How to write a family loan agreement in England & Wales

Step 1 — Say out loud that it’s a loan

Before any drafting: both of you should say, in the same conversation, that this is a loan to be repaid — not a gift, not “sort it out later”. In family money disputes the court’s first question is intention, and between parents and children the presumption of advancement can treat unexplained transfers as gifts. A written agreement is the cleanest rebuttal that exists.

Step 2 — Write the eight essential terms

• Parties — full legal names and current addresses.
• Principal — the exact amount, and how and when it’s advanced.
• Repayment plan — instalment amounts, dates, and the maturity date. “When you can” is not a plan.
• Interest — a number (even if it’s 0%), stated as an annual rate.
• Early repayment — usually: allowed anytime, no penalty.
• Missed payments — a short grace period, or the right to call in the whole balance.
• Death and incapacity — the debt survives as a claim against the estate; an attorney or deputy can act for a borrower who loses capacity.
• Governing law — the law of England and Wales.

Step 3 — Get the money rules right

Interest: there’s no statutory cap on a private loan in England and Wales, but two forces keep rates sensible — courts can reopen unfair relationships (Consumer Credit Act 1974, ss.140A–C), and every pound of interest you receive is taxable savings income. The Personal Savings Allowance (£1,000 basic rate / £500 higher rate) covers modest amounts; beyond it, HMRC expects the income on a Self Assessment return. An interest-free loan triggers no income-tax charge for either side.

Inheritance tax: a loan stays in your estate as an asset until repaid. Forgive it and you’ve made a gift — a potentially exempt transfer that only leaves your estate if you survive seven years. And if the money is a house-deposit, tell the mortgage lender the truth: most require deposit money from family to be a declared gift, and quietly calling it a loan can breach their conditions.

Step 4 — Sign it properly

A loan agreement is a simple contract, so electronic signatures are fully valid in England and Wales (Electronic Communications Act 2000; Law Commission, 2019). What matters is evidence: who signed, when, and that the document hasn’t changed since. LendRight seals every agreement with signing timestamps, identity checks, and a SHA-256 fingerprint anyone can verify later — but even a printed copy signed by both parties beats nothing by a mile.

Step 5 — Know the enforcement path (so you never need it)

If repayment stalls: follow your own grace-period clause, then send a letter before claim. Claims up to £10,000 go through the small claims track of the County Court — Money Claims Online is built for people without solicitors, fees scale with the claim, and the signed agreement is Exhibit A. You have six years from the breach (Limitation Act 1980, s.5). The quiet magic of a written agreement is that this paragraph almost never gets used: people repay plans; they renegotiate vibes.

The mistakes that make judges sigh