Last Updated: 31 May 2026
These are the terms that come up most across UKFinanceTools guides and calculators, explained in plain English. Hover or tap the dotted terms anywhere on the site to see the same definitions in context.
accumulation units
Fund or ETF units that reinvest income instead of paying it out. The reinvested income is still taxed each year and must be added to your Section 104 cost, or you overpay CGT on sale.
annual allowance
The most you can pay into pensions each tax year with tax relief - £60,000 for 2026/27, covering your own, your employer's and any third-party contributions. Exceeding it triggers a tax charge.
annual allowance charge
The tax charge due when your pension savings in a tax year exceed your available annual allowance. The excess is added to your income and taxed at your marginal rate, and you report it through Self Assessment even if your scheme pays it.
annual exempt amount
The Capital Gains Tax allowance: the slice of gains you can realise each tax year before any CGT is due. It is £3,000 for 2026/27 and cannot be carried forward if unused.
BADR - Business Asset Disposal Relief
A reduced Capital Gains Tax rate on qualifying disposals of your own trading business, up to a £1m lifetime limit. The rate is 14% in 2025/26 and 18% from 6 April 2026.
balancing payment
The top-up you pay on 31 January once your actual tax bill is known: your full Self Assessment liability for the year, minus any payments on account you already made toward it. Capital Gains Tax and student loan repayments always land here, never in a payment on account.
bed and breakfasting
Selling shares to use your CGT allowance then quickly rebuying them. HMRC blocks it - shares rebought within 30 days match to the sale, not the cheaper pool, so no gain is crystallised.
capital allowances
Tax relief for assets you buy and keep for the business, such as cars or equipment. The Annual Investment Allowance lets most businesses deduct the full cost in the year of purchase.
carry forward
Adding unused annual allowance from the previous 3 tax years to the current year's allowance. You must have been a pension scheme member in each year you carry forward from.
cash basis
The default way sole traders record income and expenses since 6 April 2024: you count money when it is actually received or paid, not when invoiced. Traditional accruals accounting is the alternative.
CGT - Capital Gains Tax
Tax on the profit when you sell or dispose of an asset that has risen in value. On shares it is 18% or 24% in 2026/27, charged only on gains above the annual exempt amount.
Class 3 voluntary NICs
Voluntary National Insurance you can pay to fill gaps in your record - £18.40 a week for 2026/27 - so a year counts toward your State Pension. Only worth paying once you have checked the gap will actually raise your pension.
Class 4 NI - Class 4 National Insurance
National Insurance paid by the self-employed on their profits, on top of Income Tax. For 2026/27 it is 6% on profits between £12,570 and £50,270, and 2% above that.
coast FIRE
The point where your existing pot, left alone, compounds to your retirement target by your chosen age with no further saving - you keep working for income but stop contributing. The maths: target discounted back at your expected real return.
consolidated tax certificate - CTC
The annual statement your investment platform sends summarising the interest, dividends and reinvested income on your account - used to complete your tax return.
CPI - Consumer Prices Index
The ONS measure of UK inflation used by the Bank of England for its 2% target. It tracks prices of about 730 goods and services weighted by average household spending, excluding owner-occupied housing costs.
CPIH - Consumer Prices Index including owner occupiers' Housing costs
The ONS's headline inflation measure since 2017. It adds a modelled cost of owner-occupied housing (rental equivalence) to CPI, so it is typically slightly higher.
CSOP - Company Share Option Plan
A tax-advantaged option scheme open to companies of any size, with a £60,000 individual limit. No Income Tax or NI at exercise if the options are held for the qualifying period; gains are taxed as capital gains.
disinflation
When prices are still rising but more slowly: the inflation rate falls, but the price level does not. Disinflation is the opposite of inflation accelerating -- not the same as prices falling (which is deflation).
dividend allowance
The amount of dividend income you can receive each year before dividend tax applies. It is £500 for 2026/27.
emergency tax
A temporary Month-1 tax code a provider applies to a first pension withdrawal before HMRC issues a proper code. It annualises the payment and usually over-taxes it; you reclaim the excess.
EMI - Enterprise Management Incentive
A tax-advantaged share-option scheme for smaller and scale-up companies. Options granted at market value usually carry no Income Tax or NI at exercise, so the whole gain is taxed as a capital gain when you sell.
Employment Allowance
A relief that lets eligible employers cut their employer National Insurance bill by up to £10,500 (2026/27). A single-director company with no other employee above the secondary threshold cannot claim it.
employment income
Earnings taxed under the employment rules - salary, bonuses, and the discount on employee shares. The acquisition charge on share options and RSUs is employment income, so Scottish Income Tax rates apply for a Scottish taxpayer.
ERI - Excess Reportable Income
Undistributed income from an offshore reporting fund that is taxable each year even though you never received it. It is added to your base cost so it is not taxed again as a gain.
exempt supply
Goods or services with no VAT charged and no input VAT reclaimable (insurance, postage, most financial and medical services). Different from zero-rated, which is taxable at 0%.
Flat Rate Scheme
A VAT simplification for small businesses (turnover up to £150,000): you charge customers 20% but pay HMRC a fixed sector percentage of gross turnover, and generally cannot reclaim input VAT.
HCI - Household Costs Indices
An ONS measure of inflation as households actually pay it -- it counts mortgage interest that CPI omits, and is split by income group, tenure and retirement status. Classified as official statistics in development.
IHT - Inheritance Tax
Tax on the estate of someone who has died, charged at 40% above the nil-rate band of £325,000, with an extra residence allowance available in some cases.
ISA - Individual Savings Account
A tax-free wrapper. Gains and income on investments held inside an ISA are free of Capital Gains Tax and dividend tax. The annual subscription allowance is £20,000.
lettings relief
A Capital Gains Tax relief on a former main home that was let. Since April 2020 it applies only where you shared occupancy with the tenant (e.g. a lodger), capped at £40,000.
LISA - Lifetime ISA
An ISA for under-40s saving for a first home or retirement. The government adds a 25% bonus on up to £4,000 a year; withdrawals outside the rules carry a 25% charge.
Lump Sum Allowance
The cap on tax-free pension lump sums since the Lifetime Allowance was abolished - £268,275 across all your pensions for 2026/27. The taxable 75% sits outside it.
Making Tax Digital - Making Tax Digital for Income Tax
HMRC's shift to digital tax: since April 2026, sole traders and landlords above the qualifying-income threshold must keep digital records and send quarterly updates instead of one annual Self Assessment return.
marginal rate
The rate of tax on your next pound of income - your Income Tax band plus, for the self-employed, Class 4 National Insurance. It is what a £1 deduction actually saves you.
MPAA - Money Purchase Annual Allowance
A reduced £10,000 annual allowance for defined-contribution pensions, triggered once you flexibly access a pension (such as taking drawdown income). It cannot be reversed or carried forward.
MTD - Making Tax Digital
HMRC's move to digital record-keeping and quarterly updates. For Income Tax it applies to sole traders and landlords with income above set thresholds.
nil-rate band
The slice of an estate taxed at 0% for Inheritance Tax - £325,000 for 2026/27, frozen to April 2031. A separate £175,000 residence nil-rate band can apply when a home passes to direct descendants.
normal minimum pension age - normal minimum pension age (NMPA)
The earliest age you can normally take a private pension. It is 55 now and rises to 57 on 6 April 2028. Protected pension ages, uniformed-services schemes and ill-health access are the exceptions.
notional distribution
Income an accumulation fund reinvests on your behalf. HMRC treats it as if distributed and taxes it each year, so you add it to your base cost to avoid being taxed on it twice.
payments approach
The method the ONS Household Costs Indices use for housing: it counts actual mortgage interest and dwelling insurance a household pays, rather than notional rent (rental equivalence used in CPIH).
payments on account
Advance instalments toward your next Self Assessment bill, due if the bill tops £1,000. Two payments (31 January and 31 July), each 50% of the prior year's tax - so the first January can be about 150% of the tax.
PCLS - Pension Commencement Lump Sum
The tax-free lump sum you can usually take from a pension, normally up to 25% of the pot, subject to the lump sum allowance.
Personal Allowance
The amount of income you can earn each year before income tax. It is £12,570 for 2026/27, tapering away by £1 for every £2 of income over £100,000.
PET - potentially exempt transfer
A lifetime gift that becomes fully Inheritance-Tax-free if you survive 7 years. Die within 7 years and it counts back against your estate, with taper relief on the tax after year 3.
protected pension age
A right to take pension benefits before the normal minimum pension age. It is kept only if the scheme's rules gave an unqualified right before 57 as at 11 February 2021 and you held that right on or before 4 November 2021, and it can be lost on transfer.
PRR - Private Residence Relief
The relief that exempts the gain on your only or main home from Capital Gains Tax - for the period you lived there plus a final period of ownership (9 months, or 36 months if you are disabled or a long-term care-home resident), apportioned over the total time you owned it.
qualifying year
A tax year in which you paid or were credited with enough National Insurance for it to count toward your State Pension. You typically need 35 qualifying years for the full new State Pension.
readily convertible assets
Shares that can easily be turned into cash - broadly, listed shares or those with arrangements to sell. If share-scheme shares are readily convertible, the acquisition charge attracts National Insurance and PAYE; if not, it is Income Tax through Self Assessment with no NI.
real terms
A value adjusted for inflation so it reflects actual purchasing power rather than the cash amount. If your pay rose 3% but prices rose 4%, your real-terms pay fell.
reverse charge
A VAT rule where the customer, not the supplier, accounts for the VAT - common in construction and cross-border services. The supplier invoices without VAT and the buyer self-accounts.
RPI - Retail Prices Index
An older UK inflation measure that reads higher than CPI because of its arithmetic-mean formula. The UK Statistics Authority will align RPI with CPIH methods from February 2030.
RSU - Restricted Stock Unit
A form of employee share pay. The market value when the shares vest is taxed as employment income, and that value becomes your base cost for Capital Gains Tax on later growth.
safe withdrawal rate - safe withdrawal rate (SWR)
The percentage of a portfolio you draw in year one of retirement (then uprate with inflation) that history suggests survives a full retirement. The familiar 4% comes from US data over 30 years; UK-focused studies sit nearer 3-3.5%, lower for longer horizons.
SAYE - Save As You Earn (Sharesave)
A save-and-buy scheme: you save monthly for 3 or 5 years, then buy shares at a price fixed at the start. There is no Income Tax or NI on exercise, and shares can be moved into an ISA within 90 days.
Scheme Pays
A way to have your pension scheme pay your annual allowance charge out of your benefits instead of from your own pocket. It is mandatory if you meet HMRC's conditions, otherwise voluntary at the scheme's discretion.
secondary threshold
The pay level above which an employer pays Class 1 National Insurance on a worker - £5,000 a year for 2026/27, with employer NI charged at 15% above it.
Section 104 pool
HMRC's method for valuing shares of the same class bought at different times. All purchases are averaged into one pooled cost per share, used to work out the gain when you sell.
Self Assessment
HMRC's system for reporting income and gains not taxed at source. The online return and payment deadline is 31 January after the tax year ends.
SIPP - Self-Invested Personal Pension
A personal pension you control, choosing your own investments. Growth inside it is free of UK tax; withdrawals are taxed as income from age 55 (57 from 2028).
taper relief
A reduction in the Inheritance Tax RATE (not the gift's value) on gifts made 3 to 7 years before death - from 32% down to 8% - and only on the part of gifts above the nil-rate band.
tapered annual allowance
The reduction of the annual allowance for high earners: once adjusted income tops £260,000, the allowance falls £1 for every £2 of excess, down to a £10,000 floor at £360,000.
trading allowance
A £1,000 tax-free allowance for casual or self-employed income. You can earn up to £1,000 before declaring, or deduct the flat £1,000 instead of your actual expenses - not both.
UFPLS - Uncrystallised Funds Pension Lump Sum
Taking pension money in chunks where each withdrawal is 25% tax-free and 75% taxed as income, without moving the whole pot into drawdown.
VAT - Value Added Tax
A consumption tax added to most goods and services - standard rate 20% in the UK. Businesses above the £90,000 turnover threshold must register, charge it, and pass it to HMRC.
wholly and exclusively
The core test for a business expense: it must be incurred only for the purposes of your trade. A cost that also serves a private purpose and cannot be split is disallowed (HMRC manual BIM37000).
zero-rated
Goods and services taxable at 0% VAT (most food, children's clothes, books). They still count as taxable supplies, so related input VAT is reclaimable - unlike exempt items.