevant to CGT in one indirect way: they are not an allowable deduction.
When you calculate your CGT gain, you take proceeds minus base cost (acquisition price, acquisition costs, capital improvements). The outstanding mortgage at the time of sale is not an allowable cost — it is not a cost of acquiring or improving the property but a separate liability that happens to be secured against it.
Many sellers confuse net equity (proceeds minus outstanding mortgage) with the taxable gain. They are different things. CGT is calculated on the gain over the cost of acquisition, regardless of how much of the proceeds are used to repay a mortgage.
An example
You bought a buy-to-let for £200,000, paying £10,000 in fees and SDLT. Over the years you took out equity through remortgages and now have a £180,000 mortgage outstanding. You sell for £320,000, with £8,000 of selling costs. Your equity after paying off the mortgage is £132,000.
Your CGT gain is: £320,000 minus £8,000 selling costs minus £210,000 base cost = £102,000. The £180,000 mortgage does not reduce this figure. The £132,000 net equity after the mortgage is not the gain — the gain is £102,000.
The 60-day return
If you have sold a property with a chargeable gain, the 60-day return is required regardless of the outstanding mortgage or how much equity you actually receive. The gain is what matters, not the net proceeds. Start your 60-day return at LetsFile — a Chartered Accountant/Chartered Tax Advisor calculates the correct gain and files within 24 hours of receiving your documents.