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Loaning Money to Family NZ

Money moves between family members constantly in New Zealand, and almost none of it is written down. A parent helps with a house deposit. A sibling covers a bad month. Someone puts $30,000 into a relationship they expect to last. At the time it feels unnecessary and slightly insulting to ask for paperwork.

The paperwork is not about trust. It is about what happens years later when circumstances change and nobody can prove what was agreed: a separation, a rest home application, a death, or simply two people remembering the same conversation differently. In every one of those, the question is the same, and the answer decides who keeps the money. Was it a gift or a loan?

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The three things to remember

Gift duty is gone, so gifting costs no duty, but gifting is not consequence-free. For the residential care subsidy, only $8,500 a year of gifting is disregarded in the 5 years before applying. And an undocumented advance is presumed by nobody: it is argued about.

The lender usually loses the argument

Where money was handed over with no documentation and the recipient's relationship later ends, the person who provided it is in a weak position. The recipient says it was a gift, and a gift to a couple can become relationship property to be divided. The parent who intended a loan and never wrote it down can watch half of it leave the family. A single page signed at the time prevents this entirely.

Gift or loan: the difference in practice

Question Gift Loan
Repayable? No Yes, on the agreed terms
Yours if the relationship ends? Generally not, it belongs to the recipient and may be shared It is a debt of the recipient, so it comes off what is divided
Counted in your estate? No, it has left Yes, the debt is an asset of your estate
Residential care subsidy? Gifting rules apply and excess is counted back The debt owed to you is an asset you still hold

Neither is better in the abstract. What causes trouble is not choosing, or choosing one and documenting the other.

The residential care subsidy rules

Gift duty was abolished for dispositions made on or after 1 October 2011. That is widely known and widely over-read. The Ministry of Social Development still looks at gifting when assessing eligibility for the residential care subsidy, and the allowances are far smaller than most people assume.

In the 5 years before you apply: up to $8,500 of gifting a year is disregarded, a total of $42,500 across the five years.
Longer than 5 years before you apply: up to $27,000 a year is disregarded.
Gifts in recognition of care are capped at $42,500 when combined with other allowable gifting in the last 5 years.
Anything above the allowance is counted back in as though you still had it.

The consequence is easiest to see with a number.

A parent gifts $50,000.00 towards a child's house deposit.
Three years later they apply for the residential care subsidy, so the gift falls within the 5 year window.
Allowable that year: $8,500.00.
Counted back into their assets: $50,000.00 − $8,500.00 = $41,500.00, money they no longer have but are assessed as holding.

The asset thresholds that this feeds into are tight. For a single person aged 65 or over the threshold is $300,811 or less. Where one partner is in care and the other is not, the person not in care can choose a test of $164,731 excluding the family home and car, or $300,811 including them.

Timing is the whole game

The same $50,000 gifted six years before an application sits under the $27,000 a year allowance and is largely disregarded. Gifted three years before, $41,500 of it is counted back. Nothing about the generosity changed, only the date. This is not a reason to plan around the rules cynically, and deliberate deprivation of assets is looked at closely, but it is a reason to make decisions deliberately rather than accidentally.

What a family loan agreement needs

It does not need a lawyer's letterhead, though for large sums one is money well spent. It needs to exist, be signed, and be dated at the time.

Who and how much. Full names, the exact amount, the date it was advanced.
That it is a loan, in those words. Not "help", not "support".
Repayment terms. Even "repayable on demand" or "repayable on sale of the property" is a term. Silence is not.
Interest, or expressly none. An interest-free loan is fine; say so.
Signatures of everyone involved, including the recipient's partner where there is one.
That last point does most of the work. A partner who signed acknowledging a debt cannot later say they understood it as a gift.

For a house deposit, consider registering a caveat or taking a second mortgage. That converts a promise into a secured interest that shows up when the property is sold or refinanced, and it does not depend on anyone's memory. Lenders will want to know about it, so tell the mortgage broker early rather than late.

When the lender wants it to be a gift

Mortgage lenders often require a signed declaration that money towards a deposit is a genuine gift and not repayable. They do this because a hidden debt changes the borrower's serviceability.

Sign that only if it is true. A declaration saying the money is a gift, followed by a private understanding that it will be repaid, is a serious problem: it misleads the lender, and the document you signed is exactly what will be produced if you later claim it was a loan. If you want the money repaid, structure it so the lender knows, and accept that it may reduce what the borrower can borrow.

The six year clock applies here too

A family loan is a debt like any other, and the Limitation Act 2010 generally gives six years to bring a claim. A loan repayable on demand where no demand is ever made, and no payment or acknowledgement occurs, can quietly become unenforceable. See when old debt expires for how the clock works and what restarts it.

Death, wills and fairness between children

An undocumented advance to one child is a common source of estate disputes. The parent intends it as an early share of the inheritance. The other children find out at the worst possible moment, and there is nothing in writing to say whether it was meant to come off that child's share.

Say so in the will. A clause recording advances already made, and whether they are to be deducted, removes the argument entirely.
Keep the loan document with the will so the executor finds it.
Update it when circumstances change, including when a loan is forgiven.
Forgiving a loan is itself a gift, on the date you forgive it, with the gifting consequences above.

That last line matters more than it looks. A parent who lends $50,000 and later says "do not worry about it" has made a $50,000 gift on the day they said it, not on the day they advanced the money. If the residential care subsidy is a live question, the timing has just moved.

Before you hand the money over

Decide which it is. Gift or loan. Not "we will see".
Write it down and sign it the same week. Backdating later is worthless and worse.
Include the partner. If there is a relationship, get their signature too.
Tell the mortgage broker if a property purchase is involved.
Assume you will not be repaid. If that would damage you, lend less.
Every one of these is easier before the money moves than after.

Working out what you can actually afford to advance is a separate question from whether you should. The personal loan repayment calculator is useful for setting realistic repayment terms if you do structure it as a loan with instalments.

What this guide does not cover

Relationship property law is genuinely complex and contracting out agreements have their own requirements, including independent legal advice for each party. Trusts add another layer again. Loans to a family member's business, and guaranteeing someone else's borrowing, are different subjects with different risks. Deliberate deprivation of assets ahead of a subsidy application is examined closely and is not a strategy. This is general information rather than legal or financial advice, and anything involving a large sum or a rest home application is worth a lawyer's time.

Test Your Knowledge

Ten questions on money that moves between family.

1. How much gifting is disregarded per year in the 5 years before a residential care subsidy application?
$6,000
$27,000
$8,500
$42,500
2. How much is disregarded per year for gifts made longer than 5 years before applying?
$8,500
$27,000
$42,500
There is no limit
3. A parent gifts $50,000 three years before applying. How much is counted back into their assets?
Nothing, gift duty was abolished
$8,500
$41,500
$50,000
4. Undocumented money is advanced, and the recipient's relationship later ends. Who is in the weaker position?
The recipient, who must prove it was a gift
Neither, courts split it evenly
The person who provided it, since a gift can become relationship property
The recipient's partner
5. Which signature does most of the protective work on a family loan?
The recipient's partner's
A witness's
A lawyer's
The mortgage broker's
6. A lender asks you to declare that deposit money is a genuine gift. What should you do?
Sign it and keep a private agreement that it is repayable
Sign only if it is true, and otherwise structure it so the lender knows
Refuse to sign anything
Sign it, since such declarations are not binding
7. You forgive a family loan five years after making it. When is the gift treated as made?
When the money was originally advanced
On the date of your death
It is not a gift at all
On the day you forgive it
8. What is the residential care subsidy asset threshold for a single person aged 65 or over?
$300,811
$164,731
$42,500
$500,000
9. How can a deposit loan be secured against the property?
By keeping the bank transfer receipt
By adding a clause to your will
It cannot be secured
By registering a caveat or taking a second mortgage
10. A loan repayable on demand, never demanded and never acknowledged, can become what?
Automatically a gift after three years
Doubled by statutory interest
A charge on the borrower's estate forever
Unenforceable, since the Limitation Act generally allows six years

Sources: Work and Income on the Residential Care Subsidy, including asset thresholds and gifting allowances, Inland Revenue Tax Technical on gifting, the Property (Relationships) Act 1976 and the Limitation Act 2010. Thresholds are adjusted periodically; check the current figures before relying on them.

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