The family loan agreement, done properly for England & Wales

Gift or loan? Decide first — it changes everything

The single most litigated question in family money cases is whether a payment was a gift or a loan. If it was a loan, it must be repaid and (if unpaid) can be claimed in the County Court. If it was a gift, it can’t — but it may count as a potentially exempt transfer for inheritance tax, dropping out of your estate only if you survive seven years. A loan, by contrast, stays in the lender’s estate as an asset until repaid or formally waived. If you’re not sure which you mean, try the gift-or-loan decision tool.

What the agreement must nail down

• The parties and the principal — full names, addresses, the exact sum, and how it’s advanced (bank transfer, date).
• The repayment plan — instalments or lump sum, amounts, dates, and the final maturity date. Vague “pay me back when you can” terms are where enforcement dies.
• Interest, if any — stated as an annual rate. There is no statutory cap on a private loan in England and Wales, but courts can reopen unfair relationships (Consumer Credit Act 1974, ss.140A–C), and any interest you receive is taxable savings income — the Personal Savings Allowance (£1,000 basic rate / £500 higher rate) may cover it, otherwise it belongs on a Self Assessment return.
• Missed payments and early repayment — a grace period or an acceleration right; whether early repayment is free (it usually should be, in a family).
• Death and incapacity — the debt becomes a claim against the borrower’s estate; an attorney under a lasting power of attorney or a Court of Protection deputy can act for a borrower who loses capacity.
• Governing law — the law of England and Wales, with its courts taking any dispute.

Why written wins in court

A signed agreement does three jobs at once: it proves the money was a loan, not a gift (the presumption of advancement can otherwise work against parents); it fixes the terms so the argument is about facts, not memories; and it anchors the six-year limitation clock (Limitation Act 1980, s.5) to clear dates. For unpaid loans up to £10,000, the small claims track of the County Court — including Money Claims Online — is designed for people without solicitors, and the signed agreement is the first document the judge will ask for.

Is an e-signed agreement valid?

Yes. A private loan agreement is a simple contract, and electronic signatures are valid for simple contracts in England and Wales — under the Electronic Communications Act 2000 and UK eIDAS, and confirmed by the Law Commission’s 2019 report on electronic execution. LendRight goes further than a squiggle: every agreement is sealed as a locked PDF with a Certificate of Completion recording who signed, when, how they were verified, and a SHA-256 fingerprint that anyone can verify independently.

What LendRight is — and isn’t