Money moves between family members all the time at the point of buying a home or moving in with a partner. Parents help a child onto the property ladder, one...
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Money moves between family members all the time at the point of buying a home or moving in with a partner. Parents help a child onto the property ladder, one partner contributes more than the other to a joint deposit, or a relative steps in to ease a stretched mortgage. The intention at the time is usually positive. The risk arrives later, if the relationship ends and no one can agree whether the money was a loan or a gift. In family law, that single question often decides whether the contribution comes back or stays in the property.
In Brief
Under English family law, money lent within a family is treated as a loan only if there is enough evidence that both sides intended it to be repaid. Without a written agreement, the court will look at what was said, what was paid back, and what the parties actually did at the time. For unmarried, cohabiting couples, this matters more than for married couples, because their property claims are decided under trust law (mainly TOLATA, the Trusts of Land and Appointment of Trustees Act 1996) rather than the wider divorce framework.
Why the loan or gift question matters more for cohabiting couples
For married couples, the divorce court has broad powers to redistribute assets fairly, and a family loan is one of several factors considered in this process. For cohabiting couples, that wider safety net does not exist.
There is no automatic right to a share of a partner’s assets on separation. Most disputes over property between unmarried couples are dealt with under trust law, and the central question is who owns what share of the property and why. Whether a sum of money was a loan or a gift can be the difference between recovering a contribution in full and seeing it absorbed into the property pool. For background on the wider position, see our note on rights as a cohabiting couple.
This is why the same family loan can have very different outcomes depending on whether the parties were married or cohabiting.
The legal position for unmarried couples in England and Wales
TOLATA in plain English
The Trusts of Land and Appointment of Trustees Act 1996 (TOLATA) is the route most cohabiting couples take when they cannot agree on property ownership after separation. The court can:
- Declare who has a beneficial interest in the property, and in what share
- Order the sale of the property, or postpone a sale
- Decide who has the right to occupy the property in the meantime
What TOLATA cannot do is rewrite the shares to reach a “fair” outcome the way a divorce court can. The court starts with the legal title and the evidence of intention, then works out the beneficial interests from there.
Why beneficial interest disputes turn on money
When there is no written agreement, the court is asked to infer the parties’ intentions from their conduct and contributions. Typical evidence includes:
- Who put down the deposit, and where that money came from
- Whether the contribution was treated as a loan, a gift, or an investment in a share of the property
- How the mortgage and other outgoings were paid over time
- Any messages, emails, or letters showing what the parties believed was happening
Without clear documentation, the inference exercise can be slow, evidence-heavy, and expensive. Two people who once agreed perfectly on the arrangement can end up with sharply different accounts of it years later.
When the line between a loan and a gift gets blurred
Disagreement over whether money provided was a loan or a gift is one of the most common issues we see in cohabitation disputes. The risk tends to be highest in these everyday scenarios (for joint purchases specifically, see our note on unequal deposit contributions):
- Parents contribute to a deposit and assume the money will come back if the property is sold
- One partner contributes significantly more than the other and assumes that contribution will be ring-fenced
- The arrangement is set up informally, often in a hurry around exchange, with no written terms
- The same sum is described in different ways to different people, for example recorded as a gift in a mortgage application but treated as a loan within the family
That last point is worth flagging. Where money is described as a “gift” in a gifted-deposit letter to a mortgage lender but is privately treated as a loan, there is a real risk of falling foul of the Fraud Act 2006. If the intention is that the money will be repaid, it should be documented and disclosed as a loan, not signed off as a gift.
How a loan agreement protects a family contribution
A properly drafted loan agreement gives a family contribution its best chance of being recognised as a loan if the relationship later breaks down. A good agreement will:
- Record clearly that the money is a loan, and on what terms
- Set out how and when repayment is to be made (including any agreed interest, or that the loan is interest-free)
- Confirm what happens if the property is sold or remortgaged
- Capture the parties’ intentions at the time, in writing and signed
This evidence is decisive in a TOLATA claim. With a signed loan agreement in front of it, the court’s discussion shifts from “what was the money?” to “what should now happen with it?” That is a far more contained dispute, and one that often resolves before court.
When a cohabitation agreement should sit alongside the loan agreement
A loan agreement records the money. A cohabitation agreement records the relationship and the property arrangement around it. The two work best together.
Where couples are living together or buying jointly, a cohabitation agreement can:
- Define the ownership shares in the property (often alongside a Declaration of Trust)
- Record how contributions, including any family loans, are to be treated on separation
- Set out how outgoings will be met and what happens if one party stops contributing
- Provide clarity on what is to be returned to whom if the relationship ends
Where couples have received help from family, a joined-up approach (loan agreement, cohabitation agreement, and a Declaration of Trust where appropriate) closes most of the gaps that cause cohabitation disputes in the first place.
What to do if a dispute has already started
If you are already in dispute about a family loan or a property contribution, the position is rarely hopeless, but the evidence needs to be assembled carefully.
Pre-action steps and the TOLATA route
Before issuing a TOLATA claim, parties are expected to follow the Pre-Action Protocol: set out the claim in writing, share the relevant documents, and try to resolve the dispute through correspondence or mediation first. Going straight to court can result in costs penalties even if you succeed. Background information on cohabitants' rights is generally available from The Law Society.
In practice, that usually means:
- Pulling together bank statements, transfer records and written communications about the money
- Asking the family member who provided the funds for a statement on the original intention
- Considering mediation or a round-table meeting before formal proceedings
- Taking advice early on whether a negotiated outcome is realistically available
The earlier the dispute is shaped properly, the less likely it is to end up in a contested TOLATA trial.
Frequently asked questions
Is money from parents a gift or a loan in UK family law?
It depends on what the parties actually intended at the time. The court will look for evidence of intention rather than relying on how the money is described after the event. A signed loan agreement is the clearest evidence; without one, the court will examine bank records, messages, repayment history, and the parties’ conduct.
Can a family loan be recovered if my cohabiting relationship ends?
Yes, if it can be shown to be a loan rather than a gift. A clear, written loan agreement makes recovery far more straightforward, particularly where the money has been used towards a property and the property is being sold or transferred as part of the separation.
Do unmarried couples have the same property rights as married couples?
No. There is no automatic legal status for “common law” partners in England and Wales. Property claims between unmarried couples are decided under trust and property law, mostly through TOLATA, rather than under the divorce regime.
Should a family loan be disclosed to a mortgage lender?
Yes. Mortgage lenders need an accurate picture of the borrower’s finances. Where money is being lent rather than gifted, this should be disclosed honestly. Describing a loan as a gift in a gifted-deposit letter can amount to mortgage fraud under the Fraud Act 2006.
What is the difference between a cohabitation agreement and a Declaration of Trust?
A Declaration of Trust records the ownership shares in a specific property. A cohabitation agreement is wider, covering contributions, outgoings, and what happens on separation. They are often used together where significant family money is involved.
Speak to our family law solicitors today
If you have lent money within the family, received money to help buy a home, or contributed more than your partner to a property and want to protect that position, we can help. The earlier these arrangements are documented, the easier they are to defend.
Speak to our specialist family law solicitors in Bath, Bristol and Bradford on Avon for advice on family loans, cohabitation agreements and cohabitation disputes, or contact us at info@sharpfamilylaw.com.
Bath:01225 956267 | Bradford on Avon: 01225 448955 | Bristol: 0117 9055 055
