Tax and finance are full of jargon that can make simple concepts feel impenetrable. This glossary defines 100 essential UK tax and finance terms in plain English — no accounting degree required. Bookmark this page and refer back whenever you encounter an unfamiliar term.
A
1. Adjusted Net Income (ANI) — Your total taxable income minus pension contributions, Gift Aid donations, and certain other deductions. Used to determine eligibility for Child Benefit, Marriage Allowance, and the Personal Allowance taper.
2. Additional Rate — The highest rate of income tax (45%) paid on income above £125,140 in 2026/27.
3. Annual Allowance (Pensions) — The maximum amount you can contribute to pensions and receive tax relief in a single tax year — £60,000 in 2026/27, tapering for high earners.
4. Annual Exempt Amount (CGT) — The amount of capital gains you can make each year before paying Capital Gains Tax — £3,000 in 2026/27.
5. Annuity — A financial product (typically bought with a pension pot) that pays a guaranteed income for life in exchange for a lump sum.
6. Auto-Enrolment — The legal requirement for employers to automatically enrol eligible workers into a workplace pension scheme. You can opt out, but employer contributions are free money.
B
7. Basic Rate — The standard rate of income tax (20%) applied to taxable income between £12,571 and £50,270 in 2026/27.
8. Benefit in Kind (BiK) — A non-cash perk from your employer (company car, private medical insurance, gym membership) that is taxed as if it were additional salary.
9. Blind Person's Allowance — An additional tax-free allowance of £3,070 (2026/27) for registered blind or severely sight-impaired individuals.
10. Budget — The government's annual financial statement setting out tax changes, spending plans, and economic forecasts. Usually delivered in autumn by the Chancellor.
11. Buy-to-Let — Purchasing property specifically to rent out. Rental income is taxable, and mortgage interest relief is restricted to a 20% tax credit.
C
12. Capital Gains Tax (CGT) — Tax on the profit when you sell (or "dispose of") an asset that has increased in value. Rates are 18% (basic rate) or 24% (higher rate) for most assets in 2026/27.
13. Carry Forward (Pensions) — The ability to use unused Annual Allowance from the previous three tax years to make larger pension contributions this year.
14. Child Benefit — A tax-free payment of £26.05 per week for the eldest child and £17.25 for each additional child (2026/27). Subject to the High Income Child Benefit Charge if a parent earns over £60,000.
15. Class 1 National Insurance — NI contributions paid by employees (8% on earnings between £12,570 and £50,270, 2% above) and employers (15% on all earnings above £5,000).
16. Class 2 National Insurance — A flat-rate NI contribution for self-employed people (£3.45/week in 2026/27) that counts toward State Pension entitlement.
17. Class 4 National Insurance — NI paid by self-employed people on profits: 6% between £12,570 and £50,270, 2% above (2026/27).
18. Corporation Tax — Tax paid by limited companies on their profits. The main rate is 25% for profits over £250,000 (small profits rate of 19% for profits under £50,000).
19. Council Tax — A local tax based on property value bands (using 1991 valuations in England). Pays for local services including refuse, roads, and social care.
20. CPI (Consumer Price Index) — The official measure of inflation used to uprate benefits, tax credits, and the State Pension triple lock.
D
21. Defined Benefit Pension — A pension that promises a specific income in retirement based on salary and years of service (e.g., NHS Pension, Teachers' Pension). Also called "final salary" or "career average" schemes.
22. Defined Contribution Pension — A pension where you and your employer contribute to a pot that is invested. The retirement income depends on how much is contributed and investment performance.
23. Dividend Allowance — The amount of dividend income you can receive tax-free each year — £500 in 2026/27.
24. Dividend Tax — Tax on dividends above the Dividend Allowance: 8.75% (basic), 33.75% (higher), 39.35% (additional rate).
25. Double Taxation Agreement — A treaty between two countries that prevents the same income being taxed twice. The UK has agreements with over 130 countries.
26. Drawdown (Pension) — Taking income from your pension pot while keeping it invested, rather than buying an annuity. Offers flexibility but carries investment risk.
E
27. Effective Tax Rate — The percentage of your total income that goes to tax — your actual average rate, as opposed to the marginal rate on your last pound of income. Use the calculator to find yours.
28. Emergency Tax Code — A temporary tax code (usually 1257L M1 or W1) applied when HMRC doesn't have your correct details. Often results in overpaying tax until corrected.
29. Employer NI — National Insurance paid by your employer on top of your salary (15% on earnings above £5,000 in 2026/27). You don't see this deducted, but it's a real cost of employing you.
30. Enterprise Investment Scheme (EIS) — A government scheme offering 30% income tax relief for investing in qualifying small companies, plus CGT exemption if held for 3+ years.
31. Equity — The portion of an asset you actually own outright. For a home: market value minus outstanding mortgage. For shares: your ownership stake in a company.
F
32. Fiscal Drag — The effect of frozen tax thresholds combined with rising wages — more income gets taxed at higher rates each year without any explicit tax rise.
33. Flat Rate VAT Scheme — A simplified VAT scheme for small businesses where you pay a fixed percentage of turnover to HMRC rather than calculating VAT on each transaction.
34. Flexible Working — The legal right to request changes to working hours, times, or location. No direct tax implications, but reduced hours mean lower income and lower tax.
35. FSCS (Financial Services Compensation Scheme) — Protects your savings up to £85,000 per banking institution if the bank fails. Covers savings accounts, investments, and insurance.
G
36. Gift Aid — A scheme allowing charities to reclaim 25p of basic-rate tax for every £1 you donate. Higher-rate taxpayers can also claim back the difference on their tax return.
37. Gross Pay — Your total pay before any deductions (tax, NI, pension, student loan). The headline salary figure in your contract.
38. Growth ISA — Informal name for a Stocks & Shares ISA focused on capital growth rather than income. All gains and income within the ISA wrapper are tax-free.
H
39. HMRC (His Majesty's Revenue & Customs) — The UK government department responsible for collecting taxes, paying benefits, and enforcing tax law.
40. Higher Rate — The 40% income tax rate applied to earnings between £50,271 and £125,140 in 2026/27.
41. High Income Child Benefit Charge (HICBC) — A tax charge that claws back Child Benefit when either parent earns between £60,000 and £80,000. At £80,000+, the full benefit is effectively repaid through tax.
I
42. Indexation — Adjusting tax thresholds or benefits in line with inflation (usually CPI). When thresholds are NOT indexed (frozen), fiscal drag occurs.
43. Individual Savings Account (ISA) — A tax-free wrapper for savings and investments. Annual allowance: £20,000 across Cash ISAs, Stocks & Shares ISAs, Innovative Finance ISAs, and Lifetime ISAs.
44. Inheritance Tax (IHT) — Tax at 40% on the value of an estate above £325,000 (nil-rate band) on death. An additional £175,000 residence nil-rate band may apply if a home is left to direct descendants.
45. IR35 — Tax legislation that determines whether a contractor working through a limited company is genuinely self-employed or effectively an employee for tax purposes. If "inside IR35," you pay tax as if employed.
J
46. Jobseeker's Allowance (JSA) — A benefit for unemployed people actively seeking work. Contribution-based JSA is based on NI record; income-based JSA is means-tested.
47. Junior ISA — A tax-free savings account for children (under 18). Annual limit: £9,000. Cannot be withdrawn until the child turns 18.
K
48. K Tax Code — A tax code where tax is ADDED to your pay (rather than an allowance being given). Used when untaxed income or benefits exceed your Personal Allowance.
L
49. Lifetime Allowance (LTA) — The former cap on total pension savings with tax advantages. Abolished in 2024 and replaced by the Lump Sum Allowance (£268,275) and Lump Sum and Death Benefit Allowance (£1,073,100).
50. Lifetime ISA (LISA) — An ISA for 18–39 year olds saving for a first home or retirement. Government adds a 25% bonus on contributions up to £4,000/year. Early withdrawal for non-qualifying purposes incurs a 25% penalty.
M
51. Marginal Rate — The tax rate on your NEXT pound of income. For a higher-rate taxpayer, this is 40% income tax + 2% NI = 42% combined. Different from your effective (average) rate.
52. Marriage Allowance — Allows a non-taxpayer (or basic-rate taxpayer earning below the PA) to transfer £1,260 of their Personal Allowance to their spouse/civil partner, saving up to £252/year.
53. Maternity Allowance — A benefit for pregnant women who don't qualify for Statutory Maternity Pay (e.g., self-employed). Paid at £184.03/week for up to 39 weeks (2026/27).
54. Money Purchase Annual Allowance (MPAA) — A reduced pension Annual Allowance (£10,000) that applies once you flexibly access your defined contribution pension (e.g., take a lump sum or enter drawdown).
N
55. National Insurance (NI) — A tax on employment and self-employment income that funds the State Pension, NHS, and other benefits. Often described as a "second income tax."
56. National Living Wage — The minimum hourly rate employers must pay workers aged 21+. Set at £12.21 in 2026/27.
57. Net Pay — Your take-home pay after all deductions (income tax, NI, pension, student loan). What actually hits your bank account.
58. Nil-Rate Band (IHT) — The first £325,000 of an estate on which no Inheritance Tax is charged. Unused allowance can transfer to a surviving spouse.
59. Non-Dom (Non-Domiciled) — A person living in the UK whose permanent home ("domicile") is considered to be abroad. The non-dom tax regime was abolished in April 2025.
O
60. Overlap Relief — Relief for self-employed individuals who were taxed twice on the same profits during their early years of trading. Relevant during the transition to the tax year basis (2023/24 and 2024/25).
61. Overpayment (Tax) — When you've paid more tax than you owe. Common causes: emergency tax codes, job changes mid-year, or incorrect tax codes. Claim refunds through HMRC.
P
62. P45 — A form from your employer when you leave a job showing your earnings and tax paid that year. Give it to your new employer to ensure the correct tax code.
63. P60 — An annual summary from your employer showing total earnings and tax/NI deducted for the tax year. Issued by 31 May each year.
64. P11D — A form reporting taxable Benefits in Kind provided by your employer (company car, private medical, etc.). The tax is usually collected by adjusting your tax code.
65. PAYE (Pay As You Earn) — The system by which employers deduct income tax and NI from your salary before paying you. Most UK employees pay tax through PAYE.
66. Payments on Account — Two advance payments toward your Self-Assessment tax bill, each 50% of the previous year's liability. Due 31 January and 31 July.
67. Pension Tax Relief — The government tops up your pension contributions by refunding tax. Basic-rate taxpayers get 20% added automatically; higher-rate taxpayers claim an additional 20% through Self-Assessment.
68. Personal Allowance — The amount of income you can earn tax-free each year — £12,570 in 2026/27. Tapers by £1 for every £2 earned above £100,000, fully gone at £125,140.
69. Personal Savings Allowance (PSA) — Tax-free savings interest: £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers, £0 for additional-rate taxpayers.
70. Premium Bonds — A savings product from NS&I where interest is paid as tax-free prizes in a monthly draw rather than as a guaranteed rate. Maximum holding: £50,000.
Q
71. Qualifying Years (State Pension) — Years in which you paid or were credited with enough National Insurance to count toward your State Pension. You need 35 qualifying years for the full State Pension.
R
72. Real Terms — A figure adjusted for inflation. A 3% pay rise when inflation is 4% is a real-terms pay cut of 1%.
73. Redundancy Pay — Compensation when your job is eliminated. The first £30,000 of genuine redundancy pay is tax-free. Statutory minimum: 0.5–1.5 weeks' pay per year of service.
74. Remittance Basis — The former tax basis allowing non-doms to only pay UK tax on overseas income brought into the UK. Abolished April 2025.
75. Residence Nil-Rate Band (RNRB) — An additional £175,000 Inheritance Tax allowance when a home is left to direct descendants (children, grandchildren).
S
76. Salary Sacrifice — An arrangement where you give up part of your salary in exchange for a non-cash benefit (pension contributions, EV, cycle). Saves both income tax and NI on the sacrificed amount.
77. Self-Assessment — The annual tax return system for self-employed people, landlords, and those with complex tax affairs. Deadline: 31 January (online) following the end of the tax year.
78. SIPP (Self-Invested Personal Pension) — A pension you manage yourself, choosing your own investments. Offers maximum flexibility but requires investment knowledge.
79. Stamp Duty Land Tax (SDLT) — Tax paid when buying property in England and Northern Ireland above £250,000 (or £425,000 for first-time buyers). Rates from 5% to 12%.
80. State Pension — A weekly payment from the government in retirement. Full new State Pension: £230.25/week (2026/27). Requires 35 qualifying years of NI contributions.
81. Statutory Maternity Pay (SMP) — Employer-paid maternity pay: 90% of average earnings for 6 weeks, then £184.03/ week for 33 weeks (2026/27). Taxed as normal income.
82. Statutory Sick Pay (SSP) — The minimum sick pay employers must provide: £116.75/week for up to 28 weeks (2026/27). Taxable as normal income.
83. Student Loan Repayment — Repayments deducted from salary once earnings exceed the plan threshold. Plan 1: 9% above £24,990. Plan 2: 9% above £27,295. Plan 5: 9% above £25,000.
84. Stocks & Shares ISA — An ISA that holds investments (funds, shares, bonds). All income and capital gains within the wrapper are completely tax-free.
T
85. Taper (Personal Allowance) — The reduction of the Personal Allowance by £1 for every £2 of income above £100,000. Creates an effective 60% marginal rate between £100,000 and £125,140.
86. Tax Code — A code (e.g., 1257L) that tells your employer how much tax-free pay to give you each pay period. The numbers represent your Personal Allowance ÷ 10.
87. Tax Credit — A direct reduction in your tax bill (as opposed to a deduction from taxable income). The Marriage Allowance provides a £252 tax credit.
88. Tax Year — The UK tax year runs from 6 April to 5 April the following year. The 2026/27 tax year is 6 April 2026 to 5 April 2027.
89. Trading Allowance — A £1,000 tax-free allowance for self-employment income. If total self-employed earnings are under £1,000, no registration or reporting is needed.
90. Triple Lock — The policy guaranteeing the State Pension rises each year by the highest of: 2.5%, CPI inflation, or average wage growth.
U
91. Universal Credit (UC) — The main means-tested benefit replacing six legacy benefits (JSA, ESA, Housing Benefit, Tax Credits, Income Support). Tapers at 55p for every £1 earned above the work allowance.
92. Upper Earnings Limit (UEL) — The NI threshold (£50,270 in 2026/27) above which the employee NI rate drops from 8% to 2%.
V
93. VAT (Value Added Tax) — A consumption tax of 20% on most goods and services. Reduced rate (5%) applies to home energy and some other items. Zero-rated items include most food and children's clothing.
94. VAT Threshold — The turnover level (£90,000 in 2026/27) at which a business must register for and charge VAT. Optional registration is possible below this level.
95. Venture Capital Trust (VCT) — A listed company that invests in small businesses. Investing in new VCT shares gives 30% income tax relief plus tax-free dividends.
W
96. Workplace Pension — A pension scheme arranged by your employer. Auto-enrolment means minimum contributions of 8% of qualifying earnings (5% employee, 3% employer).
97. Working Tax Credit — A legacy benefit for low-income workers, now being replaced by Universal Credit. New claims are no longer accepted.
X–Z
98. Year-End (Tax) — 5 April, the final day of the UK tax year. Actions like pension contributions, ISA deposits, and Gift Aid donations must be made before this date to count for the current year.
99. Yield — The income return on an investment, expressed as a percentage. For shares, dividend yield = annual dividends ÷ share price. For savings, it's the interest rate.
100. Zero-Hours Contract — An employment contract with no guaranteed minimum hours. You're only paid for hours worked. Tax and NI still apply to all earnings — there is no special treatment for zero-hours workers.
Use our tools
Now that you understand the terminology, use the income tax calculator to see how these concepts apply to your own salary. For in-depth guides on specific topics like National Insurance, student loan repayments, or pension tax relief, explore our full guides section.