Glossary of Terms

This list is by no means exhaustive and if you come across any technical terms on our website which are not explained below, please let us know.

Interest

When you give your money to a bank, to look after, you may receive an amount of money on top in return. That percentage is known as interest. You may also have to pay interest on loans or mortgages when you borrow money.

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ISAs & Taxation

Any and all proceeds from ISAs are exempt from both income and capital gains tax. On death, however, your ISA will form part of your estate and therefore be liable to inheritance tax if your estate exceeds the nil rate band. When you die, if you're married or in a civil partnership, your partner will get a one-off increase in their ISA allowance for that year equivalent to what you had in all ISAs combined, known as an Additional Permitted Subscription (APS), this is calculated regardless of any IHT liability.

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Joint life

A ‘joint life’ policy is one that’s taken out by two or more people. Joint life policies can be useful for protecting a family in the event of either or both parents dying.

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Junior individual savings accounts (JISA)

Junior individual savings accounts (JISA) offer a tax efficient way for parents to invest on behalf of their children, up to certain limits each year. Junior ISAs are available for parents/legal guardians to open on behalf of their children up until the maximum age of 18 years old and a UK resident. A child can elect to open a Junior ISA themselves when they are 16 or 17 years of age. The allowance for Junior ISAs is set every year by the government. Parents can choose to save into a Cash ISA or a Stocks and Shares ISA for this purpose. There are no withdrawals allowed from Junior ISAs until they have converted to an Adult ISA when the child turns 18. If the child has a Child Trust Fund then this must be transferred to the JISA on opening, or the JISA cannot be opened. A child can only have one Junior Cash ISA and one Junior Stocks and Shares ISA. Junior ISAs can be transferred between providers. The Junior ISA allowance for the Tax Year 2019/20 is £4,368.

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Life Assurance

This is a type of insurance that pays out a pre-determined lump sum on the death of the insured person. Group Life Assurance is often part of a company’s Employee Benefits offering and is typically based on a multiple of an employee’s salary.

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Lifetime Allowance

This is the maximum amount of money that you can accumulate as pension savings throughout your lifetime and still benefit from tax relief. If the amount you save exceeds the lifetime allowance, then you will have to pay tax on these savings.

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Lifetime Annuity

A lifetime annuity will give you a regular income for the rest of your life. You buy an annuity with the cash sum that’s built up in your pension fund so that you can have a regular income during retirement. There are different types of annuities to suit your needs and circumstances.

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Lifetime ISA (LISA)

You can save up to the specified annual LISA allowance a year in a Lifetime ISA as a lump sum or by putting in cash when you can. The state will add 25% of your contributions monthly to your ‘pot’. You can save into a Lifetime ISA if you are between the ages of 18 and 40 and a UK resident. The withdrawals are limited to after you are 60 years of age (retirement), or earlier if you are purchasing your first residential home. Any withdrawals out with these scenarios will incur a 25% penalty. As the LISA only allows you to save a proportion of the standard ISA allowance per year, the remaining ISA allowance can be credited to a Stocks and Shares ISA, a Cash ISA, or spread between both. The Lifetime ISA allowance for the Tax Year 2019/20 is £4,000.

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Loan Trust

A loan trust is used as means to take the growth from your investments out of your estate. As you lend your money to the trust, the original capital is repayable to you on demand, and as such still part of your estate, but the growth on this capital belongs to the trust and the trust beneficiaries. The use of the loan trust ‘freezes’ that part of an estate. The growth is out with the estate from day one while the amount of the outstanding loan remains part of the estate. While not as effective as a gift, taking longer to remove the capital from your estate, a loan trust can play a key role in effective IHT planning.

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Mediation

Mediation is the process that parties enter into in an attempt to resolve a dispute without court proceedings. It’s usually undertaken in the presence of a ‘mediator’ – someone with a neutral opinion who can voice the issues of both parties.

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Medical Underwriting

Medical underwriting is a health insurance term referring to the use of medical or health information in the evaluation of an applicant for coverage, typically for life or health insurance.

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Money Laundering

The government has introduced tough money laundering laws in a bid to combat international crime and terrorism. This means that financial planners and other professionals need to check that you are who you say you are when you first instruct them. They may also ask for proof of identity if you have not instructed them for some time. Usually, identity is provided with a form of photographic document – such as your passport.

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Money Purchase Pension

Occupational pensions, personal, group personal, stakeholder, Free Standing Additional Voluntary Contributions (FSAVCs) and Additional Voluntary Contributions (AVCs) can be called money purchase pensions. You can choose where your contributions are invested. The size of your fund depends on your contribution levels, over what time period you invest them, and how well your investments grow.

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National Insurance Contributions

National Insurance (NI) contributions are an amount of money that’s paid to the Government a percentage of your income if you are aged over 16 but under the state pension age and you earn more than the minimum threshold. They go towards providing for state pensions, as well as other state-provided benefits. If you are an employee, NI is deducted from your pay before it is paid to you.

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Nil Rate Band

Every Individual has what is known as a Nil Rate Band which is currently £325,000 or for a couple £650,000 without attracting Inheritance Tax.

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Payment Protection Insurance

This type of insurance policy pays a regular pre-agreed amount for a stated time if you can't work for specified reasons.

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Pension Plan for Children & Grandchildren

A parent or grandparent can contribute up to £2,880 a year into a pension for a child. And, this contribution will benefit from a 20% tax relief ‘top up’ from HM Revenue and Customs, amounting to an annual contribution of £3,600. The child won’t be able to access the pension before they’re 55 — as things currently stand. Pensions benefit from tax efficient growth and a 25% tax-free lump sum when accessed in the future. Bearing in mind the long timescales involved and compound returns, this option could generate a significant sum. That said, pensions aren’t suitable for shorter-term needs like education fees and home deposits.

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Personal Allowance

A personal allowance is the amount of income that you can earn each year before you start paying income tax.

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Personal Equity Plans (PEPs)

From April 2008, Personal Equity Plans automatically became Stocks and Shares ISAs (see the glossary definition of an Individual Savings Account).

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Personal Pension

A personal pension’s a policy taken out through a pension company. You pay contributions, and it’ll pay you an income when you retire. Your contributions are invested in funds, which you can choose in line with your attitude to risk and plans for the future.

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Private Medical Insurance

PMI is an insurance policy designed to meet some or all of the costs of private medical treatment. It is also known as private health insurance. PMI policies are designed to meet the costs of having private medical treatment for an acute illness or injury on a short-term basis. PMI cover is commonly part of a company's Employee Benefits offering.

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Qualifying Workplace Pension Scheme

A company pension scheme must be a qualifying pension scheme to meet the requirements of automatic enrolment. It must also meet the minimum levels of contributions or allow benefits to build up at least at a minimum rate. Qualifying schemes may be either defined benefit schemes or defined contribution (money purchase) schemes. Employers have different options available to them when selecting a suitable qualifying workplace pension scheme.

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Qualifying Years

Qualifying years are those tax years in which you’ve paid a certain amount of National Insurance contributions. A minimum number of qualifying years must be built up during your working life to qualify for the full basic state pension. This can also be the number of years’ service with an employer in which pension benefits in a Defined Benefit Scheme have been built up.

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Repayment Mortgage

This is a mortgage that pays off both the capital borrowed and interest due at the same time. Pay all the repayments and the mortgage will be fully repaid at the end of the term.

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Residence Nil Rate Band (RNRB)

The government started the process of increasing the tax-free limit by way of the Residence Nil Rate Band (RNRB) in 2017. The measure will be fully in place by 2020, and will mean that for each individual, up to a further £175,000 or for a couple £350,000 could be excluded from IHT. The family home will be excluded from IHT, up to a total value of £175,000 for an individual or £350,000 for a couple so long as it is passed onto direct descendants. This RNRB is however reduced by £1 for every £2 above a net estate of £2 million. Once the Residence Nil Rate Band is fully introduced in 2020 a couple could have an estate valued at £1 million which would be exempt from Inheritance Tax.

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Retail Price Index (RPI)

The Retail Prices Index (RPI) is a government defined measure of inflation which tracks the change in the cost of a basket of retail goods and services.

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Risk

Some investments are riskier than others. For example, an investment in the stock market is riskier than money put into savings accounts – there’s more chance of something going wrong and you losing money. Riskier investments tend to offer potentially higher returns as compensation for the risks involved. This is also known as the ‘risk premium’.

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Self Invested Personal Pensions (SIPPs)

A Self Invested Personal Pension is a type of plan that allows you, or your appointed fund manager, to make choices from a wider range of investments than other personal pension schemes offer. With a SIPP you can invest such things as in the shares of any company listed on a stock exchange, commercial property, mutual funds.

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Stakeholder Pension

This is a personal pension in its most simple form. A stakeholder pension will allow you to make a minimum investment of £20 per month and offer a range of funds in which to invest – and there must be no penalties for transferring away from the fund. Your employer may offer access to a stakeholder pension scheme.

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State Pension

Your basic State Pension is based on your National Insurance contributions. You may also qualify for the additional State Second Pension if you are employed, based on your earnings and National Insurance contributions.

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State Second Pension

The State Second Pension is an additional pension that’s paid on top of your basic State Pension. It was called SERPS until 2002. Self-employed people are not entitled to a State Second Pension. The introduction of the new State Pension in April 2016 spelled the end of the State Second Pension. State Pension under the old rules was made up of 2 parts: the basic State Pension and the Additional State Pension (the Additional State Pension is sometimes called State Second Pension or SERPS). Members of defined benefit pension schemes (normally a final salary or salary-related pension scheme), are likely to have been contracted out of the Additional State Pension. Any pension scheme at work before April 2012, some stakeholder and some personal pension schemes may also have been contracted-out. If you have been contracted-out of the Additional State Pension at any time before 6 April 2016, this will be taken into account when calculating your starting amount for the new State Pension.

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Stocks & Shares ISA

Investing in a Stocks and Shares ISA means that rather than earning nominal interest in a cash deposit, your money is invested in the stock market appropriately, across a spread of equities and deposits that are chosen to match your opinions and the level of market volatility you are prepared and comfortable to accept. You can save into a Stocks and Shares ISA if you are over the age of 18 and are a UK resident.

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Stocks and Shares

Both terms mean the same thing: companies’ stocks and shares that can be bought and sold. Owning a share in a company means owning a part of that company, or owning some of that company's stock and an entitlement to a share in the profits in the form of dividends.

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Tapering of the Annual Allowance

This reduces the annual allowance for people with an adjusted income over £150,000 and a threshold income over £110,000. Key facts • The annual allowance is reduced for individuals who have ‘adjusted income’ over £150,000 a year. • The annual allowance reduces by £1 for every £2 over £150,000, rounded down to the nearest whole pound. • The maximum reduction is £30,000, so anyone with an income of £210,000 or more has an annual allowance of £10,000. • The reduction does not apply to individuals who have ‘threshold income’ of no more than £110,000. People with high income caught by the restriction may have to reduce the contributions paid by them and/or their employer or an annual allowance charge will apply.

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Tax Credits

Tax credits are payments made by the government. Usually, they’re made to people on low incomes, to families with children, or to registered carers.

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Tax Efficient Investing

Tax Efficient Investing is the process of investing in such a way as to minimise the amount of tax paid. This could mean using tax-efficient investments such as ISAs, or making contributions to your pension. This should not be mistaken for Tax Evasion which is deliberately acting in a way which

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Tax Exempt Special Savings Account (TESSA)

From April 2008, TESSAs automatically became ISAs.

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Term Assurance

This is a policy that provides a guarantee to pay a specific amount of money, during a pre-agreed period of time, if you die. It is a form of Life Assurance.

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Unit Trusts

These are ‘open-ended’ investments in which the underlying value of the assets is directly calculated by the total number of units issued multiplied by the unit price less the transaction or management fee charged and any other associated costs. There are many different unit trusts available, all investing in different assets.

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Unsecured Pension

An unsecured pension is a way of taking an income from your pension fund,. It does involve incurring some risk to the value of your pension fund. There are two types of unsecured pension – a short-term annuity and income withdrawal (also known as Flexible Drawdown).

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Variable Interest Rate

These are interest rates, offered by banks and financial institutions on loans or deposits, that may change according to circumstances. For example, a movement in the interest base rate set by the Bank of England would usually be an influence.

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Whole-of-life Assurance

A whole-of-life assurance policy lasts throughout your life so that your dependents are guaranteed a payout should you die as long as the premiums are kept up.

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Wills and Probate Law

This is the area of law that governs the interpretation of wills and the distribution of the estate of people who have died.

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Yield

Yield is a general term for the rate of income that comes from an investment, expressed as an annualised percentage and based on its current capital value.

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