Lombard loan vs selling & rebuying.

Selling shares to raise cash and rebuying later looks simple, but it crystallises any capital gain, resets your cost base higher, and puts you out of the market between trades. A Lombard loan raises the cash without selling — deferring the tax event and keeping the position — at the cost of interest and market risk.

The “just sell some” instinct

When cash is needed, the obvious move is to sell part of a holding. It feels clean and all but costless: turn some shares into money now, and buy them back later if you still want them. But selling and rebuying is not a pause in ownership. It is two full transactions, each with tax and market consequences, and the “buy them back later” leg is exposed to whatever the price has done in the meantime. For a holder who wants to keep the position — who is raising cash rather than exiting — it is worth counting the true cost of the round trip before selling a single share.

What selling and rebuying actually costs

Four costs sit inside the round trip, and the first is usually the largest and the most overlooked.

A crystallised capital gain. Selling an appreciated holding is a disposal, and in most tax systems it is the disposal of an asset that brings a gain into charge. Sell, and any latent gain becomes a real, dated tax liability — brought forward from “someday, perhaps” to “this tax year, definitely.” That is a genuine cost of raising cash by selling, and it is explored in full in our note on borrowing against shares and capital gains tax. This is general information rather than tax advice, and the effect depends on your residence, domicile and circumstances.

Dealing costs and the spread — twice. Every round trip pays commission and crosses the bid-offer spread on the way out and again on the way back in. On a large or less-liquid line, the market impact of selling and then rebuying size can dwarf the visible commission, because moving that quantity moves the price against you at both ends.

Time out of the market. Between selling and rebuying you are not invested. If the price rises before you buy back, you repurchase fewer shares for the same money, or pay more for the same number. The “later” in “buy them back later” is a market bet, and it can go against you as easily as for you.

A higher cost base, and the deferral you gave up. When you rebuy, your cost base resets to the new purchase price. That can reduce a future gain, but the flip side is that you have already paid tax now instead of deferring it, and lost the value of keeping that capital invested and working in the meantime.

How borrowing compares

A Lombard loan raises the cash without incurring any of the four. There is no sale, so no disposal and no crystallised gain — a loan is not a sale, a point set out in our note on the tax treatment of Lombard loans. There are no round-trip dealing costs or spread, because the position is left untouched. There is no time out of the market: you keep full exposure and any upside throughout. And there is no reset of the cost base, so the original base and its deferred gain stay intact for whenever you do eventually sell.

What you pay instead is interest on the drawn amount for as long as you borrow, and you take on market and margin risk. If the pledged collateral falls far enough, a Lombard loan can face a margin call — a demand to post more collateral or repay part of the loan — which a sell-and-hold-cash approach does not. The fuller comparison of raising cash by selling against borrowing sits in our guide to borrowing against shares without selling.

A worked illustration

Consider a holder who needs a fixed sum of cash for two years and expects to want the position back afterwards. This is illustrative only. No figures, rates or tax numbers are stated, because they depend entirely on the holder’s jurisdiction, the security, and the pricing prevailing at the time.

• Route A — sell and rebuy. They sell enough shares to raise the sum, pay dealing costs and any capital gains tax on the portion sold, hold the cash, and in two years buy the shares back at whatever price then prevails, paying dealing costs again. Their outlay is the tax and transaction costs, plus the risk that the shares cost more to repurchase than they fetched.
• Route B — borrow. They pledge the portfolio, draw the same sum, keep every share, and repay in two years. Their outlay is the interest over the term, plus the obligation to manage the loan-to-value if markets fall.

Which is cheaper depends on the size of the embedded gain, the tax rate that would apply, dealing costs, the interest rate, and what the share price does in between. The point of the illustration is not a number; it is that the sell-and-rebuy route carries real costs that are easy to overlook, and that borrowing converts a one-off tax-and-trading cost into an ongoing interest cost that you can end whenever you repay.

When selling still wins

Borrowing is not always the answer. Selling is the right move when you actually want out of the position — to reduce a concentration permanently, or because you no longer favour the holding. It wins when you need cash permanently rather than temporarily, since a loan has to be repaid. It wins when the tax cost of selling is low or nil — a small embedded gain, a loss you want to realise, or a tax-exempt wrapper — so there is little to defer in the first place. And it wins when you would simply rather not carry debt, or market and margin risk, against your portfolio at all. A loan defers a tax event; it does not remove it, and it adds obligations that a clean sale does not.

Verdict

Sell when you want to exit, or when you need permanent cash and the tax cost of selling is low. Borrow when you want to keep the position and the cost of selling — a crystallised gain, dealing costs twice, and time out of the market — is high. For many substantial holders with appreciated, concentrated positions, the arithmetic favours borrowing precisely because the tax and transaction costs of the round trip are large and immediate, while the loan cost is spread out and optional. The choice sits within the wider set of routes to liquidity, weighed side by side in our overview of liquidity options compared. As ever, the honest answer starts with the question: are you raising cash, or getting out?