Create a family loan agreement in London

Example: a London flat-deposit loan

One London-specific wrinkle worth knowing: if the money is going toward a property purchase, the borrower must tell their mortgage lender and conveyancer that part of the deposit is borrowed. Lenders treat a loaned deposit differently from a gifted one — some will factor the repayments into affordability, and hiding it is mortgage fraud. A written agreement makes the disclosure clean instead of awkward.

Why London loans deserve paperwork more than most

Family lending in London tends to be bigger, longer, and more entangled than anywhere else in the country — deposits that run well into five or six figures, bridging help between sales, business start-up money, rent guarantees for a first flat-share. The sums are large enough that “we’ll sort it out” stops being charming and starts being a genuine risk to the relationship, to the lender’s retirement plans, and — if the borrower is buying with a partner — to what happens if that couple later separates.

• Partners and spouses. If the borrower buys a home with someone else, a signed loan agreement is the clearest evidence that the family money was a loan to be repaid — not a gift that gets divided if the couple splits.
• Estates and siblings. An undocumented “loan” to one child is a classic source of inheritance disputes. A signed agreement (and a record of repayments) keeps things fair and provable for everyone.
• The lender’s own protection. Memory fades; terms drift. Writing down the rate, the schedule, and what happens on a missed payment protects the lender without insulting the borrower.

The law underneath a London loan

London sits in the single legal jurisdiction of England and Wales, so the rules are the same whether the borrower is in Hackney or Harrow. A loan between individuals is a simple contract: offer, acceptance, and consideration (the money itself). It doesn’t need a solicitor or a deed to be binding — but a signed written agreement is what turns “my word against theirs” into something a court can read.

• Interest is allowed, and there’s no statutory cap on a private loan between family members. LendRight’s builder will warn you (never block you) if you set a rate of 25%+ — rates like that between relatives invite challenge and resentment in equal measure.
• Limitation. Under the Limitation Act 1980, a claim on a simple contract must generally be brought within six years of the cause of action — broadly, from when repayment fell due and wasn’t made. Loans with no fixed repayment date have their own quirks, which is exactly why the agreement should set one.
• No licence needed. Lending your own money to family, as a one-off and not by way of business, doesn’t make you a regulated consumer-credit lender.

The HMRC side, briefly

There’s no gift tax in the UK and no tax on simply lending money. Three things do matter:

• Interest you receive is taxable income. If you charge interest, it counts as savings income — depending on your other income, the personal savings allowance and the starting rate for savings may cover some or all of it, but above those it’s declarable.
• The loan stays in your estate. Unlike a gift, an outstanding loan is still your asset for inheritance-tax purposes. Forgiving it later is itself a gift, and the seven-year rule then applies — a waiver of a loan is best done formally, by deed.
• Gift vs loan must be clear on day one. Mortgage lenders, HMRC, and (one day) executors all care about the difference. The agreement is what settles it.

This is general information, not tax or legal advice. For large sums or anything estate-adjacent, our do-I-need-a-solicitor check takes two minutes.

If it goes wrong: where a London dispute is filed

Nobody signs an agreement planning to sue — the point is that a clear document makes suing unnecessary. But if repayment stops and talking fails, a money claim in England and Wales starts online through Money Claim Online or the County Court Money Claims Centre. Claims up to £10,000 are usually allocated to the small claims track — designed for people without solicitors, with limited costs risk. If a hearing is needed, it’s listed at a county court hearing centre near the defendant — in London that means one of the local hearing centres such as Central London County Court.

A signed agreement, a payment reference on the bank transfer, and a simple repayment record are, in practice, the whole evidence bundle. That’s what the builder produces.

Protecting the relationship, not doubting it

Putting a family loan in writing isn’t a vote of no confidence — it’s the opposite. It says: this matters enough to get right, and neither of us should ever have to argue about what we meant. Most disputes between relatives aren’t about bad faith; they’re about two honest people remembering the same conversation differently, years later. The agreement is how you never have that argument.