Last updated: 14 October 2026
Should your daughter pay interest when repaying your loan?
She doesn’t have to. Family loans can be interest-free, and there’s no income tax on you if no interest is charged. If she does pay interest, for example to cover what you’ve lost on savings or a mortgage, the interest is your taxable savings income, though it may be covered by your Personal Savings Allowance. Your daughter can only get tax relief on the interest if she uses the loan for a qualifying purpose, such as a buy-to-let property or her business. A written loan agreement makes the arrangement clear for both of you.
Tax position for each side
| Arrangement | You (lender) | Your daughter (borrower) |
| Interest-free loan | No tax | No tax |
| Interest charged | Taxable savings income | Relief only if for business or letting |
| Loan used to buy her own home | Interest is taxable on you | No relief |
| Loan used for her buy-to-let | Taxable on you | 20% tax credit on finance costs |
| Loan written off | Gift for IHT | No tax |
Inheritance tax
An outstanding loan is an asset of your estate. If you forgive it, that’s a gift, which falls out of your estate after 7 years, or immediately if covered by the £3,000 annual exemption. Interest-free loans don’t count as gifts while they remain repayable on demand.
Example
Graham lends his daughter Katie £40,000 for her house deposit, and she repays £500 a month plus 4% interest to cover what he’d have earned in a savings account. In 2026/27 she pays him about £1,500 of interest. Graham is a basic rate taxpayer with £200 of other interest, so his total savings income is £1,700. The first £1,000 is covered by his Personal Savings Allowance and the remaining £700 is taxed at 20%, costing him £140. Katie gets no relief, as the loan was for her own home. If the loan were interest-free, neither would pay tax.
Writing it down
A simple loan agreement should set out:
- The amount and date
- Whether interest is charged and at what rate
- Repayment terms, or that it’s repayable on demand
- What happens on death
Mortgage lenders
If the loan helps buy a property, the mortgage lender may need to know. A gifted deposit needs a gift letter; a loan may affect affordability.
Lending through your company
If you lend through your company instead, interest received is taxable in the company. Company loans to family members can create benefit in kind charges if they’re directors or employees.
Common mistakes
- Not declaring interest received
- Assuming your daughter gets relief for a home loan
- No written terms, causing disputes on death
- Forgetting to note loan forgiveness as a gift
Rates from April 2027
Savings income tax rates rise by 2 percentage points from 6 April 2027, to 22%, 42% and 47%. If you charge interest on a family loan, the tax on interest above your allowance will rise too, which may make an interest-free loan or a smaller rate more attractive.
Frequently asked questions
Is there a minimum interest rate for family loans?
No.
Does HMRC need to be told?
Only of taxable interest.
Can I charge interest to my son-in-law?
Yes, same rules.
What if the loan is never repaid?
It’s effectively a gift on forgiveness.
Related: interest payments to a family member, gifting inherited money to children and lending to a friend’s company.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with family loans and interest. See our tax refund accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
