UK Personal Finance Glossary

An extra 5% Stamp Duty charge on top of standard SDLT rates when buying a second home or buy-to-let property in England and Northern Ireland.

The interest rate for savings accounts showing the annual rate including compounding. AER makes it easier to compare different savings accounts regardless of how often interest is paid.

Costs you can deduct from your self-employed income before tax, such as office costs, travel, equipment, and professional fees. You can only deduct expenses that are 'wholly and exclusively' for business purposes.

The total cost of borrowing including interest and fees, expressed as a yearly rate. Used for credit cards, loans, and mortgages. A lower APR means cheaper borrowing.

A debt payoff strategy where you target the debt with the highest interest rate first while making minimum payments on all other debts. This saves the most money in interest over time.

Relief that allows certain business assets to pass Inheritance Tax-free. Qualifying assets held for at least 2 years can receive 50-100% relief from IHT.

Tax on the profit when you sell an asset that has increased in value, such as shares, property (not your main home), or business assets. The annual exempt amount is £3,000 for 2025-26.

A weekly payment from the government to parents for each child (currently £25.60/week for the eldest child). The High Income Child Benefit Charge (HICBC) claws it back when one parent earns over £60,000.

A long-term tax-free savings account for children born between 1 September 2002 and 2 January 2011, opened with an initial government deposit of £250. The child can access the funds at age 18.

National Insurance contributions paid by employees and employers. Employees pay 8% on earnings between £12,570 and £50,270, then 2% above. Employers pay 15% on earnings above £5,000 per year.

National Insurance paid by self-employed people on their profits. The rate is 6% on profits between £12,570 and £50,270, then 2% above. Class 2 NI was abolished from April 2024.

Interest earned on both your original deposit and the interest that accumulates over time. Albert Einstein reportedly called it the 'eighth wonder of the world'. Even small deposits grow significantly over decades thanks to compounding.

A local tax on domestic properties, collected by local authorities. The amount depends on your property's valuation band (A to H in England) and your local council's tax rate. Single-person households get a 25% discount.

An instruction to your bank allowing a company to collect varying amounts from your account on agreed dates. Used for bills, credit card payments, and savings. The Direct Debit Guarantee protects you against incorrect payments.

The amount of dividend income you can earn tax-free each tax year. For 2025-26, the allowance is £500. Dividends above this are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate).

An informal agreement with creditors to repay debts at an affordable rate, usually arranged through a free debt charity like StepChange. Unlike an IVA, there is no legal binding and creditors can still add interest.

The level of earnings at which certain tax or benefit rules change. Examples include the £12,570 personal allowance threshold, the £50,270 higher rate threshold, and the £100,000 personal allowance taper start.

The total tax you pay as a percentage of your total income. Unlike your marginal tax rate (the rate on your highest pound of income), this gives you a truer picture of your overall tax burden.

Fees charged by lenders if you repay all or part of your mortgage during a fixed-rate period. Typically 1-5% of the outstanding balance, decreasing each year of the fixed term.

The UK regulator responsible for overseeing financial firms and markets. The FCA sets rules for mortgages, loans, investments, insurance, and pensions to protect consumers.

A mortgage where the interest rate stays the same for an agreed period (typically 2, 3, 5, or 10 years). Your monthly payments remain predictable regardless of Bank of England base rate changes during that time.

Your total income before any deductions such as Income Tax, National Insurance, or pension contributions. Your employer shows your gross pay on your payslip before deductions are applied.

A tax charge that applies when the highest earner in a household has income over £60,000. It claws back 1% of Child Benefit for every £200 of income between £60k-£80k, and all of it above £80k.

Someone whose taxable income falls between £50,271 and £125,140 (2026/27, England and Wales). They pay 40% Income Tax on earnings in this band. In Scotland, higher rate starts at £43,663 with 42%.

The UK government department responsible for collecting taxes, paying Child Benefit, and administering tax credits. HMRC also sets rules for Self Assessment, PAYE, VAT, and National Insurance.

A type of car finance where you pay an initial deposit followed by fixed monthly payments. You own the vehicle outright after the final payment. Unlike PCP, there is no optional final balloon payment.

A 40% tax on estates valued above the tax-free threshold (£325,000 nil-rate band plus up to £175,000 residence nil-rate band). Careful planning can reduce or eliminate IHT for most families.

A mortgage where you only pay the interest each month. The loan amount stays the same throughout the term, so you need a separate plan (like an investment or savings) to repay the capital at the end.

A tax-free savings or investment account. You can save up to £20,000 per tax year across Cash ISAs, Stocks & Shares ISAs, Lifetime ISAs, and Innovative Finance ISAs. All interest, dividends, and capital gains are tax-free.

A legally binding agreement to pay off debts over a set period (usually 5-6 years). Unlike bankruptcy, you keep your assets but must follow strict rules. An insolvency practitioner manages the arrangement.

A tax-free savings account for children under 18, with an annual allowance of £9,000. The child can access the money at age 18. Anyone can contribute, and the child receives full control of the account at 18.

An ISA for under-40s that gives a 25% government bonus on savings up to £4,000 per year. You can use the money for a first home (up to £450,000) or retirement (age 60+). Withdrawals for other purposes incur a 25% penalty.

The percentage of a property's value that you borrow as a mortgage. A £180,000 mortgage on a £200,000 property is 90% LTV. Lower LTVs (60-75%) get the best interest rates. Higher LTVs (90-95%) mean higher rates.

A tax perk allowing one partner to transfer £1,260 of their unused personal allowance to their spouse. This saves the receiving partner up to £252 per year. The transferring partner must earn below the personal allowance threshold.

Your take-home pay after all deductions including Income Tax, National Insurance, pension contributions, and student loan repayments. Also called your 'net salary' or 'after-tax' income.

A tax on earnings and profits that funds the NHS, State Pension, and other social security benefits. You build up NI qualifying years to become eligible for the State Pension (typically 35 years for full amount).

The Inheritance Tax-free threshold of £325,000 per person. Estates valued below this pay no IHT. Any unused nil-rate band transfers to a surviving spouse or civil partner.

The annual fee charged by a fund or ETF, expressed as a percentage of your investment. A 0.25% OCF means you pay £2.50 per year for every £1,000 invested. Lower OCFs save more over time.

The system employers use to deduct Income Tax and National Insurance from your wages before paying you. Your tax code tells your employer how much to deduct. Most employees are on PAYE.

A car finance agreement with lower monthly payments than HP, ending with an optional balloon payment (GFV - Guaranteed Future Value) if you want to keep the car. You can also return the car or part-exchange.

A long-term savings vehicle designed to provide income in retirement. Contributions benefit from tax relief (20-45%), employer contributions are common, and you can access 25% tax-free from age 55 (rising to 57 from 2028).

The amount you can earn before paying Income Tax. For 2026/27, this is £12,570. It reduces by £1 for every £2 earned above £100,000, disappearing completely at £125,140 — creating the '60% tax trap'.

The amount of savings interest you can earn tax-free each year. Basic rate taxpayers get £1,000, higher rate taxpayers get £500, and additional rate taxpayers get nothing.

The legal process of validating a will and granting authority to executors to administer an estate. Probate is required before assets can be distributed to beneficiaries, and Inheritance Tax must be paid before probate is granted.

An additional IHT allowance of up to £175,000 when you leave your main home to direct descendants (children or grandchildren). Combined with the standard nil-rate band, a single person can pass on £500,000 tax-free.

A tax on property purchases in England and Northern Ireland. Rates range from 0% to 12% depending on price, buyer status (first-time buyer relief available), and whether it's an additional property (+5% surcharge).

The system for reporting income and paying tax to HMRC if you are self-employed, have untaxed income, earn over £100,000, or need to claim certain reliefs. Returns are due by 31 January each year.

A personal pension that gives you control over where your money is invested. You can choose from a wide range of investments including shares, funds, ETFs, and commercial property. Tax relief applies as with any pension.

A debt payoff strategy where you target the smallest debt first while making minimum payments on others. Each cleared debt frees up payment capacity for the next, creating momentum. Motivational, but may cost more in interest than the avalanche method.

A regular payment from the government when you reach State Pension age (currently 66, rising to 67 between 2026 and 2028). The full new State Pension is about £221.20 per week (2025-26), requiring 35 qualifying NI years.

There are 5 student loan plans (1, 2, 4, 5, and Postgraduate). Each has different thresholds and interest rates. Repayments are 9% of income above the threshold (6% for Postgrad). Loans are written off after 25-40 years depending on the plan.

A reduction in Inheritance Tax on gifts made within 7 years of death. The tax rate decreases from 40% for gifts within 3 years to 8% for gifts in the 6-7 year window. Gifts made more than 7 years before death are completely exempt.

A code used by employers to calculate your Income Tax deductions. The most common code for 2026/27 is 1257L, meaning you have the standard £12,570 personal allowance. Other codes like BR, 0T, or K are used in different circumstances.

A government scheme where you receive £2 for every £8 you save for childcare costs, up to £2,000 per child per year (£4,000 for disabled children). Both parents typically need to be working and earning at least the National Minimum Wage.

A variable-rate mortgage that follows the Bank of England base rate plus a fixed margin (e.g., base rate + 0.5%). If the base rate goes up, so do your payments. Tracker rates are often lower than fixed rates initially.

A legal arrangement where assets are held by trustees for the benefit of beneficiaries. Trusts can help with Inheritance Tax planning, allow you to control how assets are used, and protect assets for vulnerable beneficiaries.

A publicly traded company that invests in small, early-stage UK businesses. VCTs offer significant tax reliefs including 30% upfront Income Tax relief, tax-free dividends, and tax-free capital gains, but carry higher risk.