Zero is the default, and it’s fine
Most UK family loans charge nothing, and the law is entirely comfortable with that. Interest is not what makes a loan a loan — the obligation to repay is. An interest-free schedule with real dates is a complete, enforceable arrangement — the standard family loan agreement handles it — and for parents helping children it is far and away the norm.
The three rates families actually choose
0% — pure help; the repayment schedule alone provides the structure. 1–4% — the “keep pace” band, chosen when the lender wants the money back with its buying power roughly intact, or when the sum sits where savings interest would otherwise have been earned. Around a market personal-loan rate — rarer, used when the arrangement is deliberately businesslike, perhaps because other siblings borrowed commercially and evenness matters. Whichever band you pick, write the rate as an annual percentage and let the schedule show the arithmetic.
The edges of the range
England and Wales sets no statutory ceiling on interest between private individuals — but the range isn’t lawless. Courts hold a fairness backstop: a credit relationship priced or structured unfairly can be reopened under the Consumer Credit Act’s unfair-relationship provisions. LendRight’s builder draws its warning line at 25% — it will caution you, never block you — on the simple logic that no genuine family arrangement lives anywhere near that number. If yours does, the problem isn’t drafting.
The backstop has case law behind it
The unfair-relationship provisions aren’t theoretical. In Plevin v Paragon Personal Finance [2014] UKSC 61, the Supreme Court reopened a credit relationship as unfair under section 140A of the Consumer Credit Act — the leading modern authority that courts will look at the whole relationship, not just the signature, when pricing or conduct crosses a line. Genuine family loans live nowhere near that territory, and the provisions are aimed squarely at commercial lending — but the direction of travel is the useful lesson: English courts dislike oppressive credit, and a rate a judge would wince at is a rate your family shouldn’t be paying. Sense-check any rate’s real cost with the interest calculator before anyone signs.
The tax line most people miss
Whatever rate you set, the interest you receive is savings income for tax purposes. Depending on your other income, the Personal Savings Allowance (£1,000 for basic-rate taxpayers, £500 at higher rate, nil at additional rate) and the starting rate for savings (up to £5,000 of savings income at 0% for low earners) may shelter some or all of it, but the classification itself doesn’t bend: charge 3% on £20,000 and roughly £600 a year enters your tax picture, reportable via self-assessment if it clears your allowances — the full HMRC map is here. Many families look at that admin and circle straight back to the first option on this page.