A £30,000 bank transfer to your son can look like a loan to you and a gift to everyone else. Here’s how a written agreement saves arguments, tax headaches and probate rows.
Reviewed, edited and approved by Editor-in-chief Daniel Sköld · Updated 2 November 2026
Contents
Your daughter needs £30,000 to finish the loft conversion. You’ve got it sitting in savings, she’s good for it, and you send it over by bank transfer before the kettle’s boiled. Nobody writes anything down. Why would you? She’s your daughter.
Fast forward a few years. Has she paid any of it back? Was it a loan or a gift? And if you died tomorrow, would her brother see it the way she does? A five-second Faster Payment can leave a five-year argument behind it. A sheet of paper signed on the day can head most of that off.
AD
Is money you lend to family a loan or a gift?
Legally and for tax purposes, it’s whatever the evidence says it is. Your bank statement shows £30,000 leaving your account. It doesn’t show why. If there’s no written agreement, no repayment schedule and nothing has been paid back, anyone looking at it later can fairly conclude it was a gift. That includes HMRC, your executors and your other children.
That matters more than it sounds. A gift and a loan are treated completely differently when you die, and the person usually left to sort out the difference is a grieving relative with a spreadsheet and a short temper.
MoneyHelper, the free government-backed guidance service, recommends setting out the terms in writing whichever side of a family loan you’re on: how much, when and how it will be repaid, and what happens if payments stop. It doesn’t need to be grand. It does need to exist.
What should a family loan agreement include?
At minimum: both names, the date, the amount, whether interest is charged, and how it’s repaid. That could be monthly instalments, a lump sum on a set date, or repayment on demand or when the property is sold. Add what happens if you die before it’s repaid. Does it get written off, or must it be paid back into your estate? Both of you sign it, ideally with a witness, and both keep a copy.
Then actually behave as though it’s a loan. If you’ve agreed £250 a month, make sure £250 a month turns up, by standing order so there’s a record. An agreement that both sides quietly ignore for a decade is weak evidence of anything.
If you charge interest, it counts as your income for tax. It falls under savings income, so your Personal Savings Allowance may cover it, but you’ll need to declare anything above that. Most families lend interest-free, which is perfectly allowed.
For large sums, such as a house deposit or a share of a business, paying a solicitor to draw up the document, or to make it a formal deed, is money well spent. Bear in mind there are legal time limits on chasing a debt through the courts. They are generally six years in England, Wales and Northern Ireland and five in Scotland, and exactly when the clock starts depends on how the loan is worded.
Your bank statement proves the money left your account. Only the paperwork proves why.
AD
How does inheritance tax treat a loan to family?
Here’s where getting it written down pays off. A genuine loan stays an asset of yours. If you die with £30,000 still owed, that £30,000 is part of your estate. Your executors list it when they apply for probate (called confirmation in Scotland) and collect it or account for it when the estate is shared out.
A gift is different. Most gifts are ‘potentially exempt’. If you live seven years after making them, they fall out of your estate for inheritance tax. If you die within seven years, they count against your tax-free nil-rate band of £325,000. That band has been frozen since 2009 and will stay frozen until 5 April 2031. Anything above the threshold is taxed at 40%. If gifts in those seven years go over the band, taper relief cuts the tax on them on a sliding scale, from 32% for gifts made three to four years before death down to 8% for gifts made six to seven years before.
Some gifts never count at all. You can give away £3,000 each tax year (and carry one unused year forward), plus small gifts of up to £250 per person. Wedding gifts of up to £5,000 to a child or £2,500 to a grandchild are also exempt, and so are regular gifts out of surplus income that don’t dent your standard of living.
So which is better? Neither, automatically. A loan keeps the money in your estate, so it will be taxed if your estate is above the threshold. But you can call it in if you need it for care fees or a roof of your own. A gift starts the seven-year clock but is gone for good. Some families start with a loan and later write it off in stages. Each write-off is treated as a gift from the date you make it, so the clock starts then, not when the money first changed hands. Do it in writing, as a deed if possible, and keep the records with your will.
Loans also turn up in more formal inheritance tax planning. Some advisers use gift and loan trusts, where a loan into a trust stays repayable to you while growth on it builds up outside your estate. These need proper advice from an FCA-regulated financial adviser.
The mortgage lender wrinkle
One trap catches a lot of parents helping with a deposit. Mortgage lenders often ask for a gifted deposit letter confirming the money is a gift with no expectation of repayment, because a hidden loan affects what your child can afford. You cannot tell the lender it’s a gift and tell HMRC, your executors or your other children it’s a loan. Pick one, be honest about it with everyone, and get the paperwork to match. If you want to keep a stake in the property, talk to a solicitor and the lender before any money moves.
Keeping it fair between the children
The real damage usually isn’t the tax. It’s one sibling who borrowed £40,000 and another who didn’t. If you lend to one child, write into your will how you want the loan handled. You could deduct what’s still owed from their share, or forgive it outright. Either is fine. Leaving everyone to guess is how the family dinner turns into a family dispute.
Tell the other children too. Awkward now beats explosive later.
In short
If you lend money to a relative, write down the amount, the repayment terms and what happens if you die, and keep records of every repayment. That evidence decides whether the money is treated as a loan, which stays in your estate and gets collected at probate, or a gift, which falls under the seven-year rule for inheritance tax. Keep your will and anything you tell a mortgage lender consistent with that, and for large sums get help from a solicitor, MoneyHelper or an FCA-regulated financial adviser.
Andrew Ingram writes about money for men 45 and over – the years when retirement starts to feel real and the decisions get bigger. Pensions and retirement planning, investing, savings, mortgages and tax: what changed, what it means for your plans and what's worth doing about it. No hype, nothing to sell, and a clear steer on when it pays to get personal advice.
One of Midcent's writers. Spotted something? Write to andrew@midcent.uk.
Unmarried couples in England and Wales have no automatic right to inherit from each other. Here’s why a will matters, what your children can still claim, and the tax trap.
No will, an unmarried partner, an old pension form or a badly timed gift. These common inheritance mistakes can cost your family dearly, and most are easy to fix.
Men are more likely to invest, and often more sure of themselves. But in an ISA or SIPP, too much trading and higher charges can quietly cost you tens of thousands.
Clicked a bad link or handed over bank details? Here’s what to do in the first hour, who to call, and how the UK’s scam refund rules can get your money back.
