September 2, 2026
General
It is increasingly common for parents to provide financial support to their children during their lifetime, whether to help them onto the property ladder, purchase a first car or simply provide financial assistance.
However, where substantial sums are involved — particularly where children receive different amounts — it is important to be clear about what the payment is intended to be.
Is it an outright gift, or is the money expected to be repaid?
The distinction can have significant consequences when the parent dies and can become a source of disagreement between family members if the position has not been clearly recorded.
Lifetime gifting is commonly considered as part of inheritance tax planning. An outright gift can, depending on the circumstances, reduce the value of an individual’s estate for inheritance tax purposes.
The inheritance tax treatment will depend on factors including the nature and value of the gift and when it was made.
Crucially, however, an outright gift does not ordinarily need to be repaid to the donor’s estate on their death. A loan is different. Unless otherwise agreed, money which remains outstanding under a loan will generally be due to the estate.
Loans between parents and children are common. A parent might, for example, provide a lump sum to help a child purchase their first home. If that money is intended to be repaid but remains outstanding when the parent dies, the executors may need to recover it as an asset of the estate.
For that reason, it is important that both parties understand from the outset whether financial assistance is being given or lent.
At the time a payment is made, its purpose may seem obvious to everyone involved. Years later, however, the position can be much less clear.
When the parent dies, their executors must establish the assets and liabilities of the estate. They may not have been involved when the payment was made and may have little information about what the parent and child originally intended.
This can become particularly problematic where family relationships are difficult or where one child has received substantially more financial assistance than another.
Proper documentation can help avoid that uncertainty.
The arrangement does not necessarily need to be complicated. Ideally, the nature and terms of the payment should be recorded in a document signed by the relevant parties. At the very least, keeping a contemporaneous written record of substantial payments to children and whether they are intended as gifts or loans can provide valuable evidence later.
The distinction can become particularly important under Scots law.
Generally, where one person advances money to another, there is a presumption against donation. In other words, the starting point may be that the payment was not intended as a gift.
The position can differ, however, where there is a natural obligation to support or provide for the recipient, as may arise between a parent and child. In those circumstances, the starting point may instead be that the payment was intended as a gift.
This issue was considered in the recent case of Russell’s Executor v Russell’s Executrix. The Court applied this principle in the context of lifetime advances from a parent to a child and confirmed that the burden of displacing the presumption that the payment was a gift rested with the donor rather than the recipient.
This demonstrates why relying on assumptions after the event can be risky.
Executors need to establish what someone owned, owed and was owed at the date of their death. Without clear records, determining whether a substantial payment made years earlier was a gift or an outstanding loan can be difficult.
Where beneficiaries disagree, the resulting dispute can be stressful, time-consuming and expensive and, in some cases, may ultimately require the Court to determine what was originally intended.
A relatively simple record made at the time of the payment can therefore prevent significant uncertainty later.
If you are considering making a substantial gift or loan to a family member, or have already done so without formally recording the arrangement, taking advice and documenting your intentions can help ensure that your wishes are clear and reduce the risk of future disputes.
