Loan to family member and repayment

jtk174

Not sure if this is the right board, please move it, if not.
If I make a personal loan to a close family member and they make repayments of between say £500-£1000 a month into my bank account, does this have any implications for me? Is there a better way to do it? Repayment period circa 24 months.

sourcrates

The old adage "only lend to family if you can afford to lose it" would be something to keep in mind, as a lot of family feuds start over borrowed money.

As for any implications for you, only if your on means tested benefits would this cause a potential problem, as you can only have savings of 6k, but if you`re proposing lending money I doubt you will be.

Is there a better way to do it? 

You lend it, they repay you over time, what other way is there???

Brie

You could make it look all legal with a loan document drawn up by a solicitor.  That would make it look serious at least. 

Other things to consider....do you charge interest?  At what rate? what if the financial situation changes significantly and your interest is too high or low?

But it won't guarantee that it will be paid back.  And you need to consider what you might do if it isn't, or if payments slow down or become erratic.  Take your relative to court?  It will likely mean that you just lose even more money. 

Taking someone to court for non payment and getting a CCJ is the only way the only way this will be on the relative's credit history.  Until then there is nothing from stopping them from applying for a mortgage/loan/PCP/credit card.

Emmia

jtk174 said:

Not sure if this is the right board, please move it, if not.
If I make a personal loan to a close family member and they make repayments of between say £500-£1000 a month into my bank account, does this have any implications for me? Is there a better way to do it? Repayment period circa 24 months.

My question would be, why are they asking you rather than taking out a commercial loan, credit card arrangement etc.

If the answer is that they can't get the credit... Then you should consider that before lending.

born_again

sourcrates said:

The old adage "only lend to family if you can afford to lose it" would be something to keep in mind, as a lot of family feuds start over borrowed money.

As for any implications for you, only if your on means tested benefits would this cause a potential problem, as you can only have savings of 6k, but if you`re proposing lending money I doubt you will be.

Is there a better way to do it? 

You lend it, they repay you over time, what other way is there???

Not quite correct
On UC having under £6 means no deductions. Over £6K leads to a deduction of £4.35 for every £250 over £6K, up to £16K, when means tested benefits will stop. As £16 is the max limit.

MyRealNameToo

jtk174 said:

Not sure if this is the right board, please move it, if not.
If I make a personal loan to a close family member and they make repayments of between say £500-£1000 a month into my bank account, does this have any implications for me? Is there a better way to do it? Repayment period circa 24 months.

Are they paying you interest? 

What implications it will have for you depends on your wider circumstances and the answer to the above question. You will potentially have to pay taxes on interest received if you are charging them interest. 

Echo others comments, only lend what you are willing to gift to them.

MEM62

jtk174 said:

Not sure if this is the right board, please move it, if not.
If I make a personal loan to a close family member and they make repayments of between say £500-£1000 a month into my bank account, does this have any implications for me? Is there a better way to do it? Repayment period circa 24 months.

I guess you have not read many of the threads on these forums that refer to lending to friends and family.  In many cases it ends up in money gone, friend gone and the general advice is not to do it.  

jtk174

Thanks so much for all your replies and warnings. I appreciate that there is a risk and I guess time will tell.
One of the thoughts that flicked through my head was that if/when I get payments back into my bank account, is this going to be seen as earnings that get reported to HMRC and I end up paying tax on it! ?
I'm not charging interest so won't be making a profit and will obviously be losing money over the period. 
I'm a pensioner and was shocked this year when I started to pay tax on the savings, I'm now lending!
Any thoughts on what's best to do with the repayments?

Emmia

jtk174 said:

Thanks so much for all your replies and warnings. I appreciate that there is a risk and I guess time will tell.
One of the thoughts that flicked through my head was that if/when I get payments back into my bank account, is this going to be seen as earnings that get reported to HMRC and I end up paying tax on it! ?
I'm not charging interest so won't be making a profit and will obviously be losing money over the period. 
I'm a pensioner and was shocked this year when I started to pay tax on the savings, I'm now lending!
Any thoughts on what's best to do with the repayments?

Why be shocked? If you're fortunate enough to have earnings over the threshold why shouldn't you pay tax? The NHS, Police, and all other services still need to be paid for.

XRS200

jtk174 said:

Thanks so much for all your replies and warnings. I appreciate that there is a risk and I guess time will tell.
One of the thoughts that flicked through my head was that if/when I get payments back into my bank account, is this going to be seen as earnings that get reported to HMRC and I end up paying tax on it! ?
I'm not charging interest so won't be making a profit and will obviously be losing money over the period. 
I'm a pensioner and was shocked this year when I started to pay tax on the savings, I'm now lending!
Any thoughts on what's best to do with the repayments?

You only pay tax on the savings interest, not on the savings.

jtk174

XRS200 said:

jtk174 said:

Thanks so much for all your replies and warnings. I appreciate that there is a risk and I guess time will tell.
One of the thoughts that flicked through my head was that if/when I get payments back into my bank account, is this going to be seen as earnings that get reported to HMRC and I end up paying tax on it! ?
I'm not charging interest so won't be making a profit and will obviously be losing money over the period. 
I'm a pensioner and was shocked this year when I started to pay tax on the savings, I'm now lending!
Any thoughts on what's best to do with the repayments?

You only pay tax on the savings interest, not on the savings.

I think you are closest to what I'm trying to find out. I don't understand what relationship the Banks have with the tax system and is someone paying back a loan, without interest,  classed as earnings?
If money being repayed into my account was to be seen as "earnings" and I was taxed as a result, then I'd actually be being penalised.