Borrowing & Lending Between Family & Friends
What About Interest?
Although it's uncommon for interest to
be charged on loans to family members, it is sometimes is
the case with friends and colleagues.
The problem is that any interest you receive on top of your
loan repayments will count as income - just as savings interest
does. This means it will have to be declared for income
tax purposes and may require you to complete a self-assessment
Just to make things a little more complicated, however,
interest payments may be eligible for tax relief - depending
on the purpose of the loan.
If you think this may apply to you, the best way to find
out your exact situation is to contact HM Revenue & Customs
directly - here are their contact
What About Loans To My Parents?
If a child has made a loan to their parents
that is still outstanding when the parent(s) die, this loan
can be used to reduce the parents' inheritance tax liability.
This is done by offsetting the value of the loan against the value of their
Here is an example:
of outstanding loan: £50,000
of estate: £250,000
of estate for inheritance tax assessment = 250,000 minus
50,000 = £200,000
In this example, the value of the estate is below the inheritance tax threshold anyway, but in some cases the ability to offset debts owed against the value of an estate can be helpful in reducing inheritance tax liability.
Note: This rule does not give you an entitlement to claim the loan back from their estate. Such a claim would have to be processed using the normal procedures for outstanding debts and might require legally-binding proof of the loan and its status.
Read on Loans
between Families / Parents and Children
All This About Tax
between Parents and Children / Other Private Lending Choices