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Sam, Accountant
Category: Tax
Satisfied Customers: 14155
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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My sister wants to borrow 15,000 GBP from me. The plan is that

Customer Question

My sister wants to borrow 15,000 GBP from me. The plan is that she will pay it back in 1 lump sum in 9 years time, plus interest:

How much interest do I need to charge her to counterbalance against:
1) inflation (say 2% per year, charged yearly)
2) tax that I would have to pay when receiving the lump sum back from her?

At the end of the day, in 9 years, after tax or other charges, I want a lump sum in my hand that has not eroded over time.

Submitted: 4 years ago.
Category: Tax
Expert:  Sam replied 4 years ago.



Thanks for your question


1) at 2% rate a year - she will have to pay you back £15,000 x 2% x 9 years = £2700

so a total of £17,700

2) You will be liable to tax on the interest payment of £2700 so the year the loan and interest is paid back, this will need declaring to HMRC

And if this along with your other annual income is less than £42475 then you will pay 20% tax on this interest - so owe HMRC £540 tax.

Let me know if you annual income is less than £9440, or you are over 65 OR your annual income is in excess of £42,475





Customer: replied 4 years ago.

Hi Sam, thanks for the answer. Yes it is likely that my income in 9 years will be over 42.5k GBP. Would I fall into a higher tax bracket then?


The other issue is that I'm living out of the EU right now, but will likely be a resident of the UK in 9 years.


Is there a way to offer this to my sister as a gift, and then she 9 years later gives me a gift back?


I realise I'm asking more of your time, so I'll add an extra 15 GBP, once you've answered.




Expert:  Sam replied 4 years ago.

Hi Scott


Thanks for your response


Yes you will fall into being liable to at least 40% tax on this interest element - so on £2700 - you will pay £1080 tax, and this will apply if you are resident in the UK at that time. (if your income is in excess of £150,000 then 50% tax will apply so £1350 tax)


But if you are still not resident, and your sister is UK resident, then this payment will still be subject to UK tax consideration (as this is where it will arise from) but as a UK citizen you will have your personal tax allowances, to cover this payment, which will then render it tax free.


You can indeed gift this money to your sister, but then as its more than £3000 you do have to consider any Inheritance tax - should you pass away within 7 years of making the gift, as it will then have to be considered along with your estate.

But again - unless you are UK resident AND your estate is worth more than £325,000 will this be of cost.

If more than 7 years lapse from the date o making the gift, then it drops from being considered for Inheritance tax.

But a gift, does not get paid back, so interest does not get charged.


So the final option is just lending her the money with no interest added, in which case, when its paid back, there is nothing to declare to HMRC, as you are not making any money from this arrangement.

Whichever way you decide to take this, make sure appropriate paperwork is drawn up, and it would be prudent to seek legal advise on this aspect.