Glossary

36 terms, plain English, no waffle.

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A B C D E F G H I J L N P R S T V W

A

Additional Permitted Subscription (APS): Allows a surviving spouse or civil partner to inherit a deceased partner's ISA allowance on top of their own. The APS equals the value of the deceased's ISA at the time of death.
Additional Rate: The highest UK income tax rate, currently 45%, applying to income above £125,140. Additional rate taxpayers receive the highest pension tax relief and pay the most dividend tax.
Annual Allowance: The maximum amount you can contribute to pensions in a tax year and still receive tax relief. Currently £60,000 (2025/26), or 100% of earnings if lower. Tapered to £10,000 for very high earners.
Annual Exempt Amount: The amount of capital gains you can make each tax year before CGT applies. Currently £3,000 (2025/26). Cannot be carried forward to the next tax year.
Annual ISA Allowance: The maximum you can contribute across all your ISAs in a single tax year. Currently £20,000 (2025/26), shared between Cash, Stocks & Shares, and Lifetime ISAs. The Junior ISA has a separate £9,000 allowance.

B

Basic Rate: The standard UK income tax rate of 20%, applying to income above the Personal Allowance (£12,570) up to £50,270. Basic rate taxpayers receive 20% pension tax relief and pay the lowest dividend tax rates.
Bed and ISA: The process of selling investments held in a general investment account and rebuying them inside a Stocks & Shares ISA. Crystallises any current gain (a CGT event) but future growth is then permanently tax-free.

C

Capital Gains Tax (CGT): Tax on the profit when you sell an asset that has increased in value. For investments, rates are 18% (basic rate) and 24% (higher/additional rate) from October 2024. Gains within ISAs and pensions are exempt.
Carry Forward: Allows you to use unused pension annual allowance from the three previous tax years to make a larger contribution in the current year. You must have been a member of a registered pension scheme in those years.
Cash ISA: An ISA that holds cash and earns tax-free interest. Counts towards the £20,000 annual ISA allowance. Best for short-term savings or emergency funds.
Child Trust Fund (CTF): A tax-free savings account for children born between 1 September 2002 and 2 January 2011. Now superseded by Junior ISAs. Holders can transfer a CTF to a Junior ISA.

D

Dividend Allowance: The amount of dividend income you can receive each year before paying dividend tax. Currently £500 (2025/26). Dividends within ISAs and pensions are always tax-free regardless.
Dividend Tax: Tax paid on dividend income above the £500 dividend allowance. Rates: 8.75% (basic rate), 33.75% (higher rate), 39.35% (additional rate). No dividend tax inside ISAs or pensions.

E

Enterprise Investment Scheme (EIS): A government scheme offering generous tax reliefs for investing in smaller, higher-risk UK companies. Offers 30% income tax relief, CGT deferral, and loss relief. High risk — not suitable for all investors.

F

Flexible ISA: An ISA that allows you to withdraw and replace money in the same tax year without it counting twice against your annual allowance. Not all ISA providers offer this feature — check before withdrawing.
FSCS: Financial Services Compensation Scheme. Protects eligible deposits up to £85,000 per authorised institution if a bank or building society fails. Cash ISAs are FSCS-protected; investments are not (though the scheme protects against firm failure, not investment loss).

G

General Investment Account (GIA): A standard investment account with no tax advantages. Gains are subject to CGT and income to dividend/interest tax. Used when ISA and pension allowances are exhausted.

H

Higher Rate: The second UK income tax band at 40%, applying to income between £50,270 and £125,140. Higher rate taxpayers can claim 40% pension tax relief, and pay 33.75% on dividends above the allowance.
HMRC: Her Majesty's Revenue & Customs — the UK government body responsible for collecting taxes and administering tax reliefs including pension relief and ISA rules.

I

ISA: Individual Savings Account. A tax-free wrapper for savings or investments. All growth, income, and withdrawals are free of UK income tax and CGT. Four types: Cash, Stocks & Shares, Lifetime, and Junior.

J

Junior ISA (JISA): A tax-free savings or investment account for children under 18. Annual limit £9,000, separate from the adult ISA allowance. Accessible only when the child turns 18. Can be Cash or Stocks & Shares.

L

Lifetime ISA (LISA): An ISA with a 25% government bonus on contributions up to £4,000/year. Must be used for a first home (≤ £450,000) or retirement (from age 60). A 25% withdrawal penalty applies otherwise. Must be opened aged 18–39.

N

Net Pay Arrangement: A pension contribution method where contributions are deducted from gross salary before tax is calculated, meaning relief is given automatically at your full marginal rate. Common in workplace pensions.

P

Pension Commencement Lump Sum (PCLS): The tax-free cash you can take when you start drawing your pension — generally 25% of your pension pot, up to the lump sum allowance of £268,275. The remaining 75% is taxed as income.
Personal Allowance: The amount of income you can earn before paying income tax. Currently £12,570. Reduces by £1 for every £2 of income above £100,000, disappearing entirely above £125,140.
Personal Savings Allowance (PSA): The amount of savings interest you can earn tax-free. Basic rate taxpayers: £1,000. Higher rate: £500. Additional rate: £0. Does not apply inside ISAs (where interest is always tax-free).
Premium Bonds: A savings product from NS&I (National Savings & Investments) where instead of interest, you are entered into a monthly prize draw. All prizes are tax-free. Up to £50,000 per person. Backed by the government.

R

Relief at Source: A pension contribution method where you pay from net (post-tax) income and the pension provider claims basic rate relief (20%) from HMRC and adds it to your pot. Higher rate taxpayers must claim extra relief via Self Assessment.

S

Salary Sacrifice: An arrangement where you give up part of your gross salary in exchange for employer pension contributions of the same value. Reduces your income for both income tax and National Insurance purposes.
Self Assessment: The HMRC system for reporting income and claiming tax reliefs not handled through PAYE. Higher and additional rate taxpayers with pension contributions under relief at source must file Self Assessment to claim their full relief.
SIPP (Self-Invested Personal Pension): A pension you manage yourself, with a wide choice of investments including shares, funds, and ETFs. Funded with pre-tax money (you receive tax relief on contributions). Cannot access until minimum pension age (57 from 2028).
Stocks & Shares ISA: An ISA that holds investments such as shares, funds, ETFs, and investment trusts. All gains and income are tax-free. Annual limit £20,000 (shared). No lock-in — withdraw anytime.

T

Tapered Annual Allowance: A reduced pension annual allowance for high earners. The allowance tapers from £60,000 down to £10,000 for those with 'adjusted income' above £260,000. Complex rules apply — seek advice if affected.
Tax Year: The UK tax year runs from 6 April to 5 April the following year. ISA allowances, CGT exemptions, and dividend allowances reset on 6 April each year. "2025/26 tax year" means 6 April 2025 to 5 April 2026.

V

Venture Capital Trust (VCT): A listed company that invests in smaller UK companies. Offers 30% income tax relief on investments up to £200,000/year, plus tax-free dividends and CGT-free disposal. High risk and illiquid.

W

Workplace Pension: A pension arranged through your employer, with mandatory employer contributions under auto-enrolment rules (minimum 3% of qualifying earnings). Usually either defined contribution or defined benefit.