Short, plain-English definitions of every financial term used on this site. Search, filter by topic, or jump straight to a letter
Search for a word, filter by topic, or jump straight to a letter below. Every definition here is a short summary; where a fuller explainer already exists, "Read more" takes you straight to it.
55 of 55 terms shown
The effective marginal rate created when the Personal Allowance taper stacks with 40% Income Tax: around 60% in total on income between £100,000 and £125,140.
The top Income Tax rate: 45% on income above £125,140.
Inheritance Tax reliefs that can reduce or remove the tax due on qualifying farmland or business assets, cut back from unlimited relief to a capped allowance from April 2026.
The most you can pay into your pension each tax year and still get tax relief on it: £60,000 for most people.
The amount of capital gain you can make in a tax year before Capital Gains Tax applies, currently £3,000.
The law requiring employers to automatically enrol eligible staff into a workplace pension and contribute towards it. This is currently a combined minimum of 8% of qualifying earnings.
The first Income Tax rate above the Personal Allowance: 20% on income up to £50,270.
A non-cash perk from your employer that's still taxable, usually reported on your P11D. For example, a company car, private medical cover, or an interest-free loan.
Tax on the profit when you sell (or otherwise dispose of) an asset that's gone up in value, at 18% or 24% depending on your income.
A local tax on domestic property, set independently by each council and based on which of 8 bands (A–H) a property was placed in using 1991 valuations.
The reference band every other Council Tax band is priced relative to. Band A pays 6/9ths of a Band D bill, Band H exactly double.
The normal way PAYE works. Each pay period's tax is calculated on your total pay and allowance used so far this tax year, not that period in isolation.
The amount of dividend income you can receive tax-free each year, currently £500.
Tax on dividend income from shares held outside an ISA, at rates lower than Income Tax but calculated using the same income bands.
The average rate of tax you actually pay on your whole income, different from your marginal rate, which only applies to your next pound earned.
A temporary tax code (like 1257L W1/M1, or 0T) used when HMRC doesn't yet have your full pay history. You are taxed on a non-cumulative, per-period basis until it's sorted.
The effect of tax thresholds staying frozen while wages rise with inflation. More people drift into higher bands over time even though their real spending power hasn't grown.
A tax charged per litre on petrol and diesel already included in the pump price, before VAT is added.
Your pay before any deductions. Income Tax, National Insurance, pension, and student loan all come out of this figure, not what you actually receive.
A tax charge that claws back some or all of your Child Benefit once you or your partner's individual income passes £60,000, fully withdrawn by £80,000.
The second Income Tax rate: 40% on income between £50,270 and £125,140.
His Majesty's Revenue and Customs: the UK government department that collects Income Tax, National Insurance, and most other taxes.
A 40% tax on the value of an estate above the nil-rate band when someone dies.
A tax on most general insurance premiums added to your premium rather than charged separately.
The rate of tax on your next pound earned, not your whole income. A pay rise that crosses into a new band only has the higher rate applied to the portion above the threshold.
Lets one partner transfer up to £1,260 of their unused Personal Allowance to the other, if one of you earns below the tax-free threshold and neither pays higher rate.
A second deduction from your pay alongside Income Tax, calculated per pay period rather than cumulatively.
A personal reference number (e.g. QQ 12 34 56 C) that tracks your National Insurance record. This is not a tax code, and it doesn't change.
A pension contribution method where your contribution comes out of pay before Income Tax is calculated, so relief happens automatically, with no separate claim needed.
The amount an estate can be worth before Inheritance Tax applies. It is currently £325,000, and is frozen at that level for several more tax years.
The form your employer files (and usually gives you a copy of) listing the taxable benefits and expenses you received that weren't put through payroll.
The form your employer gives you when you leave a job, showing your pay and tax so far this tax year; your new employer needs it to get your tax code right.
The annual summary of your total pay and tax for the year, given to you by your employer by 31 May.
A tax calculation HMRC sends after the tax year ends if your Income Tax didn't quite match what you actually owed. It tells you whether you're due a refund or need to pay more.
"Pay As You Earn": the system that takes Income Tax and National Insurance straight out of your pay each pay period, before it ever reaches you.
The amount you can earn each tax year before paying any Income Tax, currently £12,570.
Above £100,000, your Personal Allowance shrinks by £1 for every £2 you earn.
The amount of savings interest you can receive tax-free each year, £1,000 for basic-rate taxpayers, £500 for higher-rate. It is sized by your total income including the interest itself, so a large enough amount of interest can shrink its own allowance.
A gift that becomes fully exempt from Inheritance Tax if the giver survives 7 years, taxed on a sliding scale (taper relief) if they die within that window.
The earnings level (£12,570) National Insurance starts being charged from, deliberately aligned with the Income Tax Personal Allowance since 2019.
The band of pay (between £6,240 and £50,270) auto-enrolment's statutory minimum contribution is actually calculated on, not your whole salary.
A pension contribution method where your contribution is deducted after tax, then the pension provider claims basic-rate relief back from HMRC and adds it to your pot.
An extra Inheritance Tax-free allowance of up to £175,000 when a main home is left to children or grandchildren, on top of the standard nil-rate band.
A pension contribution method where you give up part of your contractual salary in exchange for an employer pension contribution, the only method that also reduces your National Insurance bill.
A one-off tax paid when buying property or land in England or Northern Ireland, charged in progressive bands on the purchase price.
A separate, additional 0% band worth up to £5,000 on savings interest, but only if your other income (wages, pensions, and similar) is low. It shrinks £1 for every £1 that income sits above your Personal Allowance.
Which repayment rules apply to your student loan, each with its own earnings threshold and, for the Postgraduate Loan, a different rate. The options are Plan 1, 2, 4, 5, or Postgraduate.
What actually lands in your bank account after Income Tax, National Insurance, pension contributions, and student loan repayments are deducted.
Reduces the Inheritance Tax due on a gift made 3–7 years before death, on a sliding scale. It tapers the tax on the gift, not the tax-free allowance itself.
The short code (e.g. 1257L) your employer uses to work out how much of your pay is tax-free.
The day of the year up to which your earnings, if every pound went straight to tax first, would cover your total tax bill for the year, a personal figure, not the media's differently-compiled UK-wide one.
The 12-month period UK tax is calculated over, 6 April to 5 April, currently the 2026/27 tax year.
The earnings level (£50,270) above which National Insurance drops to 2%, a lower marginal NI rate than below it, the opposite direction to Income Tax.
Value Added Tax: a tax on most goods and services, usually 20%, already included in the price you see rather than added at the till.
Also called "car tax". An annual charge to keep a vehicle on the road, currently £200 standard rate after the first year.
This page explains general financial terms and is not personalised advice; see the disclaimer. Each definition is a short summary of the fuller, sourced explainer it links to. See that page's own sourcing for the detail behind any figure shown here.