{"id":3567,"date":"2026-08-01T08:48:08","date_gmt":"2026-07-31T22:48:08","guid":{"rendered":"https:\/\/chipkie.com\/uk\/?p=3567"},"modified":"2026-08-01T08:48:11","modified_gmt":"2026-07-31T22:48:11","slug":"family-loan-startup-funding-uk","status":"publish","type":"post","link":"https:\/\/chipkie.com\/uk\/2026\/08\/01\/family-loan-startup-funding-uk\/","title":{"rendered":"Family Loan for Startup Funding: 2026 UK Guide"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><em>By <strong>The Chipkie Team<\/strong>, Personal Finance Editorial Team \u00b7 Last updated 1 August 2026<\/em><\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<p class=\"wp-block-paragraph\">Your uncle offers you \u00a3150,000 to get the company off the ground. There&#8217;s no term sheet, no solicitor, and no conversation about what he actually gets in return \u2014 just a bank transfer and a hug. Eighteen months later, when a real investor asks to see your cap table, that hug becomes a problem worth considerably more than \u00a3150,000. Family capital is the fastest money a UK founder will ever raise, and the most expensive money a founder can mishandle.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The UK version of this problem has a particular sting. Britain runs two of the most generous startup investment reliefs in the world \u2014 SEIS and EIS \u2014 and the rules are built to exclude precisely the relatives most likely to back you. Your brother can claim 50% income tax relief on the same investment your mother cannot. Meanwhile a straight loan carries a withholding obligation that most founders have never heard of until <a href=\"https:\/\/www.gov.uk\/directors-loans\/you-lend-your-company-money\" target=\"_blank\" rel=\"noopener\">HM Revenue &amp; Customs<\/a> asks about it. Getting the structure right is worth tens of thousands of pounds before the company has earned a penny.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Key Takeaways<\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The UK has no gift tax, but inheritance tax applies to gifts made within seven years of death \u2014 so an undocumented &#8220;loan&#8221; that was really a gift can resurface in probate years later.<\/li>\n\n\n\n<li>For SEIS and EIS, &#8220;associates&#8221; include spouses, parents, grandparents, children and grandchildren \u2014 but <strong>not<\/strong> siblings, aunts, uncles, nieces, nephews, cousins or in-laws. That single distinction decides who in your family can claim relief.<\/li>\n\n\n\n<li>SEIS gives 50% income tax relief on up to \u00a3200,000 per investor per tax year; EIS gives 30%. Relief attaches only to newly issued full-risk ordinary shares, so preference shares and convertible loan notes earn nothing.<\/li>\n\n\n\n<li>From 6 April 2026, EIS company limits doubled: \u00a310 million a year, \u00a324 million lifetime, and gross assets of \u00a330 million before investment and \u00a335 million after.<\/li>\n\n\n\n<li>If your company pays interest on a family loan that could run beyond 12 months, it must deduct 20% income tax at source and report it quarterly on form CT61 \u2014 a widely missed obligation.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Why do handshake deals with family turn into equity problems?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Handshake deals become equity problems because undocumented money has no defined character, and the person who defines it later is rarely you. A transfer with no paperwork can be argued after the fact as a gift, a loan, or an investment \u2014 and the version that gets adopted usually depends on who has the better solicitor at the worst possible moment.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The friction shows up in three places, and never on day one:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Emotional drift.<\/strong> Your father lends you \u00a380,000 when the company is worth nothing. Three years later you raise at a \u00a312 million valuation. He never asked for equity, but he starts doing the maths on what his money &#8220;should&#8221; have become. Nobody is wrong here \u2014 the terms were simply never agreed.<\/li>\n\n\n\n<li><strong>Legal expiry.<\/strong> Under the Limitation Act 1980, a simple contract debt in England and Wales becomes unenforceable after six years. In Scotland, the Prescription and Limitation (Scotland) Act 1973 generally gives five. For a loan repayable on demand, that clock can start when the money moves, not when you finally ask for it back.<\/li>\n\n\n\n<li><strong>Estate ambiguity.<\/strong> If your parent dies with an undocumented \u00a3150,000 &#8220;loan&#8221; outstanding, the executors must decide whether it&#8217;s an asset of the estate or a lifetime gift. That decision affects the inheritance tax computation and your siblings&#8217; shares. Undocumented money is how families end up in contentious probate.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">The fix is one decision, made in writing, before the money moves: is this <strong>debt<\/strong> or is this <strong>an investment?<\/strong> We covered the wider principles in our guide to <a href=\"\/blog\/financial-boundaries-family\/\">setting financial boundaries with family<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Which of your relatives can actually claim SEIS or EIS relief?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">This is the question that changes the economics of a UK family round, and most founders get it wrong. An investor is disqualified from relief if they, taken together with their <strong>associates<\/strong>, hold more than 30% of the company&#8217;s ordinary share capital, issued share capital, voting power or rights to assets on a winding up.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The critical point is who counts as an associate. Under the venture capital scheme rules, associates include spouses and civil partners, lineal ancestors and lineal descendants \u2014 parents, grandparents, children, grandchildren \u2014 plus business partners and certain trustees. <strong>Siblings are not associates.<\/strong> Neither are aunts, uncles, nieces, nephews, cousins or in-laws.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In practice, for a founder holding a typical majority stake:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Your mother, father, grandparents, children and spouse<\/strong> are attributed with your shareholding. If you hold more than 30%, they are connected and cannot claim SEIS or EIS relief on their investment. They can still invest \u2014 they just get no relief.<\/li>\n\n\n\n<li><strong>Your brother, sister, uncle, cousin or mother-in-law<\/strong> can invest and claim relief, provided they don&#8217;t themselves cross 30% and aren&#8217;t employees of the company.<\/li>\n\n\n\n<li><strong>Employees<\/strong> cannot claim, and neither can their associates. Directors are treated differently and can qualify in defined circumstances \u2014 SEIS is more permissive here than EIS.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Two further traps worth knowing. Relief is only available on newly issued <strong>full-risk ordinary shares with no preferential rights<\/strong> \u2014 the moment you give family preference shares or a guaranteed return, relief is lost. And any loan made to the investor that is linked to the investment will disqualify them, so don&#8217;t fund your relative&#8217;s subscription.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The current headline figures: SEIS offers 50% income tax relief on up to \u00a3200,000 per investor per tax year, for companies under three years old with gross assets under \u00a3350,000, raising up to \u00a3250,000 in total. EIS offers 30% relief on up to \u00a31 million (\u00a32 million for knowledge-intensive companies). Both give a CGT exemption on disposal after three years, plus loss relief if the company fails. Apply for HMRC advance assurance before you take the money.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What changed on 6 April 2026?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The April 2026 reforms materially widened EIS while leaving SEIS untouched. If you last looked at these rules a year ago, your assumptions are out of date.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th>Measure<\/th><th>Before 6 April 2026<\/th><th>From 6 April 2026<\/th><\/tr><\/thead><tbody><tr><td>EIS annual company limit<\/td><td>\u00a35m<\/td><td>\u00a310m (\u00a320m knowledge-intensive)<\/td><\/tr><tr><td>EIS lifetime company limit<\/td><td>\u00a312m<\/td><td>\u00a324m (\u00a340m knowledge-intensive)<\/td><\/tr><tr><td>EIS gross assets, pre-investment<\/td><td>\u00a315m<\/td><td>\u00a330m<\/td><\/tr><tr><td>EIS gross assets, post-investment<\/td><td>\u00a316m<\/td><td>\u00a335m<\/td><\/tr><tr><td>EIS income tax relief<\/td><td>30%<\/td><td>30% (unchanged)<\/td><\/tr><tr><td>VCT income tax relief<\/td><td>30%<\/td><td>20%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">Two consequences for a founder planning a family round. First, EIS now reaches companies that would previously have grown out of it, so the sequence of SEIS first and EIS later has more runway than it used to. Second, with VCT relief cut to 20% while EIS held at 30%, direct EIS investment has become comparatively more attractive \u2014 which is mildly helpful when you&#8217;re asking an aunt to choose between your company and a managed fund.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Should family money be a loan or shares \u2014 and what is CT61?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">For preserving control, a term loan wins: it is the only structure with zero dilution and no governance rights attached. But a UK loan carries a compliance obligation that catches almost every first-time founder.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Where a company pays <strong>yearly interest<\/strong> to an individual, section 874 of the Income Tax Act 2007 requires it to deduct income tax at 20% at source, pay that over to HMRC, and report it quarterly on form CT61. &#8220;Yearly interest&#8221; means interest on a loan that <em>could<\/em> last more than 12 months \u2014 it doesn&#8217;t matter whether it actually does. Short interest, on a loan genuinely expected to be repaid within a year, falls outside it, as does interest paid between two UK companies.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A worked example. Your mother lends the company \u00a3100,000 at 5%. Annual interest is \u00a35,000. The company pays her \u00a34,000, remits \u00a31,000 to HMRC via CT61, and gives her a statement of tax deducted. She declares the full \u00a35,000 on her self assessment and claims credit for the \u00a31,000 \u2014 and depending on her other income, the Personal Savings Allowance of \u00a31,000 for basic rate or \u00a3500 for higher rate taxpayers may cover some of it. The interest is deductible for the company against corporation tax.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">None of this is difficult. It is simply invisible until HMRC raises an assessment with interest and penalties attached.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">How do you keep the relationship intact once the money is in?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">You protect the relationship with a fixed reporting rhythm and an explicit rule about when business gets discussed. Ambiguity is what generates anxious texts at 11pm, and a scheduled update removes the reason for them.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">What works in practice:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Send a written quarterly update.<\/strong> One page: cash position, revenue, headcount, next milestone, and the current status of their loan balance or shareholding. Send it whether the news is good or bad \u2014 consistency is what buys you the benefit of the doubt in a bad quarter.<\/li>\n\n\n\n<li><strong>Set a &#8220;not at the table&#8221; rule out loud.<\/strong> Company performance gets discussed in the scheduled update, not at Christmas. Frame it as protecting the occasion, not dodging the question.<\/li>\n\n\n\n<li><strong>Never let a repayment quietly slip.<\/strong> If you&#8217;re going to miss one, say so two weeks beforehand, in writing, with a proposed revised schedule. A missed payment is a cash flow event; an unexplained missed payment is a betrayal.<\/li>\n\n\n\n<li><strong>Keep the share register current.<\/strong> Private companies must file confirmation statements and maintain a register of members and people with significant control. Family shareholders are shareholders, with the same administrative consequences as any other.<\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\">Frequently Asked Questions<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">Can my parents invest in my startup and claim SEIS relief?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Usually not, if you hold more than 30% of the company. Parents are lineal ancestors and therefore associates, so your shareholding is attributed to them and they fail the substantial interest test. They can still invest \u2014 they simply receive no income tax relief and no CGT exemption. Siblings, by contrast, are not associates and can generally claim in full.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Do I have to charge interest on a family loan to my company?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">No. There is no UK equivalent of the US applicable federal rate requiring a minimum rate on private loans, so an interest-free family loan to your company is permissible. If you do charge interest and the loan could run beyond 12 months, the CT61 withholding obligation applies. Many founders keep family loans interest-free specifically to avoid that administration.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Does a friends and family round need to be reported to the FCA?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">A private limited company is prohibited from offering shares to the public under section 755 of the Companies Act 2006, and promoting an investment is restricted under section 21 of FSMA 2000 unless an exemption applies. A genuine private round among people you already know normally sits within the exemptions, but don&#8217;t advertise it publicly. Take advice before circulating anything resembling a pitch to a wider list.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What happens to my family&#8217;s money if the company fails?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">If they hold SEIS or EIS shares, loss relief can be set against income or capital gains, which materially softens the downside \u2014 one of the strongest arguments for structuring family money as qualifying shares rather than a loan. If they hold a simple loan, recovery depends on the documentation and their position among the company&#8217;s creditors, which will typically be behind secured lenders and HMRC.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Is an interest-free family loan an inheritance tax problem?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">It can be. A loan outstanding at death is an asset of the lender&#8217;s estate and forms part of the inheritance tax computation. If the lender forgives the debt during their lifetime, that forgiveness is a transfer of value and falls under the seven-year rule. The \u00a33,000 annual exemption and the exemption for normal gifts out of surplus income may help, but the position needs documenting either way. See our guide to building a proper <a href=\"\/blog\/family-loan-agreement\/\">family loan agreement<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What&#8217;s the bottom line on family capital and founder control?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Founders rarely lose control of their companies to relatives in a single dramatic moment. They lose it by taking a transfer with no paperwork, then papering over it a year later under time pressure, on terms written by whoever cared most that day. Every structural advantage you have \u2014 zero dilution, no board seat, a repayment schedule that fits your cash flow, 50% relief in your sister&#8217;s pocket \u2014 exists only if it&#8217;s written down before the money moves.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Start by working out who in your family can actually claim relief, because that answer should drive the structure rather than follow it. If the relative is connected and gets nothing from SEIS or EIS, a clean interest-free loan is often the better instrument. If they&#8217;re a sibling or a cousin and the company qualifies, issue proper ordinary shares and get advance assurance first. Then run the numbers with our <a href=\"\/family-loan-calculator\/\">family loan calculator<\/a>, and <a href=\"https:\/\/my.chipkie.com\/register?utm_source=blog&amp;utm_medium=article&amp;utm_campaign=content-engine\">set up a written loan agreement in minutes with Chipkie<\/a>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em><strong>Disclaimer:<\/strong> The information provided in this article is for informational purposes only and should not be considered financial or legal advice. Rules differ across England and Wales, Scotland and Northern Ireland, and depend on individual circumstances. We always recommend consulting a qualified accountant and solicitor before entering into a financial arrangement with another party.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>By The Chipkie Team, Personal Finance Editorial Team \u00b7 Last updated 1 August 2026 Your uncle offers you \u00a3150,000 to get the company off the ground. There&#8217;s no term sheet, no solicitor, and no conversation about what he actually gets in return \u2014 just a bank transfer and a hug. Eighteen months later, when a &#8230; <a title=\"Family Loan for Startup Funding: 2026 UK Guide\" class=\"read-more\" href=\"https:\/\/chipkie.com\/uk\/2026\/08\/01\/family-loan-startup-funding-uk\/\" aria-label=\"Read more about Family Loan for Startup Funding: 2026 UK Guide\">Read more<\/a><\/p>\n","protected":false},"author":3,"featured_media":3568,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_chipkie_hreflang":"","_yoast_wpseo_focuskw":"","_yoast_wpseo_metadesc":"","_yoast_wpseo_title":"","_seopress_analysis_target_kw":"","_seopress_titles_desc":"","_seopress_titles_title":"","rank_math_focus_keyword":"Family Loan for Startup Funding","rank_math_description":"Structure a family loan for startup funding without losing equity or control. SEIS\/EIS rules, the CT61 trap and April 2026 changes explained. See what you need to know","rank_math_title":"","_chipkie_jsonld":"","footnotes":""},"categories":[18],"tags":[],"class_list":["post-3567","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-lending-money-tips"],"_links":{"self":[{"href":"https:\/\/chipkie.com\/uk\/wp-json\/wp\/v2\/posts\/3567","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/chipkie.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/chipkie.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/chipkie.com\/uk\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/chipkie.com\/uk\/wp-json\/wp\/v2\/comments?post=3567"}],"version-history":[{"count":1,"href":"https:\/\/chipkie.com\/uk\/wp-json\/wp\/v2\/posts\/3567\/revisions"}],"predecessor-version":[{"id":3569,"href":"https:\/\/chipkie.com\/uk\/wp-json\/wp\/v2\/posts\/3567\/revisions\/3569"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/chipkie.com\/uk\/wp-json\/wp\/v2\/media\/3568"}],"wp:attachment":[{"href":"https:\/\/chipkie.com\/uk\/wp-json\/wp\/v2\/media?parent=3567"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/chipkie.com\/uk\/wp-json\/wp\/v2\/categories?post=3567"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/chipkie.com\/uk\/wp-json\/wp\/v2\/tags?post=3567"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}