Lending money to family


If your child does not have sufficient capital for a deposit or lacks the earning capacity to obtain a good deal from a mortgage lender you may wish to lend your child the money so that, in effect, you become their lender.
 

It would be wise to formally recognise that you are providing a family loan rather than a gift and to arrange the terms of repayment with your child at the outset; this helps to reduce the risk of misunderstanding later on. The terms would include the length of repayment term and your agreement can be evidenced in a Loan Agreement. The various terms of the Loan Agreement are set out here.

When a loan becomes a gift

Although you may begin with the intention of simply lending money to family, if at some stage in the future you are able to afford it, you may wish to waive repayment and to formally convert the loan to a gift. This should be evidenced in writing with a formal Waiver and Deed of Gift.

From an Inheritance Tax  perspective the waiving of the loan will become a Potentially Exempt Transfer (PET) and the consequences of this are that the capital amount of the gift at that point in time will be added to your estate on your death for Inheritance Tax purposes, if you do not survive seven years. Any tax payable as a result of the gift is payable by your child. If they are unable to pay the tax attributable to the gift, HM Revenue & Customs can request that the estate pays the tax.

Implications of lending for your Will

You may wish to use your Will to either ensure that the loan is repaid in full to the estate or that it is waived or settled against that child’s share of your estate vis-a-vis your other children. The loan, whether or not it is repaid to your estate on death, will be an asset of your estate and aggregated with your other assets to calculate any tax due by your Executors.

How to protect your loan

Please contact us to find out more about the ways to protect loan finance provided to help a child get on the property ladder. Please call or fill out our enquiry form and we will get back to you as soon as we can.

Contact us

Please contact us to find out more about the ways to protect loan finance provided to help a child get on the property ladder. Please call or fill out our enquiry form and we will get back to you as soon as we can.

Whether you are gifting property to a family member, undertaking a joint mortgage with a family member, offering a family loan or providing a gifted deposit, the property solicitors at Wellers can help you with all the legal aspects of the Bank of Mum and Dad.

Contact us today for friendly and authoritative advice and information. You can call our offices as detailed below or fill out our enquiry form so that we may get back to you.

  • London
    London City office: 020 7481 2422
  • Bromley
    Bromley office: 020 8464 4242
  • Surrey
    Surrey office: 01483 284567
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    Sevenoaks office: 01732 457575
  • Chislehurst
    Chislehurst office: 020 8295 1989