Loan Agreement or Promissory Note?

klondyke

About to lend some interest free money to daughter to help with house purchase.

Obviously we need something in writing, so I told her one of the conditions was, she could draft the agreement ;D

She has come up with a Promissory Note, which seems to say all we want/need it to, but I wondered what technical differences/pitfalls/advantages of Note over Loan Agreement.

Presumably the note only needs her signature, whereas Agreement needs both plus witnesses?

Any comments welcome.

TIA

Rafter

As long as you have something in writing which says it is interest free, I don't think it matters what you call it.

Interest payments would trigger potential income tax payments by you.

If you have significant investments and capital tied up in property yourself (>£250k) and are planning to leave your estate to your daughter/children, you may want to consider making it a gift rather than a loan to avoid inheritance tax at a later stage (as long as your survive for 7 years).

Rafter.

klondyke

Many thanks for response - yes, we had realised about income tax, though it occurred to us that IR might regard a notional rate of interest as a gift, though that should fall within annual allowance. (Hubby and I are each making half the loan).

We had discussed making it a gift, but she won't have it, insisting on paying back in case we need it in our dotage - she could be right . Also, to be fair, we reckoned in that case, we should give the same to her sister, which would be stretching things - though sister is comfortably off, so parity could be sorted out later under will.

As it is, we will probably let her off gradually, within allowance, and also give the amount of letoff to her sister plus the notional rate of interest mentioned above. That should keep it flexible for all of us, with nothing in writing promising we will do any such thing .

Again, many thanks for responding - it's a relief to know things don't have to be ultraformal

Cheers