UK Finance Glossary
Plain-English definitions for the financial terms you'll encounter in HMRC letters, mortgage offers, pension statements and beyond. Updated for 2025/26.
A
- AEA — Annual Exempt Amount
- The amount of capital gains you can make each tax year before CGT applies. For 2025/26 it is £3,000 (reduced from £12,300 in 2022/23).
- AVC — Additional Voluntary Contribution
- Extra pension contributions you make on top of your standard workplace pension to boost retirement savings, often with tax relief.
B
- BADR — Business Asset Disposal Relief
- A CGT relief (formerly Entrepreneurs' Relief) that reduces CGT on qualifying business asset sales, up to a £1 million lifetime limit. The rate is 14% for 2025/26 (increased from 10% in April 2025; rises further to 18% in April 2026).
- Basic Rate Tax
- Income tax at 20%, applying to taxable income between £12,571 and £50,270 in 2025/26.
C
- CGT — Capital Gains Tax
- Tax on the profit when you sell an asset that has increased in value. Rates for 2025/26: 18% (basic rate) or 24% (higher rate) on property; 18%/24% on other assets from October 2024 Budget.
- Child Benefit
- A government payment for parents with children under 16 (or 20 in approved education). The High Income Child Benefit Charge claws it back above £60,000 income.
- Class 2 NI
- National Insurance for the self-employed. Abolished from April 2024 — self-employed now only pay Class 4 NI.
- Class 4 NI
- National Insurance paid by the self-employed on profits. 6% on profits between £12,570–£50,270 and 2% above £50,270 for 2025/26.
- CTF — Child Trust Fund
- A government-backed savings account for children born between 2002–2011. Can be transferred to a Junior ISA.
D
- DB Pension — Defined Benefit
- A workplace pension where your retirement income is based on salary and length of service (a "final salary" or "career average" scheme). Rare in private sector.
- DC Pension — Defined Contribution
- A pension where you and your employer pay in, and the pot grows through investment returns. The most common type of workplace pension today.
- DWP — Department for Work and Pensions
- The government department responsible for benefits, pensions and welfare, including Universal Credit, State Pension and Personal Independence Payment.
E
- EIS — Enterprise Investment Scheme
- A tax relief encouraging investment in small UK companies. Offers 30% income tax relief, CGT deferral and loss relief, but high-risk investments.
- ETF — Exchange Traded Fund
- A fund traded on a stock exchange that tracks an index, sector or asset class. Popular for low-cost, diversified investing inside ISAs and SIPPs.
F
- FIRE — Financial Independence, Retire Early
- A movement focused on aggressive saving and investing to achieve financial independence and retire well before traditional retirement age.
G
- GIA — General Investment Account
- An investment account with no tax wrapper. Gains and dividends are taxable, unlike inside an ISA or SIPP. Used once ISA and pension allowances are used up.
H
- Higher Rate Tax
- Income tax at 40%, applying to taxable income between £50,271 and £125,140 in 2025/26.
- HMRC — His Majesty's Revenue and Customs
- The UK's tax authority responsible for collecting income tax, NI, VAT and other taxes, and for administering Self Assessment.
I
- ISA — Individual Savings Account
- A tax-free savings or investment wrapper. You can save up to £20,000 per tax year. Interest, dividends and gains inside an ISA are free from UK tax.
- IHT — Inheritance Tax
- A tax on the estate of someone who has died. The standard nil-rate band is £325,000; above this, 40% tax applies. A residence nil-rate band of £175,000 may also apply.
J
- JISA — Junior ISA
- A tax-free savings account for children under 18. The 2025/26 annual allowance is £9,000. Funds are locked until age 18.
L
- LTA — Lifetime Allowance
- The maximum pension pot you could build up before paying a tax charge. Abolished from April 2024, replaced by the Lump Sum Allowance (£268,275) and Lump Sum and Death Benefit Allowance (£1,073,100).
- LISA — Lifetime ISA
- An ISA for first-time buyers or retirement saving. You can contribute up to £4,000/year and receive a 25% government bonus. Penalty applies for non-qualifying withdrawals.
- LTV — Loan to Value
- The ratio of your mortgage to the property value, expressed as a percentage. Lower LTV generally means better mortgage rates (e.g. 60% LTV is lower risk than 95%).
N
- NI — National Insurance
- Contributions paid by employees, employers and the self-employed to fund state benefits including the NHS and State Pension. Employees pay 8% (2025/26) on earnings from £12,570–£50,270.
P
- PAYE — Pay As You Earn
- The system by which employers deduct income tax and NI from wages before paying employees. Most employed people pay all their tax this way without filing a return.
- PA — Personal Allowance
- The amount of income you can earn before paying income tax. For 2025/26 it is £12,570. Tapered away for income above £100,000; fully removed at £125,140.
- PIP — Personal Independence Payment
- A benefit for people with long-term health conditions or disabilities, replacing Disability Living Allowance for working-age adults. Not means-tested.
- P60
- An annual summary from your employer showing your total pay and deductions (tax and NI) for the tax year. Used to check you've paid the right amount of tax.
- P800
- A tax calculation letter from HMRC showing you've paid too much or too little tax. If you've overpaid, HMRC will refund you or adjust your tax code.
S
- S&S ISA — Stocks and Shares ISA
- An ISA that holds investments such as shares, funds and bonds rather than cash. Returns are tax-free but the value can fall as well as rise.
- SDLT — Stamp Duty Land Tax
- A tax paid when buying property in England or Northern Ireland. Rates vary by price band and buyer type (first-time buyer, additional property, etc.).
- Self Assessment
- The HMRC system for filing a tax return. Required if you are self-employed, have income over £100,000, have rental income, or have certain other untaxed income.
- SIPP — Self-Invested Personal Pension
- A personal pension where you choose and manage your investments. Contributions receive tax relief at your marginal rate. Flexible investment choice compared to workplace pensions.
- State Pension
- The government pension paid from State Pension age. The full new State Pension in 2025/26 is £230.25 per week (£11,973/year), requiring 35 qualifying NI years.
- Student Loan Repayment
- Income-contingent repayments on student loans. Plan 1: 9% above £24,990; Plan 2: 9% above £27,295; Plan 5: 9% above £25,000 (from 2026). Repayments reduce via Self Assessment if self-employed.
T
- Tax Code
- A code from HMRC that tells your employer how much tax to deduct. The standard code for 2025/26 is 1257L, representing the £12,570 personal allowance.
- Trading Allowance
- A £1,000 tax-free allowance for self-employed income or casual trading income. If gross income is under £1,000, no tax return is needed for that income.
U
- UC — Universal Credit
- A monthly benefit payment for people on low income or out of work, replacing six legacy benefits. The standard allowance plus additions depend on circumstances.
- UTR — Unique Taxpayer Reference
- A 10-digit reference number assigned by HMRC when you register for Self Assessment. Used on all correspondence and tax returns.
V
- VAT — Value Added Tax
- A consumption tax added to most goods and services. Standard rate is 20%. Businesses must register for VAT when turnover exceeds £90,000 (2025/26 threshold).
- VCT — Venture Capital Trust
- A listed company that invests in small early-stage companies. Offers 30% income tax relief on investments up to £200,000/year, plus tax-free dividends.