UK Personal Finance Glossary

The maximum total amount you and your employer can contribute to your pension(s) in a single tax year while still receiving tax relief. The limit for 2025/26 is £60,000 (or 100% of your earnings, whichever is lower). If you exceed it, you pay a tax charge on the excess. High earners above £260,000 adjusted income face a reduced tapered annual allowance. Use the Retirement Planner →

The amount of capital gains you can make in a tax year before Capital Gains Tax becomes payable. For 2025/26, the annual exempt amount is £3,000. Gains below this threshold are tax-free. The allowance cannot be carried forward if unused. Use the CGT Calculator →

The gradual paying off of a debt through regular scheduled payments over time. In the context of a repayment mortgage, each monthly payment covers both interest and a portion of the capital (the original loan amount). Early in the term, most of the payment goes to interest; later, more goes to capital. See a full amortisation schedule →

A standardised way to express the total annual cost of borrowing, including interest and mandatory fees. Lenders are required to advertise APR, making it easier to compare different credit products. For mortgages, the equivalent figure is the APRC (Annual Percentage Rate of Charge).

A Capital Gains Tax relief (formerly called Entrepreneurs' Relief) that allows qualifying business owners to pay a reduced rate of 14% CGT (2025/26) on the sale of a business or business assets, up to a £1 million lifetime limit. To qualify, you must have owned the business for at least 2 years and held at least 5% of shares if selling a company. The rate rises to 18% from April 2026. Use the CGT Calculator →

The lowest rate of income tax in the UK (for England, Wales and Northern Ireland), currently 20%. It applies to taxable income between the personal allowance (£12,570) and the higher rate threshold (£50,270). Most working adults pay some or all of their income tax at the basic rate. Scotland has different bands — see the Tax Rates reference page.

The interest rate set by the Bank of England's Monetary Policy Committee (MPC). It is the benchmark rate at which commercial banks borrow from the Bank of England, and it directly influences the interest rates consumers pay on mortgages, savings, and credit. Tracker mortgages follow the base rate; fixed-rate mortgages are not directly affected until the fixed period ends.

A property purchased with the intention of renting it out to tenants rather than living in it. Buy-to-let mortgages are a separate product from residential mortgages and are assessed differently by lenders (usually based on expected rental income). BTL purchases attract the 5% additional property stamp duty surcharge and rental income is subject to income tax. Capital gains on sale are taxed at 18%/24% (2025/26).

A tax on the profit made when you sell (or "dispose of") an asset that has increased in value. CGT applies to assets such as investment property, shares, and business assets. It does not apply to the sale of your main home (which is covered by Private Residence Relief) or assets held within an ISA. The rates for 2025/26 are 18% (basic rate) and 24% (higher rate). Use the CGT Calculator →

Interest calculated on both the original principal and the accumulated interest from previous periods. This means your savings (or debt) grows exponentially over time rather than linearly. The more frequently interest compounds (daily vs monthly vs annually) and the longer the time period, the greater the effect. Often called "the eighth wonder of the world" in investing. See compound interest in action →

The legal process of transferring property ownership from one person to another. A solicitor or licensed conveyancer manages this process, which includes conducting searches (local authority, environmental, drainage), reviewing the contract, exchanging contracts, and completing the transaction. Typical costs are £1,000–£2,500.

The UK's headline measure of inflation, tracking the price changes of a "basket" of goods and services representative of typical household spending. Used to set the Bank of England's 2% inflation target and to uprate benefits, tax thresholds (including income tax bands from 2028/29), and the state pension triple lock. See also: RPI. Use the Inflation Calculator →

A pension scheme where the retirement income is calculated based on your salary and years of service, not on how much has been saved or investment returns. Common in the public sector (NHS, teachers, civil service). DB pensions are considered highly valuable because they provide a guaranteed income in retirement and carry no investment risk for the member.

A pension scheme where you and/or your employer make contributions, which are invested. The retirement income depends on how much was contributed and how well the investments performed. Most workplace pensions opened after 2012 are DC schemes. Also called a "money purchase" pension. Model your DC pension →

A payment made by a company to its shareholders from its profits. Dividends are a common way for company owners and investors in income-paying stocks to extract or receive income. They are taxed differently from salary: the dividend allowance is £500/year (2025/26), with rates of 8.75%/33.75%/39.35% for basic/higher/additional rate taxpayers. Dividends within an ISA are tax-free.

The portion of your property that you own outright — the current market value minus any outstanding mortgage balance. Equity grows as you pay down your mortgage and as property values rise. It can be accessed through remortgaging or selling. A 10% deposit on a £300,000 home gives you £30,000 of equity on day one. Track your equity →

The point in the property buying process where buyer and seller each sign and exchange identical copies of the sale contract. The transaction becomes legally binding at this point and neither party can withdraw without financial penalty. A deposit (typically 10% of purchase price) is paid on exchange. Completion — when you get the keys — usually happens days or weeks later.

The UK regulator responsible for overseeing financial services firms and markets. The FCA authorises and regulates banks, insurers, mortgage brokers, financial advisers, and investment firms. If you receive regulated financial advice, your adviser must be FCA-authorised. You can check authorisation at the FCA register at register.fca.org.uk.

A mortgage where the interest rate is fixed for a set period — typically 2, 3, or 5 years — regardless of changes to the Bank of England base rate or the lender's Standard Variable Rate. After the fixed period ends, the mortgage usually reverts to the lender's SVR unless you remortgage. Offers payment certainty but less flexibility. Calculate fixed-rate mortgage costs →

The UK's statutory deposit insurance scheme. If an FCA-authorised bank or building society fails, FSCS protects deposits up to £85,000 per person per institution (£170,000 for joint accounts). Separate limits apply to investments (£85,000) and insurance. Checking your savings are FSCS-protected is particularly important if you hold large balances at a single institution.

Your total income before any deductions such as income tax, National Insurance, or pension contributions. Gross income is the starting figure for tax calculations. It is different from net income (take-home pay). When lenders assess mortgage affordability, they typically use gross salary as the basis for income multiples. Calculate net from gross →

A government-backed savings account that paid a 25% bonus (up to £3,000 total) on savings used to purchase a first home. Closed to new applicants in November 2019. Existing holders can save up to £200/month until November 2029 and must claim the bonus by November 2030. The Lifetime ISA (LISA) is the current equivalent for new savers. Calculate your Help to Buy ISA bonus →

The 40% income tax band that applies to taxable income between £50,271 and £125,140 in England, Wales, and Northern Ireland (2025/26). Someone paying higher rate tax also has a reduced Personal Savings Allowance (£500 instead of £1,000) and faces higher rates on dividends and CGT. Scotland has its own equivalent bands.

A tax charge that claws back Child Benefit when either partner's adjusted net income exceeds £60,000 (from April 2024; previously £50,000). The charge is 1% of the Child Benefit received per £200 of income above £60,000. The full benefit is repaid when income reaches £80,000. You can choose to not claim Child Benefit or to claim it and pay the charge via Self Assessment.

The rate at which prices rise over time, measured in the UK primarily by CPI (Consumer Prices Index). Inflation erodes purchasing power — £100 today buys less than £100 ten years ago. It affects savings (real returns can be negative if rates are below inflation), mortgages (debt is worth less in real terms), and pensions (future income needs inflation-proofing). Use the Inflation Calculator →

A mortgage where monthly payments cover only the interest on the loan — the capital balance stays the same throughout the term. At the end of the term, the full loan must be repaid from another source (e.g. savings, investments, or selling the property). Monthly payments are lower than a repayment mortgage, but you build no equity through payments. Common in buy-to-let.

A tax-efficient savings wrapper that shields interest, dividends, and capital gains from UK tax. The annual ISA allowance is £20,000 (2025/26), which can be split across Cash ISAs, Stocks & Shares ISAs, Innovative Finance ISAs, and the Lifetime ISA (£4,000 limit within the £20,000). Unused allowance cannot be carried forward. Use the ISA Calculator →

A tax-free savings account for children under 18. The annual JISA allowance is £9,000 (2025/26), which is separate from the adult ISA allowance. Contributions can be made by anyone, but the child cannot access the money until they turn 18. At 18, the JISA automatically converts to an adult ISA.

A tax-wrapper that pays a 25% government bonus on up to £4,000 of savings per year (maximum £1,000 bonus/year). Can be used towards a first home purchase (property must be £450,000 or under, and you must have held the LISA for at least 12 months) or withdrawn from age 60. You must open a LISA between ages 18 and 39. Withdrawals for other purposes incur a 25% penalty (which effectively claws back more than just the bonus). First-time buyer guide →

The ratio of your mortgage balance to the current value of your property, expressed as a percentage. A £180,000 mortgage on a £200,000 property is 90% LTV. Lower LTV ratios unlock better mortgage rates — most of the best deals are available at 60% LTV or below. LTV falls as you pay off your mortgage and as property values rise. Calculate your mortgage →

HMRC's programme to require businesses and landlords to keep digital tax records and submit updates using approved software rather than an annual return. MTD for VAT is already mandatory. MTD for Income Tax Self Assessment (ITSA) is being phased in from April 2026 for self-employed people and landlords with income above £50,000, expanding to £30,000 income in April 2027. Self-employed tax calculator →

The rate of tax you pay on each additional pound of income. In the UK, different income falls into different tax bands — so your marginal rate is the rate that applies to the top slice of your income. For someone earning £55,000 in England, their marginal income tax rate is 40% (higher rate band) even though most of their income is taxed at 20%. Knowing your marginal rate helps you calculate the benefit of pension contributions, salary sacrifice, or charitable giving.

A loan secured against property, typically used to finance a home purchase. The lender holds a legal charge over the property until the loan is repaid. Most UK mortgages are repayment mortgages (capital and interest) over 25–30 years, though terms and structures vary. If you fail to keep up repayments, the lender can repossess the property. Mortgage Calculator →

Contributions paid by employees, employers, and the self-employed that fund the state pension and certain benefits (including the NHS). Employee NI (Class 1) is 8% on earnings between £12,570 and £50,270, and 2% above that. Self-employed pay Class 4 at 6% on profits between £12,570 and £50,270. Class 2 NI was abolished in April 2024. See all NI rates →

Your take-home pay after all deductions — income tax, National Insurance, pension contributions, and any other deductions. Net income is what actually lands in your bank account. It is the relevant figure for budgeting and understanding what you can afford each month. Calculate your net income →

The total value of everything you own (assets) minus everything you owe (liabilities). Assets include property equity, savings, investments, pensions, and valuables. Liabilities include mortgage balances, loans, credit card debt, and other borrowing. Tracking net worth over time is one of the clearest ways to measure financial progress. Track your net worth →

The threshold below which inheritance tax is not charged on an estate, currently £325,000. The additional Residence Nil Rate Band (£175,000) applies when a main home is left to direct descendants, giving a combined potential threshold of £500,000 per person or £1,000,000 for a couple. Estates above the threshold pay 40% IHT.

Paying more than your required monthly mortgage payment, reducing the outstanding balance faster. Overpaying reduces the total interest you pay and shortens your mortgage term. Most fixed-rate deals allow overpayments of up to 10% of the outstanding balance per year without penalty; check your mortgage terms before overpaying. Calculate overpayment savings →

The system used by HMRC to collect income tax and National Insurance directly from employees' wages before they are paid. Your employer calculates the deductions using your tax code and sends them to HMRC on your behalf. Most employees are taxed entirely through PAYE and do not need to complete a Self Assessment return.

The amount of income you can earn each tax year before paying income tax. For 2025/26, the personal allowance is £12,570, frozen until at least 2027/28. If your income exceeds £100,000, the allowance tapers by £1 for every £2 above that level, disappearing entirely at £125,140. See all 2025/26 rates →

The amount of savings interest you can earn each year without paying tax. Basic rate taxpayers get a £1,000 allowance; higher rate taxpayers get £500; additional rate taxpayers get no allowance. Interest earned within an ISA does not count towards the PSA and is always tax-free. See full savings allowances →

A Capital Gains Tax exemption that applies to the sale of your main home. If the property was your only or main residence throughout your ownership, 100% of the gain is exempt from CGT. Partial relief may apply if it was not always your main home (e.g. you let it out at some point). PRR does not apply to buy-to-let or second homes.

Switching your existing mortgage to a new deal — either with your current lender or a different one — typically done at the end of a fixed or tracker period to avoid reverting to the Standard Variable Rate. Remortgaging can also be used to borrow additional funds against your home's equity. Early repayment charges (ERCs) may apply if you remortgage within a fixed-rate period. Calculate mortgage costs →

The standard type of mortgage in the UK, where each monthly payment covers both the interest charged and a portion of the capital (loan) balance. This means the debt reduces with every payment and, if kept on track, is fully repaid at the end of the term. Contrast with interest-only mortgages, where the capital is not reduced through regular payments. Mortgage Calculator →

An older UK measure of inflation that includes housing costs such as mortgage interest payments, unlike CPI. RPI is generally higher than CPI and is no longer the official target measure, but it is still used for some purposes including index-linked gilts, student loan interest rates, and some commercial contracts.

An arrangement where you agree to receive a lower salary in exchange for a non-cash benefit — most commonly pension contributions. Because the contribution is made before tax and National Insurance, both you and your employer save on NI. For example, sacrificing £1,000 into a pension saves you 8% employee NI (£80) and your employer 15% NI (£150) compared to receiving the money as salary and making a personal pension contribution.

A tax paid by the buyer when purchasing property or land in England and Northern Ireland above certain thresholds. Scotland uses Land and Buildings Transaction Tax (LBTT) and Wales uses Land Transaction Tax (LTT). For 2025/26, the standard threshold is £250,000; first-time buyers get relief up to £300,000. A 5% additional surcharge applies to second homes and buy-to-let. Stamp Duty Calculator →

HMRC's system for people whose tax is not collected entirely through PAYE to report income and calculate their tax liability. You must submit a Self Assessment return if you are self-employed, a company director, a higher rate taxpayer with savings or dividend income, or have income from property. Returns must be filed and tax paid by 31 January following the end of the relevant tax year. Self-employed tax calculator →

A regular payment from the UK government paid to eligible people from their state pension age (currently 66). The full new state pension for 2025/26 is approximately £230/week. Eligibility is based on National Insurance contribution records — you need at least 10 qualifying years for any pension and 35 years for the full amount. The pension is subject to the "triple lock" (rises by the highest of inflation, earnings growth, or 2.5%). Retirement Planner →

The default interest rate a mortgage reverts to when a fixed, tracker, or discount deal period ends. SVRs are set by the lender and typically much higher than the best available rates. Staying on an SVR is usually the most expensive way to have a mortgage — most borrowers should remortgage before or shortly after moving to the SVR.

A code used by HMRC to tell your employer how much income tax to deduct from your wages under PAYE. The most common code is 1257L, which reflects the standard personal allowance (12,570). Letters indicate how the allowance is adjusted (e.g. W1/M1 for emergency codes, K for negative allowances). You can check your tax code on your payslip or via the HMRC app.

The UK tax year runs from 6 April to 5 April the following year. All income tax, CGT, ISA allowances, and pension contributions are calculated on a tax year basis. The current tax year is 2025/26 (6 April 2025 – 5 April 2026). The unusual 6 April start date is a historical quirk dating back to the switch from the Julian to Gregorian calendar in 1752.

A mortgage where the interest rate tracks the Bank of England base rate plus a set margin (e.g. base rate + 1.5%). When the base rate rises, your monthly payment rises too; when it falls, your payment falls. Trackers offer transparency and can be cheaper than fixed rates when the base rate is falling, but provide no protection if rates rise sharply.

The guarantee that the UK state pension will rise each April by the highest of three measures: CPI inflation, average earnings growth, or 2.5%. Introduced in 2011, it has caused state pension growth to outpace other benefits and has been politically controversial in years when earnings growth is high. The triple lock is currently retained by the government for this Parliament.