Personal finance comes with a lot of jargon. This glossary explains some of the terms you'll come across most often when dealing with UK banks, tax, pensions, credit and property, in plain English.
Tax & Income
Personal Allowance
The amount of income you can earn each tax year before you start paying Income Tax — £12,570 for most people in 2026/27, though it tapers away for higher earners.
National Insurance
A separate deduction from earnings (alongside Income Tax) that builds your entitlement to the State Pension and certain benefits.
Tax code
A short code your employer uses under PAYE to work out how much of your pay is tax-free before deducting Income Tax.
P60 / P45
A P60 is your annual summary of pay and tax for the year, given by your employer. A P45 is issued when you leave a job and passed to your new employer.
Universal Credit
A means-tested monthly benefit for people on a low income or out of work, replacing several older benefits.
Capital Gains Tax
Tax on the profit (not the total sale price) when you sell certain assets, such as shares or a second property, above your annual tax-free allowance.
Inheritance Tax
Tax potentially due on an estate above a set threshold when someone dies, usually paid before assets are distributed to beneficiaries.
Savings & Investments
ISA (Individual Savings Account)
A tax-free wrapper for savings or investments, up to an annual allowance; interest, dividends and gains inside an ISA aren't taxed.
AER (Annual Equivalent Rate)
A standardised way of showing what the interest rate on a savings account would be if paid and compounded once a year, making accounts easier to compare.
APR (Annual Percentage Rate)
The standardised yearly cost of borrowing, including interest and standard fees, used to compare loans and credit cards.
APRC (Annual Percentage Rate of Charge)
Similar to APR but used specifically for mortgages, factoring in fees and rate changes over the deal period.
Compound interest
Interest calculated not just on your original amount but also on interest already earned, so growth accelerates over time.
FSCS protection
The Financial Services Compensation Scheme protects eligible deposits up to £85,000 per person, per authorised institution, if the bank or building society fails.
Index fund
A fund that aims to track the performance of a market index (like the FTSE 100) rather than trying to beat it, typically at low cost.
OEIC (Open-Ended Investment Company)
A common type of pooled investment fund, similar to a unit trust, where money from many investors is combined and invested collectively.
Dividend
A payment made by a company to shareholders, usually out of profits.
Equity
In investing, shares in a company. In property, the portion of your home's value that you own outright (its value minus any mortgage owed).
Pensions
State Pension
A regular payment from the government in retirement, based on your National Insurance record, payable from State Pension age.
Auto-enrolment
The legal requirement for employers to automatically enrol eligible staff into a workplace pension, with minimum contributions from employer and employee.
SIPP (Self-Invested Personal Pension)
A type of personal pension giving you more control over how your pension savings are invested, compared to a standard workplace scheme.
Annual Allowance
The maximum amount that can be paid into your pensions each tax year while still getting tax relief, before extra tax charges may apply.
Debt & Credit
Credit score / credit file
Your credit file is the record of your borrowing and repayment history held by credit reference agencies; your credit score is a lender's or agency's summary rating of how risky you look as a borrower.
Direct debit vs standing order
A direct debit lets the company you're paying vary the amount and date (useful for bills that change, like energy); a standing order is a fixed, regular payment you set up and control yourself.
Overpayment
Paying more than the minimum required on a debt (like a mortgage or loan), which reduces the balance faster and cuts the total interest paid, sometimes subject to a limit or early repayment charge.
Emergency fund
Money set aside, usually in an easy-access savings account, to cover unexpected costs or a loss of income without resorting to borrowing.
DRO, IVA and bankruptcy
These are formal routes for dealing with problem debt. A Debt Relief Order (DRO) is for people with low income, low assets and relatively small debts. An Individual Voluntary Arrangement (IVA) is a formal agreement to repay a portion of debts over a set period. Bankruptcy is the most serious option, generally used as a last resort, which can involve losing assets to repay creditors. Each has different eligibility criteria and long-lasting effects on your credit file, so seek free debt advice before choosing one.
Property
LTV (Loan-to-Value)
The size of your mortgage as a percentage of the property's value — a smaller deposit means a higher LTV, which usually comes with a higher interest rate.
Stamp Duty
A tax paid on property purchases above a certain price threshold in England and Northern Ireland (with equivalent taxes in Scotland and Wales), usually due shortly after completion.
Negative equity
When your outstanding mortgage balance is greater than your property's current market value, meaning you'd owe money even after selling.
Rent-a-Room Scheme
A scheme allowing you to earn a set amount of tax-free income each year from letting out furnished accommodation in your own home.
Bare trust
A simple legal arrangement where assets (often used for a child's savings or investments) are held by a trustee but belong outright to the beneficiary, who can claim them once they reach 18 (16 in Scotland).
Still not sure?
If any of these terms relate to a decision you're currently facing — choosing between savings accounts, understanding a mortgage offer, or working out what happens to a pension after a change in circumstances — it's worth reading the more detailed guides elsewhere on this site that cover each topic in depth, or checking guidance from GOV.UK, MoneyHelper or the FCA for the most up-to-date rules.