Sell or Borrow? What the FY27 CGT Change Means for Equity
Second Mortgage or Sell? FY27 CGT | Switchboard Finance
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Sell or Borrow? What the FY27 CGT Change Means for Equity
The FY27 reform changes how capital gains are taxed from 1 July 2027. For self-employed owners sitting on equity, that reopens an old question: sell and crystallise the gain, or borrow against the property and keep it. A second mortgage is one way to borrow without triggering a sale.
Quick Answer
A capital gains event is triggered when you sell, not when you borrow. If the coming capital gains tax change makes selling less appealing, releasing equity through a second mortgage lets you borrow against the property instead, so you keep ownership and control the timing of any sale.
Sell or borrow? Start with what actually triggers the tax
The capital gains question only bites when you sell, so the first thing to separate is the asset from the equity inside it. Borrowing against a property is not a disposal, which means it does not trigger a capital gains event, while selling does. That single distinction is what reframes the decision for a lot of self-employed owners weighing the FY27 change.
From 1 July 2027, the reform replaces the 50% capital gains tax discount with an inflation-based discount and a minimum 30% tax on gains arising on or after that date, and it limits negative gearing to new builds. The package passed Parliament on 25 June 2026 and received Royal Assent on 26 June 2026, so it is now law, and the detail sits on the Budget 2026-27 tax reform page. Established stock held before Budget night keeps its current treatment, so for many owners the change is about the cost of a future sale, not today's position.
From the underwriter's seat, that turns one question into two: do you actually need to sell to get at the equity, or can you release equity without triggering a sale and decide on a disposal later? A second mortgage is one way to do the second, and the right answer depends on your exit strategy, not on the headline rate.
The two paths, side by side
Selling crystallises the gain and the cash in one move, while borrowing against equity releases cash without a disposal but adds debt to the property. Laying the two next to each other makes the trade clear.
Neither column is the right answer on its own. Selling is cleaner when you want out of the asset anyway; borrowing wins when the property is worth keeping and you only need access to the equity. The property lending hub covers where a second charge sits in the wider stack.
Where borrowing against equity works, and where it stalls
Borrowing against equity works when there is a real buffer behind the first mortgage and a clear way out, and it stalls when the equity is thin or the exit is vague. The cards below are the quick test.
Where a second charge works
- A clear equity buffer sits behind the first mortgage
- Serviceability holds at the higher combined debt
- There is a defined exit: a sale, a refinance, or business proceeds
- You want to keep the asset and its future upside
- The first mortgagee is likely to consent to a second charge
Where it stalls
- Equity behind the first mortgage is thin
- Servicing is already stretched before the new repayment
- There is no clear exit for the borrowed funds
- The first mortgagee will not consent to a second charge
- A near-term sale is the real plan anyway
From the underwriter's seat, the forced sale value behind the first mortgage and the strength of the exit are what get read first, ahead of the rate. A second charge that clears those two questions is usually workable; one that does not tends to stall no matter how the pricing looks.
If the second mortgage is the move
If borrowing wins, a second mortgage releases the equity as a registered second charge behind the first mortgage, sitting behind your existing first mortgage with the first mortgagee's consent. It keeps the asset in your name and leaves the timing of any future sale, and any capital gains event, in your hands.
Where the first mortgagee will not consent or speed is the constraint, a caveat loan is the faster, shorter alternative, and the second mortgage vs caveat loan walk-through covers which sits better behind the bank. Pricing is deal-specific and varies by lender, which the second mortgage rates guide explains in full. The full product detail lives on the second mortgage loans page.
This is general information, not tax advice. Whether to sell or borrow turns on numbers that are personal to you, so it is worth running the comparison with your accountant and a broker before the new financial year reframes the decision.
The FY27 capital gains change does not force a sale, it changes the price of one. For self-employed owners with equity in a property worth keeping, the real choice is whether to borrow against equity rather than sell, release equity without triggering a sale, and leave any capital gains event for a time of your choosing. A second charge behind the first mortgage is one clean way to do that, when the equity buffer, serviceability and exit all hold up.
Key takeaway: borrowing is not a disposal, so no disposal means no capital gains event; if the asset is worth keeping, releasing equity can beat selling, but run the numbers with your accountant first.Frequently Asked Questions
Borrowing against a property does not trigger capital gains tax, because capital gains tax applies to a disposal and not to raising debt. Drawing equity through a second mortgage leaves ownership unchanged, so there is no sale and no capital gains event at the point you borrow. Tax still applies whenever you eventually sell, and this is general information rather than tax advice, so confirm your own position with your accountant.
The capital gains tax discount is changing from 1 July 2027, when the 50% discount is replaced by an inflation-based discount plus a minimum 30% tax on gains arising on or after that date, under reform that passed Parliament on 25 June 2026 and received Royal Assent on 26 June 2026, so it is now law. The change applies to gains arising after 1 July 2027, and new-build investors can choose the 50% discount or the new arrangement. The full detail sits on the Budget 2026-27 tax reform page, and your exit strategy decides whether it touches your plans.
Releasing equity without selling is exactly what a second charge does: you borrow against the equity the first mortgage has not absorbed, and ownership stays with you. A second mortgage sits behind the first as a registered second charge, while a caveat loan is a faster, shorter route when the first mortgagee will not consent. Either way the equity is released as debt, not as a sale, so the timing of any future sale stays your decision.
A registered second mortgage does need the first mortgagee to consent, because the second charge is registered on title behind their first mortgage. Where consent is slow or refused, borrowers often use a caveat loan instead, which lodges a caveat without registering a second mortgage. The trade-off on price, speed and first mortgagee consent is set out in our second mortgage vs caveat loan walk-through.
Whether borrowing beats selling depends on the interest cost of the debt set against the tax and selling costs you would otherwise crystallise, so there is no single answer. Borrowing against equity through a second mortgage keeps the asset and avoids a disposal, but it carries ongoing interest and pricing varies by lender, as our second mortgage rates guide explains. This is general information rather than financial or tax advice, so weigh the numbers with your accountant and a broker before deciding.
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