Reference
Financial & Tax Glossary
Every term used across this site — explained clearly. Search by keyword or browse by letter. Cross-referenced with the ETF guide, options guide, and tax pages.
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60% Tax Trap
The effective 60% Income Tax rate (62% with NI) that hits earnings between £100,000 and £125,140 in 2026/27 — caused by the Personal Allowance tapering away at £1 for every £2 over £100k. See the 60% Trap calculator.
A
Accumulating (Acc) ETF
An ETF that reinvests dividends and income back into the fund automatically rather than paying them out. The unit price rises over time. Inside an ISA, identical tax treatment to distributing ETFs.
Additional Rate (45%)
The top UK income tax band — 45% on taxable income above £125,140 (2026/27). Personal Allowance is fully tapered to zero before this band. Scotland has a "Top Rate" of 48% instead.
Additional Voluntary Contribution (AVC)
Extra pension contributions you can make on top of your standard workplace pension. Useful for using up unused annual allowance or boosting retirement income. Tax relief at your marginal rate.
Adjusted Net Income (ANI)
Total taxable income minus pension contributions and Gift Aid donations. Used by HMRC to calculate Personal Allowance tapering, HICBC, and other income-based thresholds.
Annual Allowance (Pension)
The maximum tax-relieved pension contribution per tax year — £60,000 in 2026/27, tapered for high earners with adjusted income above £260,000 (minimum £10,000). See the annual allowance calculator.
Annual Investment Allowance (AIA)
Allows businesses to claim 100% tax relief on qualifying plant and machinery purchases up to £1,000,000 per year — immediately in the year of purchase rather than spread over time.
Annuity
A pension product where you exchange a pension lump sum for guaranteed income for life. Rates depend on age, gilts yields, and product features (level vs inflation-linked, single vs joint life).
Asset Allocation
The mix of equities, bonds, cash, property, and alternatives in a portfolio. The single most important determinant of long-term returns and risk. Typically shifts toward bonds/cash as retirement approaches.
Assets Under Management (AUM)
The total market value of investments held and managed by a fund. Higher AUM generally means better liquidity, tighter bid-ask spreads, and lower risk of fund closure.
Auto-Enrolment
UK law requiring employers to automatically enrol eligible employees into a workplace pension. Minimum contributions 2026/27: 5% employee + 3% employer = 8% of qualifying earnings.
Annual Exempt Amount (CGT)
The amount of capital gains an individual can realise tax-free each tax year. 2026/27: £3,000 (cut from £12,300 in 2022/23). See the CGT guide.
B
BACS
Bankers' Automated Clearing Services — the main UK system for processing electronic bank transfers, direct debits, and salary payments. Standard transfer time: 3 working days.
Balance Sheet
A financial statement showing what a business owns (assets) and what it owes (liabilities) at a specific point in time. Assets = Liabilities + Equity. Always balances.
Bare Trust
A simple trust where the beneficiary has absolute entitlement to the trust assets. Often used for inheritance planning or holding assets for children outside JISA limits. Income and gains taxed on the beneficiary.
Bed and Breakfasting (30-day rule)
Selling and re-buying the same asset within 30 days. HMRC matches the disposal with the new purchase, blocking the loss-harvesting effect. See the 30-day rule guide.
Bed and ISA
Selling assets from a General Investment Account and re-buying them inside an ISA. Crystallises any CGT (using the £3,000 annual allowance) and wraps the investment for future tax-free growth.
Benefit in Kind (BIK)
Non-cash perks from your employer (company car, private medical insurance, gym membership). Taxable based on HMRC valuations, usually deducted via your tax code.
Beta
A measure of a portfolio or asset's price volatility relative to a benchmark. Beta of 1.0 = moves with the market. Beta >1 = more volatile. Beta <1 = less volatile.
Bid-Ask Spread
The difference between the highest price a buyer will pay (bid) and the lowest price a seller will accept (ask). Narrower spreads mean lower transaction costs.
Formerly "Entrepreneurs' Relief." A reduced CGT rate of 10% (rising to 14% in 2025/26, 18% in 2026/27) on qualifying business disposals up to £1m lifetime limit.
Business Property Relief (BPR)
An IHT relief reducing the IHT charge on qualifying business assets by 50% or 100%. Applies to many AIM-listed shares, trading companies, and partnerships. Useful for estate planning.
C
Capital Gains Tax (CGT)
Tax on profit when you sell an asset for more than you paid. 2026/27: £3,000 annual allowance; rates 18% basic / 24% higher for non-property. See the CGT guide.
Carry Forward (Pension)
Use up to three previous tax years of unused pension annual allowance in the current year — potentially up to £240,000 in 2026/27. See the carry-forward guide.
Cash ISA
An ISA that holds cash deposits earning interest tax-free. Annual limit £20,000 (shared with other ISA types). FSCS-protected up to £120,000 per individual per banking group.
CASS (Client Assets Sourcebook)
The FCA rulebook every UK investment firm must follow when handling client money and assets. Forces firms to ring-fence client assets in nominee structures separate from the firm's own balance sheet.
Child Benefit
Monthly UK benefit for parents of children under 16 (or under 20 in education). £27.05/week for the first child, £17.90/week for each additional child (2026/27). Clawed back via HICBC above £60,000.
Class 2 NI
A flat weekly NI contribution paid by some self-employed people. Most self-employed below the small profits threshold can pay voluntarily to build State Pension entitlement. Class 2 was largely abolished from April 2024.
Class 3 NI
Voluntary NI contributions to fill gaps in your record and build State Pension entitlement. £18.40/week or £956.80/year (2026/27). See the Class 3 calculator.
Class 4 NI
Profit-based NI for self-employed people. 6% on profits £12,570–£50,270 + 2% above £50,270 (2026/27). Paid through Self Assessment.
Earning interest (or returns) on your interest (or returns). The snowball effect — small amounts grow exponentially over long time horizons.
Contango
A futures market condition where future contract prices are higher than the current spot price. Causes roll costs for futures-based ETFs (e.g. oil ETFs) which drag on returns versus spot price.
Corporation Tax
Tax paid by limited companies on profits. 19% small profits rate (up to £50,000 profit), 25% main rate (above £250,000), with marginal relief between £50,000–£250,000.
Covered Call
An options strategy where you own the underlying asset and sell a call option against it. Generates premium income but caps your upside above the strike price.
CPI / RPI
Consumer Prices Index and Retail Prices Index — the two main UK inflation measures. CPI is the official target measure; RPI is typically 0.5–1% higher and used for some legacy index-linked products like gilts.
Cumulative Tax Code
A tax code that calculates your tax by reference to your year-to-date earnings and tax paid — the default. Allows automatic adjustment if you under- or over-paid earlier in the year. Contrast with Week 1/Month 1.
Custody / Nominee Account
The structure under which a UK broker holds your shares, ETFs and funds. Legal title with the broker; beneficial ownership with you. Required by CASS. Protects assets if the broker fails.
D
DB Pension (Defined Benefit)
A pension that pays a guaranteed income based on salary and years of service. Increasingly rare in the private sector; common in NHS, teaching, civil service.
DC Pension (Defined Contribution)
A pension that depends on contributions and investment performance — the "pot" model. SIPPs and most workplace pensions today are DC. Subject to the 2027 IHT reform.
A formal redirection of an inheritance by a beneficiary, typically to a child or charity. Must be made within 2 years of death. Read back as if the deceased had bequeathed directly — no CGT or SDLT triggered.
Delta
An options Greek measuring how much the option price changes for a £1 move in the underlying. A delta of 0.50 means the option gains 50p for every £1 the stock rises.
Distributing (Dist) ETF
An ETF that pays dividends and income to investors as cash, typically quarterly or semi-annually. The unit price drops on the ex-dividend date by the distribution amount.
The amount of dividend income you can receive tax-free. £500 in 2026/27. Above the allowance, dividends taxed at 10.75% / 35.75% / 39.35% depending on your income band.
Dividend Tax
Tax on dividends above the £500 Dividend Allowance. Rates 10.75% (basic), 35.75% (higher), 39.35% (additional) in 2026/27.
Drawdown (Flexi-access)
A way to take pension income flexibly — pot stays invested, you withdraw as needed. 25% tax-free upfront (subject to LSA cap), remainder taxed at marginal rate. See drawdown comparison.
Duration (Bonds)
A bond metric measuring sensitivity to interest rate changes. Duration of 10 means the bond ETF price falls ~10% if interest rates rise 1%. Longer duration = more interest rate risk.
E
EIS (Enterprise Investment Scheme)
30% income tax relief on up to £1m/year invested in qualifying small UK companies (£2m if knowledge-intensive). CGT deferral, loss relief, IHT relief after 2 years. High-risk: most EIS investments fail.
Emergency Tax Code
Tax codes like 1257L W1/M1 used when HMRC lacks information about your tax situation. Treats each pay period as if it's your first — usually results in over-paying tax which corrects later.
Equity Release
Borrowing against your home in later life, typically via a lifetime mortgage or home reversion plan. Interest rolls up over decades; the debt is repaid from your estate at death.
Excess Reportable Income (ERI)
Income (typically dividends) that accumulating ETFs collected but reinvested rather than distributed. UK investors outside an ISA must still report and pay tax on this, even though they received no cash.
Employer National Insurance
The secondary Class 1 NI paid by employers on each employee's earnings above the £5,000/year Secondary Threshold. 2026/27 rate: 15%. Often invisible to employees but a major cost of employment.
Employment Allowance
A relief letting eligible employers reduce their Class 1 NI bill by up to £10,500 per tax year (2026/27). Not available to single-director companies. See gov.uk.
F
FCA Register
The Financial Conduct Authority's public database at register.fca.org.uk showing every authorised UK financial firm. Always check before depositing money.
First-time Buyer (SDLT relief)
A first-time buyer in England/NI pays no SDLT on the first £300,000 of a home up to £500,000. Above £500k, normal SDLT bands apply with no FTB relief.
Fiscal Drag
The effect of frozen tax thresholds combined with wage inflation, pulling more income into higher tax bands without any rate change. HMRC earns more revenue without Parliament voting to raise rates.
Flat Rate Scheme (VAT)
A simplified VAT scheme for small businesses (turnover under £150k). Pay a fixed flat rate based on industry sector instead of tracking individual VAT amounts. Lost in 2017 reform — limited cases benefit now.
Flexible ISA
An ISA allowing withdraw-and-replace within the same tax year without using up your annual allowance. Most major Cash ISAs are flexible; most S&S ISAs are not. See flexible ISA guide.
FSCS (Financial Services Compensation Scheme)
UK statutory compensation scheme. £120,000 per person per bank for deposits; £85,000 per person per firm for investments. Protects against firm failure, not market losses.
Furnished Holiday Letting (FHL)
A property let furnished as short-term holiday accommodation. FHL's tax advantages (CGT reliefs, pension contributions) were abolished from April 2025. Now treated as standard rental.
G
Gamma
An options Greek measuring the rate of change of delta. High gamma near expiry means delta can shift rapidly.
Gift Aid
A scheme letting registered UK charities reclaim 25p of basic-rate tax for every £1 you donate. Higher-rate taxpayers can also claim back the difference via Self Assessment.
Gilts
UK government bonds — IOUs from HM Treasury. Considered low-risk (UK gov rarely defaults). Yields move inversely to price. Used in pension portfolios for capital preservation.
Gross Profit
Revenue minus the direct costs of producing goods or services (cost of sales). Gross margin = Gross Profit ÷ Revenue.
Gross-up
Reverse-calculating the pre-tax amount from a net (post-tax) figure. E.g. £80 net pension contribution grossed up at 20% relief = £100 gross contribution.
General Investment Account (GIA)
An unwrapped brokerage account — no tax shelter. Dividends and gains attract dividend tax (10.75/35.75/39.35%) and CGT (18/24%) above allowances. Use after ISA + pension wrappers are full. See ISA vs GIA calculator.
H
Help to Buy ISA
A legacy first-home savings scheme (closed to new accounts December 2019). Existing holders can continue contributing up to November 2029 and use bonus until December 2030.
HICBC (High Income Child Benefit Charge)
A tax charge clawing back Child Benefit when adjusted net income exceeds £60,000. Full repayment at £80,000. See the HICBC deep dive.
Higher Rate (40%)
UK income tax band — 40% on taxable income £50,270–£125,140 (2026/27). Marriage Allowance is unavailable; PSA halves to £500.
HMRC
His Majesty's Revenue and Customs — the UK government department responsible for tax collection, NI, and tax credits. Successor to Inland Revenue and HM Customs and Excise.
I
IHT (Inheritance Tax)
40% tax on estate value above £325,000 (nil-rate band) plus up to £175,000 RNRB where the residence passes to direct descendants. See the IHT calculator.
Implied Volatility (IV)
The market's expectation of future price volatility, embedded in option premiums. High IV = expensive options. IV often spikes before earnings and collapses after — "IV crush."
Income Tax
Tax on earnings, pensions, and most other income. Bands 2026/27: 0% on first £12,570 (PA), 20% to £50,270, 40% to £125,140, 45% above. Different bands in Scotland.
Intestacy
Dying without a valid will. The Intestacy Rules determine who inherits — typically spouse first, then children, then wider family. Not always the outcome the deceased would have wanted.
A closed-ended investment fund listed on the stock exchange. Can borrow ("gear"), maintain dividend reserves, and trade at a premium/discount to NAV. Older than the UK's OEIC structure.
ing / Off-Payroll Working
Tax rules determining whether a contractor working through their own company is really a "disguised employee." Inside IR35 = taxed like employee; outside = taxed via dividends. Major reform 2017 (public sector) / 2021 (private).
Iron Condor
A four-leg options strategy: sell an OTM call + put, buy further-OTM call + put. Profit if the underlying stays within the short strikes at expiry.
ISA (Individual Savings Account)
A UK tax-free wrapper. £20,000 annual limit (2026/27). Cash, Stocks & Shares, LISA, and JISA variants. Tax-free interest, dividends, and CGT. See the ISA guide.
J
JISA (Junior ISA)
A tax-free wrapper for children under 18. £9,000 annual limit (2026/27). Money locked until age 18, then full control passes to the child. See the JISA guide.
Joint Tenancy
A form of property co-ownership where each owner has an equal share that passes to the surviving co-owner(s) on death (by survivorship), bypassing the will. Contrast with Tenancy in Common.
Junior SIPP
A pension for children. £2,880 net annual contribution becomes £3,600 gross after 25% basic rate relief. Money locked until age 57+ (rising). Powerful for ultra-long-term retirement seeding.
K
K-Prefix Tax Code
A tax code starting with "K" (e.g. K500) indicating you owe HMRC tax — typically due to benefits in kind or under-paid tax — and additional tax is collected. Read more in the K-prefix guide.
KIID / KID
Key Investor Information Document (KIID for UCITS funds) or Key Information Document (KID for PRIIPs). A short standardised document showing fund objectives, risk, costs, and performance. Required for retail offerings.
L
Land and Buildings Transaction Tax (LBTT)
The Scottish equivalent of SDLT, set by the Scottish Parliament. Different bands and rates from rUK SDLT. Includes an Additional Dwelling Supplement (8%) for second properties.
Land Transaction Tax (LTT)
The Welsh equivalent of SDLT, set by the Welsh Parliament. Different thresholds and surcharge mechanics from England/NI.
Leveraged ETF
An ETF using derivatives to deliver 2x or 3x the daily return of an index. Subject to volatility decay — long-term returns deviate significantly from the multiple. Short-term only.
Lifetime Allowance (LTA)
The lifetime cap on pension benefits before the LTA charge applied (£1,073,100). Abolished from April 2024 and replaced with the LSA and LSDBA. See LSA + LSDBA guide.
Lifetime ISA (LISA)
A government-bonused savings account for first home or retirement. 25% bonus on contributions up to £4,000/year. 25% penalty on non-qualifying withdrawals. See LISA penalty guide.
Limited Company (Ltd)
A separate legal entity owned by shareholders and operated by directors. Pays Corporation Tax on profits; profits paid out as dividends are taxed separately. Provides limited liability.
Lump Sum Allowance (LSA)
£268,275 (2026/27) lifetime cap on tax-free cash from pensions. Replaced the LTA from April 2024.
Lump Sum and Death Benefit Allowance (LSDBA)
£1,073,100 (2026/27) cap on combined lifetime tax-free + tax-free death benefit lump sums.
M
Making Tax Digital for ITSA (MTD ITSA)
HMRC's digital reporting reform requiring landlords and self-employed earners above thresholds to file quarterly updates via approved software. Phased rollout: £50k+ from April 2026; £30k+ from April 2027.
ur next pound of
The tax rate on your next pound of income. Differs from your average rate. For high earners, marginal rates can hit 62% (60% trap) or 65%+ (HICBC stacked). See the marginal rate calculator.
Marriage Allowance
A transfer of £1,260 of Personal Allowance from a lower-earning spouse (income below £12,570) to a higher-earning spouse paying basic rate. Saves up to £252/year. Not available if higher-rate or above.
Mixed-Use Property
A property with both residential and non-residential elements (e.g. flat above a shop). Qualifies for commercial SDLT rates — much lower than residential + 5% surcharge. See mixed-use guide.
Money Purchase Annual Allowance (MPAA)
A reduced pension annual allowance of £10,000 (2026/27) triggered when you take any taxable pension income via drawdown or UFPLS. Permanent — cannot be reversed.
N
National Insurance (NI)
UK payroll contribution by employees (Class 1) and self-employed (Class 2 + 4). Funds State Pension and contributory benefits. Employee Class 1: 8% on earnings £12,570–£50,270 + 2% above.
Nil Rate Band
The IHT-free portion of an estate. Standard NRB: £325,000 (frozen until April 2030). Plus up to £175,000 Residence Nil Rate Band where the home passes to direct descendants.
Non-domiciled (Non-dom)
A UK tax concept distinguishing where you "belong" for tax purposes from where you live. Reformed in 2025 — the non-dom regime was abolished and replaced with a residence-based system.
O
OCF (Ongoing Charges Figure)
The annual cost of holding an ETF/fund as a percentage. A 0.20% OCF on £10,000 = £20/year. Lower is better — the difference compounds dramatically over decades.
OEIC (Open-Ended Investment Company)
A UK retail investment fund structure — open-ended (units created/redeemed daily). The dominant fund structure for UK retail investors alongside Unit Trusts.
Off-Payroll Working
See IR35. Specifically the 2017/2021 reforms shifting responsibility for assessing employment status from the contractor's ltd company to the engaging end-client.
P
An HMRC form employers file annually listing benefits in kind given to employees (company car, medical insurance, etc.) so HMRC can tax them via the employee's tax code.
P45
A form given by an employer when you leave a job. Shows pay and tax paid in the tax year so your new employer can apply the correct tax code.
P60
An annual statement from your employer showing total pay, tax, and NI for the tax year just ended. Issued by 31 May each year. Needed for mortgage applications and tax-return checking.
P800
A letter from HMRC showing you've under- or over-paid tax in the previous year. Triggered when HMRC's end-of-year reconciliation finds a discrepancy. Refund or demand follows.
Payment on Account (PoA)
Advance payments toward the following year's Self Assessment tax bill. Required when your SA liability exceeds £1,000 and <80% was deducted at source. Due 31 January and 31 July.
Personal Allowance (PA)
The amount you can earn tax-free. £12,570 (2026/27). Tapered by £1 for every £2 of adjusted net income above £100,000, fully gone at £125,140.
Personal Savings Allowance (PSA)
Tax-free interest allowance. £1,000 for basic-rate taxpayers, £500 for higher-rate, £0 for additional-rate (2026/27).
Private Residence Relief (PRR)
CGT relief on your main home. No CGT on the gain attributable to the period you lived in the property as your main residence, plus the final 9 months automatically.
Profit & Loss (P&L)
A financial statement showing income, costs and profit over a period. Revenue → Gross Profit → Operating Profit → Net Profit.
PAYE (Pay As You Earn)
The system through which UK employers deduct Income Tax and National Insurance from employees' pay before paying it. Determined by your tax code. See UK tax rates guide.
Q
Qualifying Years (NI)
A tax year in which you paid sufficient NI or received NI credits to count toward State Pension. Need 35 years for a full new State Pension (2026/27 maximum £241.30/week).
R
Rebalancing
Selling overweight asset classes and buying underweight ones to return a portfolio to its target allocation. Forces "buy low, sell high" — disciplined investors typically rebalance annually.
Recycling (Pension)
Withdrawing tax-free cash from a pension and recontributing it (sometimes with leverage) for fresh relief. HMRC has anti-avoidance rules limiting this. MPAA was designed to deter it.
REIT (Real Estate Investment Trust)
A company owning income-producing real estate, required by law to distribute at least 90% of taxable income to shareholders. REIT ETFs hold baskets of listed REITs.
Relevant Earnings
Earnings that qualify for pension contribution relief — salary, self-employment profits, taxable benefits. Excludes dividends, rental income, pension income. Caps tax-relieved contributions to 100% of relevant earnings.
Residence Nil Rate Band (RNRB)
An additional IHT-free band for estates passing the family home to direct descendants. £175,000 (2026/27). Tapers above £2m estate value.
S
Salary Sacrifice
Giving up gross salary in exchange for a non-cash benefit (typically pension). Reduces pay before Income Tax and NI — relief up to 42% for higher-rate, 53% for HICBC-affected parents.
SDLT (Stamp Duty Land Tax)
Property purchase tax in England and Northern Ireland. Bands plus a 5% additional-dwelling surcharge and 2% non-resident surcharge can stack. See SDLT calculator.
Section 104 Pool
HMRC's CGT method for averaging the cost basis of identical shares or crypto holdings. All purchases blend into one pool; disposals are matched against the pool average.
SEIS (Seed Enterprise Investment Scheme)
50% income tax relief on up to £200,000/year invested in qualifying early-stage UK startups. CGT exemption on disposal, loss relief, IHT relief. Higher-risk than EIS.
Self Assessment (SA)
HMRC's system for reporting and paying tax outside PAYE. Required for self-employed, landlords, HICBC payers, high earners. Deadline 31 January following the tax year.
SIPP (Self-Invested Personal Pension)
A personal pension with full investment choice. Contributions get tax relief at your marginal rate. Cannot be accessed before age 57 (rising from 55 in 2028).
Smart Beta / Factor ETF
An ETF tracking a rules-based index using factor screens (quality, value, momentum, low volatility) rather than pure market-cap weighting.
SSAS (Small Self-Administered Scheme)
A company-sponsored occupational pension for SME directors. Multiple members can pool funds, lend up to 50% back to the sponsoring employer, and buy commercial property collectively.
Starting Rate for Savings
A 0% tax band on savings interest. Up to £5,000 of savings interest is tax-free if your total non-savings income is below £17,570. Useful for low-earners.
State Pension
A regular government payment to people who reach State Pension age (66 in 2026, rising to 67 between 2026–2028). New State Pension: £241.30/week (2026/27) for a full record of 35 qualifying years.
a "sufficient ties" test (SRT)
HMRC's rules for determining UK tax residency. Combination of automatic tests and a "sufficient ties" test based on UK days of presence. Different from SDLT residency test.
Student loan plan (1 / 2 / 4 / 5 / PG)
The UK has five student loan plans, each with its own threshold and interest formula. Plan 1 (pre-2012 English/Welsh + all NI), Plan 2 (2012-2023), Plan 4 (Scotland), Plan 5 (post-Aug 2023), and the Postgraduate Loan (PG). See the complete student loan guide.
T
Tapered Annual Allowance
Reduced pension AA for high earners with adjusted income >£260,000 (2026/27). Reduces by £1 for every £2 of excess income, minimum £10,000.
Tax Code
A code from HMRC telling your employer how much tax-free pay to give you each pay period. Standard: 1257L (£12,570 PA). Modifiers indicate benefits, deductions, K-prefixes, emergency status.
Tax Year
The UK tax year runs from 6 April to 5 April. Most allowances (ISA £20,000, CGT £3,000) reset each year on 6 April. Tax returns reference the previous tax year.
Tax-Free Childcare (TFC)
A government scheme giving £2,000/year per child (£4,000 for disabled children) toward childcare costs. Both parents must work; income caps apply (£100k each).
Tax-Free Lump Sum (Pension)
25% of your pension that can be withdrawn tax-free at age 55+ (rising to 57 in 2028). Capped at £268,275 by the Lump Sum Allowance (2026/27).
Tenancy in Common
A form of property co-ownership where each owner holds a specified share that passes by will (not survivorship). Common in cohabiting couples and IHT planning structures.
Theta
An options Greek measuring time decay — how much value the option loses per day. Long options have negative theta; short options have positive theta.
Top-Slicing Relief
A tax relief for chargeable event gains on life insurance bonds — spreading the gain over the years held to reduce the tax bite. Complex; specialist advice usually needed.
Tracking Error
How closely an ETF follows its benchmark index. Lower tracking error = more accurate replication. Physical ETFs typically have lower tracking error than synthetic.
A £1,000 tax-free allowance for casual/hobby self-employment income. No Self Assessment needed below £1,000 of trading income. Useful for side hustles.
U
UCITS
Undertakings for Collective Investment in Transferable Securities. EU/UK regulatory framework for retail funds. Provides diversification rules and liquidity standards.
UFPLS (Uncrystallised Funds Pension Lump Sum)
A way to take a one-off pension lump sum without entering drawdown. 25% tax-free, 75% taxable. Triggers MPAA. See comparison guide.
Umbrella Company
A payroll intermediary used by contractors who can't (or won't) operate their own limited company — common for inside-IR35 work. Charges a margin; admin costs are taxable to the worker.
UTR (Unique Taxpayer Reference)
A 10-digit reference number HMRC assigns to people registered for Self Assessment. Required for all SA filings and HMRC correspondence about Self Assessment.
V
VAT (Value Added Tax)
A consumption tax on most goods/services. Standard rate 20%; reduced 5% (energy); zero 0% (most food, children's clothing). Businesses with turnover above £90,000 (2026/27) must register.
VCT (Venture Capital Trust)
30% income tax relief on up to £200,000/year invested in qualifying VCTs. Tax-free dividends, tax-free CGT on disposal after 5 years. High-risk early-stage investment.
Vega
An options Greek measuring sensitivity to implied volatility. Long options have positive vega — rising IV increases their value.
Volatility Decay
The mathematical effect causing leveraged ETFs to underperform their stated leverage multiple in volatile markets over time. Means 2x/3x ETFs are short-term-only.
Voluntary NI
Class 2 (£3.65/week) or Class 3 (£18.40/week) contributions you pay voluntarily to fill gaps in your NI record. Buy-back deadline for 2006–2018 years is April 2027.
W
W-8BEN
A US tax form UK investors complete to claim the reduced 15% withholding tax (instead of 30%) on US-source dividends. Valid for 3 years.
Week 1/Month 1 Tax Code
A non-cumulative tax code applying allowances to each pay period independently. Often used when HMRC lacks year-to-date information. Suffix W1 or M1.
Withholding Tax
Tax deducted at source on payments — particularly dividends from foreign companies. Most US dividends face 15% withholding for UK investors with a W-8BEN. Claimable via FTCR.
Working Capital
Current assets minus current liabilities. Measures a business's ability to pay short-term obligations.
X
XD (Ex-Dividend)
The first day a share trades without the right to the upcoming dividend. The share price typically drops by approximately the dividend amount on the XD date.
Y
Yield (Bond)
The return on a bond expressed as a percentage. Coupon Yield = annual coupon ÷ price. Yield to Maturity (YTM) = total return if held to maturity, including any capital gain/loss.
Yield to Maturity (YTM)
The total annualised return on a bond if held to maturity, accounting for coupons, current price, and final repayment value. The most useful yield measure for comparison.
Z
Zero-Rated (VAT)
Goods or services taxed at 0% VAT (most food, children's clothing, books). Different from "exempt" — businesses selling zero-rated supplies can still reclaim input VAT.
AA Charge (Annual Allowance Charge)
The tax you pay if you exceed the £60,000 (or Tapered) Annual Allowance for pension contributions. Charged at your marginal Income Tax rate on the excess. Can be paid by you OR by the pension scheme via "Scheme Pays" for charges over £2,000.
Threshold Income
Your taxable income MINUS personal pension contributions (excluding employer contributions). Used to test the Tapered Annual Allowance — taper only applies if Threshold Income > £200,000 AND Adjusted Income > £260,000.
Adjusted Income
Threshold Income PLUS all employer pension contributions. Used alongside Threshold Income to determine if your Annual Allowance is tapered. The most important figure for high-earner pension planning.
UFPLS (Uncrystallised Funds Pension Lump Sum)
A way to take pension benefits in chunks — each chunk is 25% tax-free and 75% taxable. Useful for staging tax-free cash over multiple years. Triggers the £10,000 Money Purchase Annual Allowance (MPAA) on any taxable element.
Crystallised vs Uncrystallised
Crystallised pension funds have had benefits drawn (tax-free lump sum or income). Uncrystallised funds remain untouched. Once crystallised, growth on that portion is taxable on withdrawal. Affects death-benefit and tax planning.
Pension Wise
Free government-backed pension guidance from MoneyHelper for over-50s. Offers a 45-60 minute appointment covering pension access options. Not regulated financial advice but excellent for choices around annuity, drawdown, UFPLS.
Lump Sum and Death Benefit Allowance (LSDBA)
The £1,073,100 lifetime cap on tax-free lump sums plus serious-ill-health lump sums plus tax-free death-benefit lump sums. Replaced the Lifetime Allowance from April 2024. Excess is taxed at recipient's marginal rate.
OCF (Ongoing Charges Figure)
The annual percentage cost of holding a fund or ETF, covering management, custody, audit and admin fees. Replaced TER (Total Expense Ratio) in EU reporting. Doesn't include transaction costs or platform fees. Standard ETF range: 0.07-0.40%.
TER (Total Expense Ratio)
Older term for fund cost — broadly the same as OCF. Some markets still use it. Treat OCF and TER as interchangeable for UK retail investors.
Tracking Difference
The simple difference between fund return and index return over a period. Negative = underperformed. Closer to zero = better. More intuitive than tracking error for retail investors.
Sharpe Ratio
A risk-adjusted return measure: (return − risk-free rate) ÷ standard deviation. Higher = better risk-adjusted return. Useful for comparing similar-risk investments. UK risk-free rate proxy = 1-month gilt yield.
Sortino Ratio
Like Sharpe but only counts downside volatility (negative returns). Better for asymmetric strategies like covered calls. Higher = better downside-adjusted return.
Information Ratio
Active-management measure: (fund return − benchmark return) ÷ tracking error. Higher = more skill at adding value vs benchmark. Useful for evaluating active managers.
Max Drawdown
The largest peak-to-trough loss in a fund's history. Critical for assessing real-world risk tolerance — a fund with 5% expected volatility might still have 30% drawdowns in bad years.
Up/Down Capture Ratio
How much of the benchmark's up/down moves a fund captures. Ideal active fund: > 100% up capture, < 100% down capture. ETF trackers should hit ~100% both ways.
Currency Hedging
A fund mechanism to remove foreign-currency exposure. Hedged ETFs are usually labelled "GBP Hedged". Adds ~0.05-0.20% to OCF. Useful for bond allocations where you don't want FX volatility; less useful for long-term equity.
Fund Domicile
The country in which a fund is legally registered. Ireland and Luxembourg dominate UK-available ETFs due to favourable tax treaties (15% US dividend withholding vs 30% for non-treaty countries).
SMP (Statutory Maternity Pay)
UK statutory maternity pay: 90% of average weekly earnings for weeks 1-6, then £194.32/week (2026/27 rate) for weeks 7-39, then unpaid weeks 40-52. Taxable like normal income. Employer reclaims most from HMRC.
SPP (Statutory Paternity Pay)
UK statutory paternity pay: lower of (90% earnings, £194.32/week) for 1-2 weeks of leave. Eligibility: 26 weeks' continuous employment by the 15th week before due date. Taxable like normal income.
KIT days (Keeping In Touch)
Up to 10 paid days during maternity leave when an employee can work for their employer without ending the leave or losing SMP. SPLIT days are the equivalent during Shared Parental Leave (up to 20 each).
Maternity Allowance
For mothers who don't qualify for SMP (e.g. self-employed). Up to £194.32/week (2026/27) for 39 weeks. Paid by DWP, not employer. Requires 26 weeks' work in the 66 weeks before the due date.
Tax-Free Childcare
UK government top-up scheme: for every £8 you pay into a Tax-Free Childcare account, government adds £2. Capped at £2,000/child/year (£4,000 for disabled children). Working parents earning between £8,668 and £100,000 each.
30 Hours Free Childcare
England-only government scheme giving working parents of 3-4 year-olds up to 30 hours/week of funded childcare during term-time (38 weeks). Income cap £100,000 each parent. Devolved nations have different schemes.
PAYE Coding Notice (P2)
HMRC letter explaining how your tax code was calculated — what allowances, deductions and adjustments make up the final code. Worth checking — errors are common, especially on benefits-in-kind for company car drivers.
Real Time Information (RTI)
HMRC's system for employers to report PAYE data on or before each payment to employees. Replaced annual returns from 2013. Drives the tax-code adjustments visible in P800 letters.
Simple Assessment
HMRC's alternative to Self Assessment for taxpayers with uncomplicated income outside PAYE (typically pensioners). HMRC calculates the tax owed and sends a bill (form PA302). Pay by 31 January following the tax year.
LTV (Loan-to-Value)
Mortgage size as a percentage of property value. 90% LTV = 10% deposit. Lower LTV = better mortgage rate. The major LTV bands for UK mortgage pricing: 60%, 75%, 85%, 90%, 95%.
Early Repayment Charge (ERC)
Penalty for paying off (or partially overpaying beyond the annual limit on) a mortgage during the fixed/tracker period. Typically 1-5% of the outstanding balance, declining over the fix. Most UK fixed deals allow 10% overpayment/year ERC-free.
Guaranteed Future Value (GFV)
The balloon final payment in a PCP car finance contract. Set at start; pay it to own the car, refinance, or hand back. Designed to be roughly the dealer's predicted resale value.
Section 24
Finance Act 2015 provision capping UK landlord mortgage interest relief at a 20% basic-rate tax credit (instead of full deduction). Phased in 2017-2020. Significantly increased BTL tax burden for higher-rate-band landlords.
BVRLA Fair Wear and Tear
Industry standard used by UK leasing and finance companies to assess vehicle condition at hand-back. Excess damage charged separately. Get an independent inspection if disputed.
Emergency Tax Code (1257L M1/W1)
A non-cumulative version of the standard code applied when HMRC doesn't have full year-to-date info (e.g. new job without P45). Each pay period taxed in isolation. Typically over-deducts; corrected once HMRC reconciles.
BR Tax Code
PAYE code meaning "Basic Rate" — all income taxed at 20%, no Personal Allowance applied. Common on second jobs or pensions. Triggers under-payment if you should have additional allowance.
D0 / D1 Tax Codes
D0 = all income taxed at 40% (higher rate). D1 = all income taxed at 45% (additional rate). Used on secondary employments when main job has the Personal Allowance and is already in a higher band.
K-Prefix Tax Code
Tax code with a K prefix means you have a negative Personal Allowance — typically because untaxed income (state pension, benefits) exceeds your tax-free amount. The K-amount is ADDED to your taxable pay.
NT Tax Code
PAYE code "No Tax" — applied when income is not taxable in the UK (typically non-residents working temporarily). Rarely used and requires HMRC authorisation.
Off-Payroll Working Rules
The formal name for what most people call IR35 in the public sector and large private sector since 2017/2021. Shifts responsibility for determining IR35 status to the end client.
Status Determination Statement (SDS)
The written statement an end client must provide to contractors and the deemed employer detailing the inside/outside IR35 decision. Must include reasons; gives the contractor the right to challenge.
Mutuality of Obligation (MOO)
Test in IR35 status determination — is there an ongoing obligation to offer and accept work? Strong MOO suggests employment; weak MOO suggests genuine contracting.
Personal Service Company (PSC)
A UK limited company whose primary purpose is to supply the personal services of its owner-director. The standard vehicle for outside-IR35 contracting.
CEST (Check Employment Status for Tax)
HMRC's own online tool for determining IR35 status. Used widely by public-sector clients. Results are not legally binding but are HMRC's indicative view. Critics argue it under-weights mutuality of obligation.
DeFi (Decentralized Finance)
Smart-contract-based financial services (lending, staking, AMM/LP, yield farming) operating without traditional intermediaries. UK tax treatment is evolving; HMRC issued specific DeFi guidance in 2022 covering yield, swaps, and LP entry/exit.
Liquidity Provider (LP)
Someone who deposits paired tokens into a DEX liquidity pool in exchange for trading fees. HMRC treats LP entry as a disposal (CGT event) and LP exit as new acquisition. Fees earned are typically miscellaneous income.
Yield Farming
Earning DeFi protocol tokens or yield by lending or providing liquidity. UK income tax at the GBP value on the day received. Subsequent sale triggers CGT on any gain or loss from that GBP value.
Airdrop
Tokens distributed free to crypto wallets, often as marketing or governance distribution. UK tax treatment: depends on whether received "for free" (often miscellaneous income or no immediate tax until disposal) or "for action" (income tax at receipt).
Voluntary Disclosure
Contacting HMRC proactively to declare tax not previously reported. Reduces penalties significantly vs HMRC discovering the issue first. Use the losure letter as appropriate., Let Property Campaign, or general disclosure letter as appropriate.
Discovery Assessment
HMRC's power to reopen old tax years (normally 4 years back, 6 years for carelessness, 20 years for deliberate) if it discovers undeclared income or gains. Triggers when HMRC receives new info (e.g. from foreign tax authority).
Time to Pay Arrangement
HMRC's formal mechanism for spreading tax-bill repayment over months/years. Available online for SA debts under £30,000 (12 months max); larger or other taxes by phone. Interest accrues but late-payment surcharge can usually be avoided.
Worldwide Disclosure Facility (WDF)
HMRC's standing disclosure route for UK taxpayers with undeclared foreign income or gains. Lower penalties than waiting for HMRC to find out via CRS/DAC7 exchanges with foreign tax authorities.
Cifas Protective Registration
A flag on your UK credit file (cost £30 for 2 years) requiring extra ID checks on any new credit application in your name. Strong deterrent after identity theft. Run by the UK's leading fraud prevention service.
Authorised Push Payment (APP) Scam
A scam where the victim is tricked into authorising a payment to a fraudster's account (typically via fake bank/HMRC/builder call). Since October 2024, UK banks signed up to the PSR mandatory reimbursement scheme must reimburse most victims.
Consumer Duty (FCA)
FCA rules (in force from July 2023 for new products, July 2024 for legacy) requiring regulated financial firms to deliver "good outcomes" for consumers. Stronger than previous "treating customers fairly" standard. Drives improvements in product design, communications and price transparency.
Persistent Debt (FCA Rule)
Since 2018, FCA rule requiring UK credit card issuers to flag customers who pay more in interest and charges than they repay in principal over 18 months. Issuer must contact customer with options; if persistent for 36 months, issuer must take action.
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