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Real Family Finances

Loaning money to family

What to consider before lending money to family members

Emma Wilcock, Chartered Financial Planner at NFU Mutual, offers advice to Sheila Carr, who wants to understand the financial implications of loaning money to family members

Everybody wants to do all they can to help their loved ones, but you also have to be careful when lending money to your family.

Your generosity can backfire unless done carefully, and lead to family disputes, especially if the recipient is unable to repay as expected.

However, if done properly, offering a helping hand can bring benefits to all.

Is it a loan or a gift?

The first step is to make it clear whether you are gifting or lending money to family, and by lending it you’d therefore expect it back at some point.

If lending money you should:

  • Put it in writing — so that everyone is clear when and how the money will be repaid, and what would happen if either party died.
  • Be clear about repayments —the written document should also set out if the money is repayable on demand, or over pre-set timescale
  • Consider any interest arrangements — if interest is being charged on the money, then this will be included as part of the lender’s taxable income and should be declared to HMRC. An outstanding loan will be included in the lender's estate for Inheritance Tax purposes

If you are gifting money rather than lending, remember you will no longer have any call on the funds if you want them back for any reason in future.

Read more about tax efficient gifting of money to family members.

Make the best decision for you

The decision to lend or gift money to family is highly personal and only you can decide whether this is the right thing for you and your family.

You need to plan carefully to ensure any support you offer works for everyone involved, and avoid handing an unnecessary gift to the taxman.

NFU Mutual Financial Advisers can help you and your family plan for the future. Find out more about our Financial Planning Service