How to loan money to family legally in the UK

Talk openly about the loan 

Before you hand over any money, sit down together and have an honest chat. Make sure you both agree on: 

• The exact amount you’re lending
• Why the money is needed
• When and how they plan to repay you
• What will happen if they can’t make repayments on time 

These conversations can feel awkward but help avoid big problems later on. 

How much money can you lend a family member? 

There's no legal limit on how much you can lend to family. But think about what you can afford. Ask yourself: 

• Can I afford to lose this money if they can't pay me back?
• Will lending this much put me under financial pressure?
• Could a large loan damage our relationship if repayment becomes hard? 

For big amounts over £10,000, it might be worth getting advice from a solicitor. 

The most important thing is to only lend what you can afford to lose. 

Can you lend a family member money to buy a house? 

Yes, you can lend money to help family buy a house. But there are extra things to think about: 

• The mortgage company needs to know about your loan
• You might need to write a letter saying if any money becomes a gift
• Think about whether you want legal rights to the property
• House loans are usually big, so consider getting legal advice
• Keep good records as these loans often last many years 

Big house loans can be complicated, so getting professional help is often a good idea.  

Write a clear loan agreement 

A written agreement is the most important step to make your loan legal and fair for both of you. It should include: 

• The loan amount
• The date the money is given
• The repayment plan (e.g., monthly payments of £100)
• Any interest you plan to charge
• What happens if they can’t pay on time
• Signatures from both of you and the date signed 

A written agreement helps show it’s a loan — not a gift — and protects both parties if things go wrong. 

Family loan agreement template 

Here's a simple template you can use: 

FAMILY LOAN AGREEMENT 

Lender: [Your name and address] 

Borrower: [Family member's name and address] 

Loan amount: £[amount] 

Date money given: [date] 

Repayment plan: [e.g., £100 per month starting [date]] 

Interest rate: [e.g., 0% or 3% per year] 

Final repayment date: [date] 

If repayments are missed: [e.g., we'll discuss a new plan] 

Lender signature: _________________ Date: _______  

Borrower signature: _________________ Date: _______ 

Are family loan agreements legally binding? 

Yes — a properly written family loan agreement can be legally binding in the UK. This means both you and your family member are legally expected to stick to what you’ve agreed. To make sure it’s enforceable: 

• Have clear terms everyone understands: Include the loan amount, repayment schedule, interest (if any), and what happens if payments are missed.
• Get it in writing with signatures: Both the lender and borrower should sign and date the agreement.
• Keep proof the money changed hands: Bank transfers, receipts, or other records show the loan was made and not just promised. 

Even without a formal written agreement, a loan may still be enforceable if you have strong evidence — like messages or bank statements — but it’s much harder to prove. 

Your rights and options: 

• If repayments stop, you can try mediation first — a neutral professional can help you reach a fair agreement without going to court.
• For smaller loans (under £10,000), you can take the case to small claims court.
• For larger amounts, a solicitor can draft or review your agreement and help enforce it if needed. 

A clear, signed agreement and good records don’t just protect your money — they give you peace of mind and help preserve family relationships. 

Do I need a solicitor? 

You don’t have to get a solicitor, but it can be helpful if you’re lending a large amount or want extra peace of mind. A solicitor can draft or check your agreement to make sure it’s legally sound.

Consider whether to charge interest 

You don’t have to charge interest, but if you do, remember: 

• Any interest you earn might be taxable income, so you’ll need to report it to HMRC.
• Charging interest makes it even clearer it’s a loan, not a gift.
• Think carefully about whether charging interest could cause resentment or strain on the relationship. 

Keep records of repayments 

Make sure repayments are made by bank transfer instead of cash. This gives you a clear record of payments if there’s ever a disagreement. Keep copies of: 

• Bank statements showing repayments
• The signed loan agreement
• Any messages discussing repayments or changes to the plan 

Good records protect both you and your family member. 

Understand gift tax and inheritance rules 

If you later decide not to ask for repayment, the loan could be classed as a gift. In the UK: 

• You can give up to £3,000 a year without it affecting inheritance tax (this is called your annual exemption).
• Gifts beyond this limit might increase the inheritance tax bill on your estate if you die within 7 years.
• If you give a large loan, consider getting advice from an accountant or solicitor about possible tax implications. 

Think carefully about the risks 

Even with a good agreement, lending money to family can strain relationships. Before you lend, ask yourself: 

• Can I afford to lose this money if they can’t pay me back?
• Will lending put me under financial pressure?
• How might it affect our relationship if repayment becomes an issue? 

If you feel uncomfortable, it’s okay to say no or to offer other help, like helping them find debt advice or budgeting support. 

What to do if repayments stop 

If your family member stops paying, try to talk calmly first. Remind them of the agreement and see if you can work out a new plan. If you can’t agree or they refuse to pay, your options include: 

• Mediation: A professional mediator can try to help you both reach a fair agreement without going to court.
• Small claims court: If the loan was under £10,000, you can make a claim through the small claims process. Your written agreement will be essential evidence. 

You can lend money and still protect your relationships 

Lending money to family can be a kind and supportive act. By having honest conversations, writing a clear loan agreement, and keeping good records, you can help loved ones while protecting both your finances and your relationship.