In England & Wales a loan agreement between family members is an ordinary contract — no solicitor, no witness, no registration. But the law starts from an assumption most parents find alarming: money from a parent to a child is presumed a gift, and it is the parent who must prove otherwise. Two High Court judgments two years apart, on almost identical sums, went opposite ways purely on paperwork. This guide walks the whole agreement clause by clause against a worked £30,000 deposit loan, including the Limitation Act rule that decides how long you can sue.
Most articles on this subject explain that you “should” write a family loan down. Here is something more useful: the actual document, clause by clause, and what the courts of England & Wales have done to families who got each clause wrong.
Important: This is general legal information for England & Wales, not legal advice, and LendRight is not a firm of solicitors. Tax and property rules change, Scotland and Northern Ireland differ, and a large or secured loan deserves professional advice. Figures are for the 2026/27 tax year.
What we’re drafting
One example, carried the whole way through.
The example. A parent lends their adult child £30,000 towards the deposit on a first home. The child repays £400 a month, interest-free, from 1 September 2026, with the balance falling due on the earlier of 1 September 2033 or the sale of the property. The parent takes a second charge over the house. Both live in England.
Every element of that has a legal consequence, and several of them are the opposite of what people assume. Start with the biggest.
Who has to prove it was a loan
Here is the assumption that costs families the most money. People believe that if a parent hands over £30,000 and the child later refuses to repay, the child must show it was a gift. In England & Wales, for a transfer from a parent to a child, that is backwards.
Between strangers, the rule in Seldon v Davidson means money paid over is presumed repayable and the recipient must prove a gift. A parent-to-child transfer engages the presumption of advancement instead, which points the other way. As the High Court put it in Kaur v Kaur [2025] EWHC 2806 (Ch), “the presumption of repayability can be met by a counter rebuttable presumption of advancement”, and that presumption “may itself be rebutted by extraneous evidence that the transferor did not intend a gift.” In plain terms: the parent who says it was a loan is the one who has to show it.
The same judgment is blunt about why that presumption is no antique survival:
“It is a social expectation which has practically hardened into convention that parents with assets use some of those assets to ‘advance’ their children, providing them with deposits for houses, start-up funding for businesses and subventions for sudden emergencies. There can be few in this country at least who do not know what is meant by the term ‘the bank of mum and dad’.”
The presumption is weaker where the child is an adult and financially independent — but weaker is not absent, and the starting point still runs against the lender. In Kaur the money was nonetheless held to be a loan and the estate recovered, because across roughly fifteen years the daughter’s payments to her mother came to about the same as the sum advanced. No gift explains that pattern.
Two further judgments show what this means when the paperwork is good, and when it is missing.
Documented: Thomas Barry v Denis Barry [2024] EWHC 1661 (KB)
Parents advanced over £650,000 to their youngest son across two property purchases. There was no formal loan agreement — but there was a trail. Their Santander statements marked the transfers “Loan D Barry”. An email to their mortgage broker described the funding as being in place “by means of a temporary loan from Tom and I”, and the broker replied about remortgaging so that “Denis can repay loan to you”. A family spreadsheet logged the repayments. The court rejected the argument that a family arrangement carried no intention to create legal relations and gave judgment for £643,055.90, with interest at 3% from September 2021. The parents had also beaten their settlement offers: in the costs judgment that followed they were awarded indemnity costs, interest at 8% above base rate, and a £75,000 additional amount.
Undocumented: Stokes v Stokes [2026] EWHC 1576 (Ch)
A grandfather of 90 advanced around £864,000 to his grandson, including £727,086 towards a house purchase in August 2021. When the relationship broke down he sued to recover it. He largely lost — the money was held to be gifts. The conveyancing solicitors had recorded at the time that he had chosen to make the money available “on a gifted basis”, and weeks later he signed a form of authority referring to a gift of £700,000 to his grandson. A written agreement describing the sums as “temporarily loaned” appeared only in December 2022, after the falling-out, drawn up by a relative from her recollection of a television programme — an explanation the judge called “clearly disingenuous”. No repayment had ever been demanded before then.
Two High Court judgments, two years apart, sums of the same order, opposite outcomes. The difference was not the strength of the family bond or the fairness of the claim. It was whether anything written at the time said “loan”. And note the timing point in Stokes: a document produced once the argument has started is worth close to nothing. The agreement has to exist before anyone needs it.
The parties, the money, and the paper trail
Clauses 1–3. “The Lender, [full name], of [address], lends to the Borrower, [full name], of [address], the sum of thirty thousand pounds (£30,000), transferred by bank transfer on 1 September 2026 to account [ref], for the purpose of funding the deposit on the purchase of [address].”
Three deliberate choices. Full names and addresses, because the document may one day be read by an executor, a trustee in bankruptcy or a district judge who knows none of you. The date, method and reference of the transfer, because that is the line a bank statement independently corroborates — exactly the evidence that won Barry. And the purpose, because a stated purpose makes the transfer look like a transaction rather than generosity, which is precisely what the presumption of advancement needs rebutting with.
One practical instruction that follows from Stokes: use the word “loan” in the payment reference itself, and tell your conveyancer the truth. A solicitor’s file note recording “gifted deposit” is contemporaneous evidence against you for the rest of the loan’s life.
Repayment — and the Limitation Act rule almost everyone gets backwards
Clause 4. “The Borrower shall repay the loan by monthly instalments of four hundred pounds (£400) payable on the first day of each month from 1 September 2026, with the balance then outstanding repayable on the earlier of (a) 1 September 2033 and (b) completion of any sale of the Property. The Borrower may repay early in whole or in part without penalty.”
Now the rule that decides whether you can still sue in ten years’ time, and which most published guidance states incorrectly.
The ordinary limitation period for a simple contract debt is six years under s.5 of the Limitation Act 1980. But s.6 carves out a special case: where a loan agreement does not provide for repayment on a fixed or determinable date, the six-year clock does not begin to run at all until the lender makes a written demand. An oral demand does nothing — s.6(3) requires a demand “in writing”.
The consequence people miss: putting a fixed repayment date in the agreement switches that protection off. Our example, with its 1 September 2033 longstop, falls outside s.6 — so plain s.5 applies and there is a hard six-year deadline from each missed instalment. Leave the date out and the debt stays enforceable indefinitely until you write and ask for it. Most family lenders want the second thing and draft the first.
So choose deliberately. A schedule gives structure, visible discipline and an obvious record of default — good where repayment is genuinely expected on a timetable, as in a deposit loan that will be cleared on sale. A demand structure, with no fixed date, is the right instrument for an open-ended advance you may never formally call in, and it is far more forgiving of a lender who lets years drift.
Two more mechanics worth knowing. A written, signed acknowledgement of the debt restarts the clock — but s.30 imposes three cumulative requirements: it must be in writing, signed by the debtor, and made to the creditor. The third is routinely missed; an admission in a message to a sibling does not count. By contrast, part payment restarts the clock with no writing and no signature at all — a single £50 transfer buys another six years. And once a period has actually expired, nothing revives it, however contrite the borrower later becomes.
Interest, and what HMRC actually wants
Our example is interest-free, which is legal, common, and worth stating expressly so nobody later argues interest was implied. If you do charge interest, three things follow.
The interest is your taxable income. It is savings income, and the borrower pays it to you gross — a UK individual paying interest to another UK-resident individual is not required to deduct tax at source under s.874 of the Income Tax Act 2007, which catches companies, local authorities, partnerships with corporate members, and payments to someone whose usual place of abode is outside the UK. That last limb matters: if the lending parent’s usual place of abode is outside the UK, the child must deduct income tax at source and account for it to HMRC. Most families in that position have no idea.
Most family lenders pay no tax on it anyway. For 2026/27 the personal savings allowance is £1,000 for basic-rate taxpayers, £500 for higher-rate and nil for additional-rate. On top of that sits the £5,000 starting rate for savings, which tapers away pound-for-pound against other income above the personal allowance and disappears entirely once other income reaches £17,570. A retired parent with little other income can therefore receive up to £18,570 of interest with no tax at all. Savings rates are 20/40/45% in 2026/27, rising to 22/42/47% from 6 April 2027 — worth factoring into a long loan.
Reporting. You must tell HMRC if your untaxed savings income requires it; the registration trigger for Self Assessment on untaxed savings income is £10,000, and interest is reported on the main return. Interest below your allowances still needs no notification.
Two regulatory points, stated correctly. A private family loan technically is a regulated credit agreement — there is no family exemption in the legislation. What means you need no FCA authorisation is s.22(1) of the Financial Services and Markets Act 2000, which requires the activity to be carried on by way of business. A genuine family loan is not. Separately, and less comfortably: the unfair relationship provisions in ss.140A–140C of the Consumer Credit Act 1974 apply to any credit agreement between an individual and another person, with no business requirement and no exemption for family — and once unfairness is alleged, s.140B(9) puts the burden on the creditor to prove the relationship was fair. A punitive rate or an oppressive term in a parental loan is not beyond challenge.
Deed or simple contract?
A simple contract needs consideration — here, the money advanced against the promise to repay — and that is present in every real family loan. So a deed is optional. It buys one thing: the limitation period for a specialty is twelve years under s.8, not six.
The cost is inconvenient. Executing a deed requires the signature to be made in the presence of a witness who attests it, and the Law Commission’s position — unchanged since 2019 and never legislated away — is that the witness must be physically present. Video witnessing does not work for deeds. So the trade-off is blunt: choosing a deed for the longer limitation period costs you the ability to sign remotely, which for a parent and child in different cities is often the whole appeal.
Note also that a party to the deed cannot witness another party’s signature, and while a spouse legally can, it is best avoided. For the great majority of family loans, a simple contract signed electronically is the better instrument. Reserve the deed for very large sums where the twelve-year window genuinely matters and everyone can be in one room.
Securing a deposit loan against the property
Our parent is lending towards a deposit and wants the money to be recoverable when the house sells. The standard internet advice — register a restriction at the Land Registry — is wrong, and worth correcting because it is repeated everywhere.
A restriction does not give you security. Section 42(2) of the Land Registration Act 2002 expressly prohibits entering a restriction for the purpose of protecting the priority of an interest. A restriction regulates whether a dealing can be registered; it does not rank you against anyone. The instrument that actually secures the money is a registered legal charge — in practice a second charge, ranking behind the mortgage lender, which will need that lender’s agreement by way of a deed of postponement.
And the charge is remarkably cheap. A security interest is not a chargeable interest for stamp duty purposes, so taking a charge attracts no SDLT, does not trigger the higher rates, and — critically — leaves the child’s first-time buyer relief intact. Putting the parent on the title instead does the opposite: the higher rates apply to the whole purchase price with no apportionment, and first-time buyer relief is destroyed entirely. A charge lodged at the Land Registry alongside the purchase application also carries no separate fee.
The complication is the mortgage lender. Most high-street lenders require a deposit to be a genuine, non-repayable gift and will not accept a parental loan against the property; Halifax, HSBC, Lloyds, Barclays and others say so expressly. A minority do permit it on strict terms — Nationwide allows a repayment condition (repayment on sale only, no interest, no other claim on the property), and NatWest will agree to a second charge in favour of parents, with the monthly repayment then counted in the affordability assessment. That last point is the practical sting: a £400 monthly obligation reduces the mortgage your child can borrow.
What you cannot do is hide it. The conveyancer is obliged to ask where the balance of the purchase price comes from, to report it to the lender, and to stop acting if the borrower refuses consent to disclose. Signing a gifted-deposit declaration over what is really a loan is mortgage fraud, and it exposes both generations.
Inheritance tax, and what writing it off really costs
Families often lend rather than give in the belief that it helps with inheritance tax. It does not. It is worth being blunt about this, because the belief is widespread and expensive.
An outstanding loan sits in your estate at its full face value. A debt owed to you is an asset, valued at what is recoverable, and an interest-free loan repayable on demand simply stays there at £30,000 for as long as it is outstanding. Lending defers no inheritance tax and saves none. For 2026/27 the nil-rate band is £325,000 and the residence nil-rate band £175,000, tapering away above a £2m estate; both are now frozen until 5 April 2031.
Writing the loan off during your lifetime is a gift. It becomes a potentially exempt transfer, and the seven-year clock starts from the date of the release. Taper relief then reduces the tax charged on that gift by 20% for each year survived beyond three — 80% of the full rate between three and four years, then 60%, 40% and 20%.
The taper trap. Taper relief reduces the tax, not the value of the gift. If the released loan sits within the nil-rate band there is no tax on it to reduce — so taper relief gives you precisely nothing, however long you survive. A £30,000 write-off by someone with a full nil-rate band gains no benefit whatever from surviving four years. What it does do is use up nil-rate band against the rest of the estate.
Better tools exist for small sums: the £3,000 annual exemption, the £250 small-gifts exemption per recipient, and gifts made as normal expenditure out of surplus income, which are exempt immediately without any seven-year wait. If inheritance tax planning is the actual goal, the loan is the wrong instrument and a conversation with a solicitor is the right next step.
Three risks nobody mentions
Universal Credit. A loan received is treated as capital, not income — it is simply not in the exhaustive list of what counts as income. Capital above £6,000 produces a deduction of £4.35 for every £250 or part above that figure, and capital of £16,000 ends entitlement altogether. So a £20,000 parental loan can destroy a child’s Universal Credit the day it lands, even though every penny is owed back. If the recipient is on means-tested benefits, take advice before transferring anything.
Bankruptcy. If your child repays you and then becomes bankrupt, a trustee can challenge the repayment as a preference. For an associate — which includes a parent or child — the reach-back is two years, and the law presumes the desire to prefer, so it falls to the parent to disprove it. Worse: an undocumented “loan” can be recharacterised as a gift, which is a transaction at an undervalue with a five-year reach-back. The written agreement is what makes a repayment look like a debt being serviced rather than a family being favoured.
Care fees. Lending money instead of giving it changes nothing for a local authority financial assessment, because the debt owed to you is still capital in your own assessment. Upper and lower capital limits sit at £23,250 and £14,250 and have not moved since 2015. And there is no time limit on the deliberate-deprivation rules — no seven-year equivalent, no lookback cut-off. The much-discussed cap on care costs has never been brought into force.
If it isn’t repaid
Start with a letter before claim. The pre-action protocol for debt claims — the one with the 30-day timetable and the standard information sheet — applies only where the creditor is a business, so a parent suing a child is not bound by it. What applies instead is the general Practice Direction on pre-action conduct: your letter needs concise details of the claim, the basis for it, a summary of the facts, what you want, and how the sum is calculated, with a reasonable time to respond — fourteen days in a straightforward case. Following the debt protocol anyway is good tactics; it makes you demonstrably reasonable if costs are ever argued.
Court is the small claims track for anything up to £10,000. Issue fees run from £35 on very small claims to £70 up to £1,000, £115 up to £3,000, £205 up to £5,000 and £455 up to £10,000; above that it is 5% of the value. A hearing fee follows — £85 on a claim up to £1,000, £181 up to £3,000, £346 above that. There is no longer any discount for issuing online. Small claims for a specified sum are now automatically referred to mediation before a hearing.
On interest: the court’s power to award interest on a debt claim is discretionary and not fixed at any particular rate; for a private lender the Court of Appeal has indicated a fair rate often sits between what the lender could have borrowed at and what they could have earned on deposit, and 3% is a realistic figure. Judgment debts carry 8% — but in the County Court only where the judgment is for £5,000 or more, which catches out lenders suing for smaller sums.
Signing it — and a word on Scotland
A family loan agreement that is a simple contract can be signed electronically, with no witness and no statutory formality. Electronic signatures are valid, and the courts have been generous about what counts as one: a name typed at the foot of an email is a signature, and even an automatically generated sign-off has been held sufficient where there was an intention to authenticate. Keep the audit trail — timestamps, IP addresses, the signing sequence, a hash of the final document — because that is what answers a later denial.
Deeds, as above, still need a physically present witness. And if either party is in Scotland the analysis changes materially: obligations there prescribe after five years rather than six, and execution follows the Requirements of Writing (Scotland) Act 1995 rather than English rules. Northern Ireland is different again. LendRight’s agreements are built for England & Wales.
The finished agreement
The £30,000 deposit loan is a short document: both parties in full; the sum in words and figures; the date, method and reference of the transfer and its purpose; an express statement that no interest is payable; the repayment schedule with its longstop and sale trigger; a prepayment right; what happens on default; a note of the second charge and the lender’s consent to it; governing law of England & Wales; and two signatures with dates.
No solicitor is needed for the agreement itself. One is needed for the charge, and worth an hour if the sum is large or the family situation complicated. Our do-I-need-a-solicitor check sets out where that line falls, and the loan calculator will build the repayment schedule in pounds.
The one thing worth taking from Stokes and Barry together: nobody in either case doubted that a family had moved a large amount of money. What decided both was whether anything written at the time, before the argument, said what the money was. That is a fifteen-minute job now and an unwinnable job later.
Draft yours free — answer the questions, review every clause, and only pay when you are ready to finalise and sign. Both of you e-sign from your phones and each keep an identical sealed copy, verifiable as genuine years afterwards.
Put your family loan in writing
Built for England & Wales, with the clauses above already checked. Free to draft and review every term before you pay to finalise.
Create my loan agreement →- Limitation Act 1980, ss. 5, 6, 8, 29, 30
- Law of Property (Miscellaneous Provisions) Act 1989, s. 1
- Financial Services and Markets Act 2000, s. 22; Consumer Credit Act 1974, ss. 140A–140C
- Income Tax Act 2007, ss. 12, 12B, 874; Finance Act 2026, ss. 5, 9, 10, 72
- Inheritance Tax Act 1984, ss. 7, 8D, 19, 20, 21, 166; HMRC manual IHTM14611
- Land Registration Act 2002, ss. 33, 42, 48; Finance Act 2003, s. 48
- Insolvency Act 1986, ss. 339, 340, 341; Universal Credit Regulations 2013, regs 46, 72; Care and Support (Charging and Assessment of Resources) Regulations 2014, regs 12, 22
- Kaur v Kaur [2025] EWHC 2806 (Ch); Stokes v Stokes [2026] EWHC 1576 (Ch); Thomas Barry v Denis Barry [2024] EWHC 1661 (KB) and costs [2025] EWHC 819 (KB); Carrasco v Johnson [2018] EWCA Civ 87; Hudson v Hathway [2022] EWCA Civ 1648
This article is general information about the law of England & Wales, not legal advice, and LendRight is not a firm of solicitors. Tax figures are for 2026/27 and change. Scotland and Northern Ireland have different rules. For a large sum, a secured loan or a dispute already underway, consult a solicitor.