How flexible borrowing for urgent spends could keep your investments growing

Sometimes deciding how best to use the money and assets in your portfolio can feel like navigating a maze of potential possibilities.

With last October’s Budget being the most significant in years, many are reassessing the most efficient way to manage their asset base and cash flow. Interest rates now look to have peaked and rate cuts look set to continue – historically a scenario that has supported investment performance (though past performance is not a guide to future performance). With that in mind, it might feel like a balancing act when large calls on your liquidity arise that can’t be covered by your day-to-day income.

This can feel especially true if you are faced with a significant spend event such as a tax bill or an urgent purchase. Initially, you may feel it’s necessary to sell some of your assets to cover it. However, this can incur unwanted consequences, potentially amplifying your costs and increasing your opportunity risk by denying you access to growth or yields.

An acute example of this could be selling out of an investment portfolio to cover tax at the end of the tax year. The bill is covered but you may have exited the markets sooner than you planned, losing growth opportunity and potentially incurring further taxes for realising your capital gains. This pinch point could be made all the more painful in the market environment we’re currently seeing where interest rates are falling and equities are continuing to grow – meaning now could be an optimum time to stay invested. However, please be aware that when it comes to investing, the value of investments, and the income from them, can fall as well as rise and you may not get back what you put in.

To help clients in this situation our investment backed lending facility is designed to provide liquidity against your invested assets, meaning you’ll be able to secure lending quickly for a variety of uses including tax payments, gifting or investing in property. You can draw and pay down within a day, accessing the lending facility as an overdraft or a loan and helping you manage your cashflow seamlessly and flexibly – all while keeping your other assets untouched to continue their opportunity for market growth.

There are other potential benefits to using flexible lending tailored to your needs: 

• No setup fee
• Available in five currencies
• Can be used for property transactions in the UK and selected overseas jurisdictions
• Can be drawn as a loan or an overdraft to use when needed

It’s important to realise that borrowing against your investments might not be right for everyone and criteria and risk do apply. A discussion with your private banker may help you decide if this could be an appropriate option for you. 

Janine Brown, one of our private bankers, explains how her client was recently able to benefit from taking out a lending facility against their investments.

“They were fortunate enough to realise an earn out which was much bigger than expected. Though they were planning to pay off a tax bill with the windfall, they also now had the opportunity to reinvest the majority of the earn out – though that would leave them short for the tax.

“We had a conversation around their options and the client loved that investment backed lending could offer them flexible liquidity to repay the tax and allow them to remain invested in their portfolio, while also giving them the opportunity to boost growth within the trading business. They were comfortable using debt to enhance their own personal balance sheet and were delighted with how quickly we were able to put all this in place for them.”

This client’s situation is illustrative of how flexible lending at the right moment, financed against your assets, could potentially help further your long-term goals by keeping your wealth committed to your original growth targets. 

“If it makes sense for you, then leaving your money invested for as long as possible could be a good way to see growth over time,” says Duleep Vasudevan, our Head of Deposits Business. “Taking your money out and then hoping to reinvest could mean you miss out on market upsides and lead to further costs. Likewise, taking money out of a savings deposit can impact your return and you could lose out on a favourable rate if you look to come back in later. So, timely and flexible lending could be a really effective way to stay invested, keep saving and manage your cash flow with a simpler interest rate.”

“How you’re making the most of your tax-free allowances might also be something to consider. Investment backed lending could ensure you can make the most of your £20,000 annual tax-free ISA allowance (as of 2024/25 tax year) without having to compromise this because of a tax bill or urgent spend.”

There are other ways clients could potentially benefit from lending to help manage their cashflow – particularly when it comes to a unique life event or purchase opportunity.

“One of our clients with a passion for classic cars was looking to sell one vehicle so they could buy a model they’d wanted for years,” explains Tom Richards, Product Manager at Coutts. “The nature of the car market means it can take time to sell, but opportunities to buy can come up at short notice. They therefore needed money quickly to cover the cost.

“They had enough invested with us for the purchase and so could have sold their investments but, understandably, they didn’t want to do that only to reinvest the money from the car they were selling. As well as time out of the market and administrative costs, there were potential tax implications from realising gains when their allowances for the current year had already been used.

“This made flexible lending a good option. It gave them a quick, low-cost facility they could draw on right away. Our client was able to buy their dream car while keeping their investments intact and then using the sale of their other vehicle to help pay down the lending.”

Investment backed lending also gives you potential flexibility if you’re unsure what might happen in the near future. Lending can be facilitated as an overdraft or a loan and can be paid down and redrawn at a future point if additional borrowing needs arise. It can be a straightforward process as no additional application process may be required. “Clients are able to secure investment backed lending as an overdraft or a loan to pay a forthcoming tax bill,” says Tom. “For example, in that scenario they can re-pay it and then draw on it again whenever they need – say within six months for a separate reason such as to gift money or enable a cash purchase of a property.”

Investment backed lending could help manage your cashflow and deal with the short term while remaining invested for the long term. Our specialists are on hand to discuss all the options that may be available to you. Please reach out to your private banker to find out more.

To qualify for investment-backed lending, you must:

• have over £500,000 in investments held with Coutts
• be over 18
• demonstrate a sound understanding of the risks involved
• be able to provide proof of UK residency if used for a property purchase

It may not be suitable for you if:

• you rely on the income and capital from your investments and cash to maintain a standard of living
• you’re considering it for residential property renovation or improvements as this lending cannot be used for this.

Before you borrow against investments, you should understand these risks: 

• If the security you provide is insufficient to support the amount you have borrowed, you may be required to rectify the shortfall at short notice – this is referred to as a margin call.
• If you borrow to purchase investments and these investments are themselves provided as security for your liabilities, your losses or gains could be magnified.
• If your borrowing is in a different currency to the limit, fluctuating exchange rates could result in the limit being exceeded and you may be required to rectify the shortfall at short notice – this is referred to as a margin call.
• Investment values can fall as well as rise, your capital is at risk.

The final decision whether to proceed must be your own and in making your decision you should carefully consider the comparison between borrowing costs and potential investment gains/losses.