Family members often provide financial support to family without formal paperwork. While this may seem harmless at the time, problems can arise years later when relationships change and someone seeks to argue that a gift was actually a loan and therefore repayment is necessary.
The key distinction is simple: a gift is money given without any obligation to repay it, whereas a loan creates a legally enforceable obligation to repay. If there is uncertainty about which was intended, the Court will look closely at the evidence available when the money changed hands. This was seen in the recent case of Stokes v Stokes[1].
Robert Stokes, the claimant, was a successful businessman and transferred substantial sums of money to his grandson, Sebastian, the defendant. The largest payment (approximately £727,000) was used towards the purchase of a family home. Robert also made several other payments, including contributions towards Sebastian’s wedding and other expenses. Years later, Robert and Sebastian had a falling out at which point Robert claimed that the payments were loans and sought repayment of more than £850,000. In defence, Sebastian submitted that the money had been gifted.
In support, Robert argued that there had been an oral agreement that the money was being lent for property investment purposes. He said Sebastian had proposed buying a property at a discount, selling it later at a profit, and then repaying the funds. Robert relied on a written agreement signed in December 2022 which referred to the money as a loan and stated that it would be repaid when the property was sold.
Sebastian maintained that the money was a gift. He pointed to contemporaneous documents prepared during the property purchase, including declarations and correspondence from solicitors, which described the funds as gifted. He also argued that many of the other payments, including wedding costs, were plainly intended as family support rather than loans.
On considering the evidence submitted, the Court dismissed Robert’s claim in its entirety. The judge found that the evidence did not support the existence of a loan agreement. In particular noting that:
- The documents created at the time of the property purchase referred to the money as a gift;
- There was very little evidence of any clear repayment terms;
- Payments for the wedding and various other expenses were more consistent with gifts than loans; and
- The written agreement relied upon by Robert was produced after family relations had deteriorated and did not accurately reflect what had happened when the money was originally provided.
The Court ultimately concluded that the payments, including the £727,000 used to purchase the property, were gifts rather than loans.
This case highlights several important lessons for anyone providing financial help to family members:
- Record the arrangement clearly. If money is intended to be a loan, have a written loan agreement prepared before the funds are transferred;
- Include repayment terms. A genuine loan should set out when repayment is due, whether interest is payable, and what happens if repayment is not made;
- Ensure documents are consistent. Calling a payment a “gift” in one document and a “loan” in another creates significant evidential difficulties;
- Do not rely on later paperwork. Courts place considerable weight on documents created at the time of the transaction. Attempts to recharacterise a gift as a loan years later are unlikely to succeed without strong evidence; and
- Family relationships can change. What begins as an informal family arrangement can quickly become contentious. Proper documentation protects everyone involved.
The message from Stokes v Stokes is clear: if you intend to make a loan, document it as a loan from the outset. Otherwise, you may find that a court treats the payment as a gift, regardless of what you later believe was intended.
[1] [2026] EWHC 1576 (Ch)
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