Glossary of UK Financial Terms
Welcome to our financial definitions glossary. Whether you’re brushing up on your basics or looking for a refresher on more technical concepts, this page is here to help.
Below you’ll find two tables: one featuring the most commonly used UK personal finance terms, and another providing a more detailed A-to-Z reference of Financial Definitions.
Most Common UK Personal Finance Terms (Top 50)
| Term | Definition |
|---|---|
| Annual Allowance | The maximum amount you can contribute to your pension each tax year and still receive tax relief (currently £60,000 as of 2024/25). |
| APR (Annual Percentage Rate) | The total cost of borrowing, including interest and fees, shown as a yearly percentage. |
| ATM | A cash machine that allows you to withdraw money from your bank account. |
| Auto-Enrolment | A UK government initiative requiring employers to automatically enrol eligible workers into a workplace pension. |
| Bank Statement | A summary of transactions on your bank account over a period. |
| Base Rate | The interest rate set by the Bank of England, influencing other interest rates in the economy. |
| Benefit-in-Kind | A non-cash perk from your employer, such as a company car, which may be taxed. |
| Buy-to-Let | A property bought with the intention of renting it out. |
| Capital Gains Tax (CGT) | Tax on the profit when you sell an asset that’s increased in value. |
| Cash ISA | A tax-free savings account available to UK residents. You don’t pay tax on interest earned. |
| Child Benefit | A regular payment from the government to help with the cost of raising children. |
| Compound Interest | Interest calculated on both the initial principal and the accumulated interest. |
| Consumer Price Index (CPI) | A measure of inflation showing the average change in prices paid by consumers over time. |
| Council Tax | A local tax paid to fund services like rubbish collection and schools. Based on your property’s valuation band. |
| Credit Rating (or Score) | A numerical expression of your creditworthiness used by lenders to assess loan risk. |
| Credit Union | A member-owned financial co-operative offering savings and loans, often with lower rates. |
| Current Account | A day-to-day bank account used for paying bills, receiving wages, and everyday spending. |
| Debt Management Plan | An informal agreement with creditors to repay debts at a manageable rate. |
| Direct Debit | An authorisation allowing a company to take payments from your account on agreed dates. |
| Dividend Allowance | The amount of dividend income you can receive tax-free each tax year (currently £500 as of 2024/25). |
| Emergency Tax Code | A temporary tax code used if HMRC doesn’t have your full details—can result in overpaying tax. |
| Equity (in property) | The portion of your property’s value that you own outright (market value minus mortgage debt). |
| Fixed Rate Mortgage | A mortgage where the interest rate remains the same for a set period. |
| Financial Conduct Authority (FCA) | The UK regulator overseeing financial services and protecting consumers. |
| Help to Buy ISA | A now-closed government savings scheme to help first-time buyers save for a home with a 25% bonus. |
| Income Tax | Tax paid on most types of income, including wages, pensions, and rental income. |
| Inheritance Tax | A tax on the estate (property, money, possessions) of someone who’s died, above a certain threshold. |
| Interest Rate | The cost of borrowing money or the reward for saving it, expressed as a percentage. |
| ISA (Individual Savings Account) | A tax-free UK savings or investment account with an annual contribution limit (£20,000 as of 2024/25). |
| Lifetime ISA (LISA) | A savings account for those aged 18–39 to save for a first home or retirement, with a 25% government bonus. |
| Loan-to-Value (LTV) | A ratio comparing the size of your mortgage to the value of the property. |
| Minimum Wage | The lowest legal hourly pay rate set by the government, varying by age group. |
| Mortgage | A long-term loan used to buy property, secured against the property itself. |
| National Insurance (NI) | Contributions deducted from earnings to fund state benefits and the NHS. |
| Overdraft | A facility allowing you to spend more than you have in your current account, up to an agreed limit. |
| PAYE (Pay As You Earn) | A system where employers deduct Income Tax and National Insurance directly from wages. |
| Pension | A fund into which money is saved during your working life to provide income in retirement. |
| Personal Allowance | The amount of income you can earn before you start paying Income Tax (£12,570 as of 2024/25). |
| Private Pension | A pension scheme you set up personally, as opposed to one through your employer. |
| Remortgage | Switching your existing mortgage to a new deal, either with your current lender or a different one. |
| Repayment Mortgage | A mortgage where you repay both the loan and the interest over time. |
| Savings Account | A bank account that pays you interest on your balance and helps you save. |
| Self Assessment | A system for paying tax on income not taxed at source, such as self-employment. |
| Standing Order | A regular, fixed payment you set up from your bank account to another account. |
| State Pension | A regular payment from the government based on your National Insurance record. |
| Tax Code | A series of numbers and letters used by your employer or pension provider to work out how much Income Tax to deduct. |
| Tax Year | In the UK, this runs from 6 April to 5 April the following year. |
| Tracker Mortgage | A mortgage with an interest rate that moves in line with the Bank of England base rate. |
| Universal Credit | A benefit for people on a low income or out of work, combining several older benefits into one. |
| Zero Hours Contract | A type of employment contract with no guaranteed minimum working hours. |
Full Financial Definitions Glossary (A–Z)
Below you’ll find a growing A-to-Z of financial terms relevant to the UK — covering everything from personal finance to investment and pensions. These entries go into more depth, include examples where helpful, and cross-reference related terms.
A
APR (Annual Percentage Rate)
The APR is the total yearly cost of borrowing money, expressed as a percentage. It includes the interest rate plus any fees or additional costs. For example, if you borrow £1,000 with 10% interest and £50 in fees, the APR helps you compare that loan fairly against others.
Asset
An asset is anything valuable that you own — such as property, investments, savings, or even a pension pot. Assets increase your net worth and can generate income or appreciate in value over time.
Auto-Enrolment
A UK workplace pension system that automatically enrols eligible employees into a pension scheme. Employees can opt out, but otherwise, both they and their employer contribute monthly. Designed to encourage long-term saving for retirement.
B
Base Rate
The Base Rate is set by the Bank of England and influences interest rates across the economy. If the base rate rises, so do mortgage, loan, and credit card interest rates. It’s a key lever for controlling inflation.
Beneficiary
A beneficiary is someone entitled to receive money or assets — typically from a will, trust, or life insurance policy. In pensions, it refers to someone who would inherit your pension pot if you died.
Budgeting
Budgeting is the process of planning your income and expenses to manage your money effectively. It’s key for avoiding debt, saving for goals, and maintaining financial stability.
C
Capital Gains Tax (CGT)
A tax on the profit made when you sell (or ‘dispose of’) an asset that has increased in value. Common taxable assets include shares, property (that isn’t your main residence), and investments. Each individual has an annual CGT allowance — above that, gains are taxed at different rates depending on your income bracket.
Compound Interest
This is interest calculated on both the initial amount (the principal) and any previously earned interest. For example, if you earn 5% interest on £1,000, you’ll get £50 in the first year — and in the second year, you’ll earn interest on £1,050. Over time, compound interest accelerates growth.
Credit Score
Your credit score is a number representing how reliable you are at repaying debt. It affects your ability to get loans, mortgages, and sometimes even rent property. Scores are influenced by your payment history, credit usage, and public records. Higher scores get better interest rates.
D
Debt
Debt is money you owe to another party, such as a bank, credit card company, or individual. It can come in many forms, including loans, mortgages, and credit cards. Not all debt is bad — borrowing can be useful when managed responsibly — but high-interest or persistent debt can become problematic.
Defined Benefit Pension
A type of pension that guarantees a fixed income in retirement, based on your salary and years of service. Often called a “final salary” scheme. These are becoming rare in the private sector but remain common in the public sector.
Defined Contribution Pension
A pension where you and/or your employer contribute to a pot of money that’s invested. The final value depends on contributions made and investment performance. Most modern workplace pensions use this format.
Depreciation
The decrease in the value of an asset over time, usually due to wear and tear or obsolescence. For example, a new car typically depreciates in value the moment it’s driven off the forecourt.
E
Emergency Fund
A savings buffer set aside to cover unexpected expenses like car repairs, medical bills, or job loss. Financial planners often recommend keeping 3–6 months’ worth of living costs in an easy-access savings account.
Equity (in investments)
The value of ownership in a company, typically represented by shares. Owning equity means you have a stake in the business and may receive dividends.
Equity (in property)
The portion of a property’s value that you own outright — calculated as the market value minus any mortgage debt. Over time, property prices rising and your mortgage decreasing increase your equity.
Estate
Everything a person owns at the time of their death — including property, money, investments, and possessions. Subject to inheritance tax if above certain thresholds.
F
Financial Advisor
A professional who offers guidance on managing your money, including investments, pensions, mortgages, and insurance. In the UK, regulated advisors must be authorised by the Financial Conduct Authority (FCA).
Financial Independence
The point at which you no longer need to work for money — your investments, pension, or other income sources cover your living expenses. A common goal in the FIRE (Financial Independence, Retire Early) movement.
Furlough
A government-supported job retention scheme used during the COVID-19 pandemic, where employees were temporarily laid off but still received a portion of their wages (usually 80%) via the employer, reimbursed by the state.
G
Gross Income
Your total income before any deductions such as Income Tax, National Insurance, or pension contributions. Contrast with net income.
Gilt
A UK government bond — a way for the government to borrow money from investors. Gilts pay regular interest and are considered low-risk. Often used in pension portfolios or by cautious investors.
H
Help to Buy Scheme
A now-closed UK government initiative designed to help first-time buyers afford a home through equity loans or ISAs. Still relevant for some existing account holders.
High-Interest Savings Account
A savings account that offers a higher interest rate than standard accounts. Often comes with conditions such as monthly deposits or limited withdrawals.
I
Income
Money you receive, whether from work (wages, salary), benefits, rent, or investments. Taxable depending on the source.
Index Fund
A type of investment fund that aims to track the performance of a particular market index (like the FTSE 100). Known for low costs and broad diversification.
Inflation
The rate at which prices rise over time, reducing the purchasing power of money. Measured by indices such as CPI or RPI.
J
Junior ISA
A long-term, tax-free savings or investment account for children under 18, introduced in 2011. Annual contribution limit is £9,000 (2024/25).
K
Key Facts Document
A summary provided by financial service providers that outlines essential details of a product, such as mortgage terms, fees, or interest rates. Designed to help consumers compare options.
L
Liability
A financial obligation — money you owe. Examples include credit card debt, loans, or mortgages. Opposite of an asset.
Lifetime Allowance
Previously a limit on the amount you could build up in your pension without extra tax charges. This was abolished in 2023, but legacy references still exist.
M
Margin
In investing or trading, margin refers to borrowing money from a broker to buy securities. Risky, and not typically relevant for casual UK investors.
Means-Tested Benefit
A benefit you receive based on your income and savings (e.g., Universal Credit). Your entitlement may reduce or vanish as your financial situation improves.
N
Net Income
Your take-home pay after tax and other deductions. Also called “disposable income”.
National Minimum Wage
The legally mandated hourly pay minimum in the UK, which varies by age group and is separate from the National Living Wage.
O
Outstanding Balance
The amount you still owe on a loan, mortgage, or credit card.
Overpayment
Making extra payments toward your mortgage or loan, reducing the overall term and interest paid. Some lenders may charge fees for this.
P
Personal Savings Allowance
The amount of interest you can earn on savings tax-free. As of 2024/25, it’s £1,000 for basic-rate taxpayers, £500 for higher-rate, and £0 for additional-rate taxpayers.
Premium Bond
A UK government-backed savings product by NS&I where instead of earning interest, you’re entered into a monthly prize draw.
Q
Qualifying Years (NI)
Years in which you’ve paid or been credited with National Insurance contributions. You typically need 35 to receive the full State Pension.
R
Rainy Day Fund
A small pot of easily accessible savings for unexpected small expenses — distinct from an emergency fund.
Risk Tolerance
How much investment risk you’re comfortable taking. A key factor in choosing suitable assets or funds.
S
Stocks and Shares ISA
A tax-free investment account that allows you to invest in shares, funds, and bonds. Part of your annual ISA allowance.
Stamp Duty
A tax paid when buying property in the UK. The amount depends on the price of the home and whether you’re a first-time buyer or own other property.
T
Tax-Free Allowance
The amount of income you can earn without paying tax. Includes your Personal Allowance, Dividend Allowance, and Savings Allowance.
Tracker Fund
A fund that mirrors the performance of a market index, similar to an index fund.
U
UCAS Tariff Points
Not financial, but sometimes confused in education-related discussions. Excluded from this glossary.
Undischarged Bankruptcy
When someone is still under the legal restrictions of a bankruptcy order. May affect their ability to get credit or hold certain jobs.
V
Variable Rate Mortgage
A mortgage where the interest rate can change over time, often tracking the lender’s standard rate or base rate movements.
W
Wage
Typically refers to hourly pay (as opposed to salary, which is annual). Subject to Income Tax and National Insurance.
Wealth Tax
A tax on an individual’s total net worth — not currently implemented in the UK, though discussed politically.
X
(No commonly used UK personal finance terms found under this letter.)
Y
Yield
The income return on an investment, typically expressed as a percentage. For example, a stock paying £5 in annual dividends on a £100 investment has a 5% yield.
Z
Zero-Rated Goods
Goods on which VAT is charged at 0%, such as most food items and children’s clothing in the UK. Not the same as VAT-exempt items.