A Family Loan Agreement (England and Wales) is a written contract that documents a loan of money between family members — typically parents and children, grandparents and grandchildren, or siblings — or between close friends. It records the key terms of the loan: the amount lent, whether interest applies, the repayment schedule, and what happens if the borrower fails to repay. By putting the arrangement in writing, both parties have clear evidence of the loan terms, protecting their relationship and their legal rights.

Under English law, a family loan is treated as any other private contract. For it to be enforceable, it must satisfy the basic requirements of a valid contract: an offer, acceptance, and consideration. In a loan agreement, the consideration flows from both sides — the lender provides the loan funds, and the borrower promises to repay. A written agreement signed by both parties is sufficient for most family loans; no witness or notarisation is required unless the loan is to be secured against property by a legal charge registered at HM Land Registry.

Several important areas of UK law and HMRC practice affect family loans. The Consumer Credit Act 1974 (CCA) regulates consumer credit — loans made in the course of a consumer credit business — but does not apply to private, unregulated family loans. The Inheritance Tax Act 1984 is relevant where the lender is concerned about the IHT treatment of the loan: a genuine, documented repayable loan is an asset of the lender's estate, whereas a forgiven or written-off loan may be treated as a gift (potentially exempt transfer) for IHT purposes. HMRC's beneficial loan rules under sections 173–191 of the Income Tax (Earnings and Pensions) Act 2003 may apply where the loan is between an employer/company and an employee/director — but generally do not apply to purely private family loans between individuals. The Limitation Act 1980 provides a six-year limitation period for simple contract debts, which can be preserved by a written acknowledgment of the loan in this agreement.

For family loans used to fund property purchases, it is essential to document whether the contribution is a loan or a gift — mortgage lenders require full disclosure of all sources of the deposit, and treating a repayable loan as a gift could constitute mortgage fraud.

When a parent, grandparent, or other family member lends a child or relative a sum of money to help with a house purchase deposit, and both parties want to confirm in writing that the money is a repayable loan and not a gift, ensuring the mortgage lender is provided with accurate information.

When lending money to a close friend or family member for any significant purpose — such as business investment, education costs, or debt consolidation — and both parties want to formalise the repayment schedule, interest terms, and consequences of non-repayment to avoid future misunderstandings.

When a lender wants to document that a transfer of money is a genuine loan (not a gift) for HMRC and inheritance tax purposes, preserving the repayment obligation as an asset of the lender's estate and reducing the risk that HMRC treats the transfer as a potentially exempt transfer (PET) under the Inheritance Tax Act 1984.

When the borrower is purchasing a residential property with the assistance of a mortgage, and the mortgage lender's conveyancer or solicitor requires written evidence that the family contribution is a repayable loan (not a gift), affecting the mortgage lender's assessment of the borrower's affordability and the amount of the mortgage offered.

When the parties want to include an optional security interest over property at HM Land Registry, giving the lender a registered legal charge over the borrower's home in the event of non-repayment, providing protection equivalent to a bank mortgage.

When the lender wants to preserve their right to sue for repayment within the six-year limitation period under the Limitation Act 1980, by obtaining the borrower's written acknowledgment of the debt at the time the loan is made, resetting the limitation clock.

Without a written family loan agreement, recovering the loan through the courts is difficult, the loan may be treated as a gift for IHT purposes, and the mortgage lender may not accept the funds as a legitimate loan source.

Parties and Relationship — Full legal names and addresses (including UK postcodes) of both the lender and the borrower, and their relationship (parent, sibling, grandparent, or friend). Documenting the relationship is relevant for HMRC and IHT purposes.

Loan Amount and Purpose — The principal sum in pounds sterling (GBP), the intended use of the funds (for example, property deposit, business investment, or personal expenses), and the disbursement date. For property purchases, the purpose clause is essential for disclosure to the mortgage lender.

Interest Rate or Interest-Free Status — Whether the loan bears interest at an agreed annual rate, or is interest-free. For interest-free loans, include a note acknowledging HMRC's beneficial loan rules (ITEPA 2003, ss 173–191) where relevant — particularly for loans between employers and employees or companies and directors.

Repayment Method — Whether the loan is repayable by lump sum on a fixed maturity date, by monthly instalments, on demand (where the lender can call in the loan at any time), or on the sale or remortgage of a property. For property-linked loans, include a trigger clause tied to the property transaction.

Security at HM Land Registry — If the loan is to be secured against property, a description of the property (including Land Registry title number), and a note confirming that a legal charge must be executed as a deed and registered at HM Land Registry to be binding against third parties.

Inheritance Tax Considerations — An acknowledgment that the loan is genuinely repayable (not a gift) for IHT purposes under the Inheritance Tax Act 1984, and a note about the potential IHT consequences of later writing off the loan (PET, seven-year rule).

Default and Remedies — Events of default (missed payments, insolvency, sale of secured property without consent) and the lender's remedies, including acceleration of the full outstanding balance and the right to commence County Court proceedings.

Governing Law and Jurisdiction — Confirmation that the agreement is governed by the laws of England and Wales, with disputes to be resolved by the courts of England and Wales. This provides certainty and ensures the agreement is enforceable under English common law.