Plain-English definitions for the UK financial and tax terms that turn up most often in calculators, payslips, mortgage documents and government notices.
A
- AER (Annual Equivalent Rate)
- The interest rate a savings account pays once compounding is annualised. Lets you compare products fairly regardless of how often they pay interest.
- Allowable expense
- A cost incurred "wholly and exclusively" for your business — deductible from trading profit before tax.
- Amortisation
- The mathematical process by which a loan’s balance is gradually reduced through fixed monthly payments that cover both principal and interest.
- APR (Annual Percentage Rate)
- The total cost of borrowing expressed as a yearly rate — includes interest plus mandatory fees. Makes comparing loans apples-to-apples.
- Annual Allowance (pension)
- The maximum you can pay into pensions each tax year while still getting tax relief. £60,000 in 2025/26, tapered down for high earners.
B
- Basic-rate taxpayer
- Someone whose taxable income, after the Personal Allowance, falls in the basic-rate band (up to £50,270 in 2025/26 England/Wales/NI).
- BTL (Buy-to-Let)
- A residential property bought primarily to rent out. BTL mortgages have higher rates, stricter underwriting, and attract the +5% SDLT surcharge.
C
- Carry-forward
- Unused pension Annual Allowance from the previous 3 tax years can be used in the current year — up to £180,000 of extra headroom on top of this year’s £60k.
- CGT (Capital Gains Tax)
- Tax on the profit when you sell an asset worth more than you paid. 18%/24% on all asset types since 30 October 2024 (shares, crypto, and residential property excluding your main home). Business Asset Disposal Relief is 14%. £3,000 annual exempt amount in 2025/26.
- Class 1 NI
- Employee National Insurance, deducted through PAYE. 8% main rate on earnings £12,570–£50,270, 2% above.
- Class 4 NI
- Self-employed National Insurance on profits. 6% main, 2% above £50,270. Paid through Self Assessment.
- Completion (property)
- The day ownership transfers and funds flow to the seller. Your keys date. SDLT is due within 14 days.
- Compound interest
- Interest earned on both the original principal and previously-accumulated interest. Drives long-term investment growth exponentially.
- Corporation Tax
- Tax on UK company profits. 19% small-profits rate (≤£50k), 25% main (≥£250k), marginal relief in between.
D
- Deposit (mortgage)
- The cash portion of a property purchase. The rest comes from the mortgage. Expressed as a percentage (10% deposit = 90% LTV).
- Dividend Allowance
- The first £500 of dividend income is tax-free in 2025/26 (down from £1,000 previously).
- Dividend tax
- Tax on dividends above the Dividend Allowance. 8.75% (basic), 33.75% (higher), 39.35% (additional).
- Drawdown (pension)
- Leaving your pension pot invested while drawing income from it, as opposed to buying an annuity. Income sustainability depends on withdrawal rate and market performance.
E
- Effective rate
- Your blended average tax rate across all bands — always lower than your marginal rate except for basic-rate-only earners.
- Equity (property)
- The portion of a property you own outright. Property value minus outstanding mortgage = your equity.
F
- FTB (First-Time Buyer)
- Someone who has never owned a residential property anywhere in the world. Qualifies for SDLT relief up to £500,000 in 2025/26.
G
- Gross income
- Income before tax and deductions. What your employer pays into the payroll system. Net is what arrives in your bank.
H
- Higher-rate taxpayer
- Someone whose income above the Personal Allowance exceeds £50,270 (2025/26) — pays 40% on income in the higher-rate band.
- HMRC
- His Majesty’s Revenue and Customs — the UK tax authority. Administers Income Tax, NI, VAT, Corporation Tax, SDLT and most other central taxes.
I
- IHT (Inheritance Tax)
- Tax charged at 40% on estate value above £325,000 (plus £175,000 Residence Nil-Rate Band in qualifying cases). Charity donations ≥10% drop the rate to 36%.
- Interest-only mortgage
- Monthly payments cover only the interest — the principal stays flat and must be repaid at the end of the term. Common in BTL, restricted in residential.
- IR35
- UK off-payroll working rules. Determines if a contractor working through a limited company is really a "disguised employee". Inside-IR35 means PAYE tax and employee NI.
- ISA (Individual Savings Account)
- UK tax wrapper. Up to £20,000 per tax year. Growth + income inside are completely tax-free.
L
- LISA (Lifetime ISA)
- Under-40s save up to £4,000/year for a first home (≤£450k) or retirement (from 60). Government adds 25% bonus. 25% penalty on non-qualifying withdrawal.
- LTV (Loan-to-Value)
- Mortgage size ÷ property value. 85% LTV = 15% deposit. Lower LTV = better rates.
M
- Marginal rate
- The tax rate on your next £1 of income. Always higher than your effective rate for multi-band earners.
N
- NI (National Insurance)
- Mandatory contributions that fund the state pension, NHS, and some benefits. Similar to a second income tax but with different thresholds.
- Nil-rate band
- The zero-rate portion of a tax. For IHT, £325,000. For SDLT, £125,000 (main home).
O
- Overpayment (mortgage)
- Paying more than the contractual monthly repayment. Reduces principal faster, saving future interest. Most UK lenders allow 10%/year penalty-free.
P
- PAYE (Pay As You Earn)
- The mechanism by which employers deduct Income Tax and NI from wages each month and remit to HMRC — so most employees never file a tax return.
- Payments on Account
- Pre-payments towards your next Self Assessment bill — paid 31 January and 31 July. Each is 50% of last year’s total tax.
- Personal Allowance
- The portion of income you can earn before paying Income Tax. £12,570 in 2025/26. Tapers to zero between £100k and £125,140.
- Principal
- The amount borrowed (or the amount still owed, after repayments). Distinct from the interest you pay to borrow it.
R
- Remortgage
- Replacing your existing mortgage with a new one, typically at the end of a fixed-rate period. You can switch lender or stay — shopping around usually beats a "product transfer".
S
- SDLT (Stamp Duty Land Tax)
- Tax paid when buying property in England or Northern Ireland. Tiered by price band.
- Self Assessment
- UK tax return process for anyone whose tax isn’t fully collected via PAYE — self-employed, landlords, high-income individuals, investors with complex positions.
- SIPP (Self-Invested Personal Pension)
- A pension where you choose the investments yourself, typically through an online platform. Same tax relief as any pension.
- Stocks & Shares ISA
- ISA wrapper for investments — shares, funds, ETFs, bonds. All growth and dividends tax-free.
- Surcharge (stamp duty)
- Extra 5% SDLT on additional residential property. An extra 2% applies to non-UK residents. Can stack.
T
- Tax year
- The UK tax year runs from 6 April to 5 April the following year. 2025/26 = 6 April 2025 to 5 April 2026.
- Taper
- A phased reduction of an allowance. Used for the Personal Allowance (£100k+ income) and pension AA (£260k+ income).
U
- UEL (Upper Earnings Limit)
- Annual earnings threshold above which employee NI drops from 8% to 2%. £50,270 in 2025/26 — coincidentally matching the Income Tax higher-rate threshold.
V
- VAT (Value Added Tax)
- Consumption tax added to most UK goods and services. Standard rate 20%, reduced 5%, zero on essentials. Businesses must register if turnover exceeds £90,000.
Y
- Yield (rental)
- Annual rent as a percentage of property value. Gross yield uses asking rent only; net yield subtracts ongoing costs (insurance, maintenance, management).