Financial & Tax Glossary

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.

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.

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.

Your total income minus certain deductions (pension contributions, gift aid). Used by HMRC to calculate Personal Allowance tapering, child benefit charges, and other income-based thresholds.

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.

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. Important for ETF and options trading.

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.

Tax on the profit when you sell an asset for more than you paid for it. The CGT annual exemption is £3,000 (2025/26). Rates: 18% (basic rate) and 24% (higher rate) on shares and investments.

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.

Earning interest (or returns) on your interest (or returns). The snowball effect — small amounts grow exponentially over long time horizons. Albert Einstein's alleged 'eighth wonder of the world'.

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.

Tax paid by limited companies on their profits. 19% small profits rate (up to £50,000 profit), 25% main rate (above £250,000), with marginal relief between £50,000–£250,000.

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. Calls have positive delta; puts have negative delta.

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 before paying Dividend Tax. £500 per year for 2025/26 (reduced from £1,000 in 2024/25 and £2,000 before that).

A bond metric measuring sensitivity to interest rate changes. A bond ETF with duration of 10 means its price falls approximately 10% if interest rates rise by 1%. Longer duration = more interest rate risk.

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.

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.

An options Greek measuring the rate of change of delta. High gamma near expiry means delta can shift rapidly — amplifying gains if the stock moves your way but causing fast losses if it moves against you.

Revenue minus the direct costs of producing goods or services (cost of sales). Gross margin = Gross Profit ÷ Revenue. Does not include overheads or operating expenses.

High Income Child Benefit Charge. A tax charge that claws back Child Benefit when either parent earns above £60,000. The charge equals the full Child Benefit above £80,000.

The market's expectation of future price volatility, embedded in option premiums. High IV = expensive options. IV often spikes before earnings announcements and collapses after — this is IV crush.

A four-leg options strategy: sell an OTM call, buy a higher-strike call, sell an OTM put, buy a lower-strike put. Collect a net credit and profit if the underlying stays within the two short strikes at expiry.

A UK tax-efficient wrapper in which investments grow free of Income Tax, Dividend Tax and Capital Gains Tax — permanently. Annual allowance £20,000 per adult (2025/26). Use it or lose it each tax year.

A savings account where the government adds 25% to contributions (up to £1,000/year free). Can be used toward a first home (up to £450,000) or accessed from age 60. Penalty of 25% on non-qualifying withdrawals.

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 leveraged multiple due to daily compounding effects.

The per-unit value of an ETF, calculated as total assets minus liabilities divided by units in issue. ETFs trade at or very near NAV due to the creation/redemption mechanism of authorised participants.

UK payroll contribution paid by employees (Class 1) and self-employed (Class 2 and 4). Builds entitlement to State Pension and contributory benefits. Employee Class 1: 8% on earnings £12,570–£50,270.

The annual cost of holding an ETF expressed as a percentage of your investment. A 0.20% OCF on £10,000 = £20/year. Lower is better — the difference compounds dramatically over decades.

The amount you can earn before paying Income Tax. £12,570 for 2025/26. Tapered away above £100,000 income at £1 for every £2 earned, disappearing completely at £125,140.

A financial statement showing income, costs and profit over a period. Also called an Income Statement. Revenue → Gross Profit → Operating Profit → Net Profit.

Advance payments toward the following year's tax bill, required when your self-assessment tax exceeds £1,000 and less than 80% was collected at source. Two payments: 31 January and 31 July.

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.

Giving up part of your gross salary in exchange for a non-cash benefit (typically pension contribution). Reduces gross pay before Income Tax and NI, creating tax savings of up to 42p per pound for higher rate taxpayers.

A personal pension giving full investment choice. Contributions receive tax relief at your marginal rate (20% basic, 40% higher). Cannot be accessed before age 57 (rising from 55 in 2028).

An ETF tracking a rules-based index constructed using factor screens (quality, value, momentum, low volatility) rather than pure market capitalisation weighting.

An options Greek measuring time decay — how much value the option loses per day from the passage of time alone. Long options have negative theta. Short options have positive theta — sellers earn from time decay.

How closely an ETF follows its benchmark index. Lower tracking error = more accurate replication. Physical ETFs typically have lower tracking error than synthetic alternatives.

Undertakings for Collective Investment in Transferable Securities. EU/UK regulatory framework for retail investment funds, including most ETFs sold to UK investors. Provides investor protections including diversification rules and liquidity requirements.

An options Greek measuring sensitivity to changes in implied volatility. Long options have positive vega — rising IV increases their value. Short options have negative vega. Highest for long-dated ATM options.

The compounding effect that causes leveraged ETFs to underperform their stated leverage multiple over time in volatile markets. A mathematical certainty — not a fund flaw. Means 2x ETFs should only be held short-term.

The difference between current assets and current liabilities. Measures the business's ability to pay short-term obligations. A business can be profitable but run out of working capital — which causes insolvency.