Glossary

The Financial Services Sector is full of acronyms and abbreviations which we will write out in full when used for the first time in any communication with you. However, if you need a reminder, don’t hesitate to contact us or use Acronym Finder. Please be aware that Acronym Finder is not specific to Finance Advice.

Note. We have no affiliation with Acronym Finder or any of its stakeholders. We do not endorse any of its advertisements or promotions.

 

 

 

Additional Voluntary Contributions (AVCS)

When you top-up an occupational pension, by making extra contributions into a scheme that’s run by your employer, you make an ‘additional voluntary contribution’.

 

Agricultural Relief

Relief from Inheritance Tax which is due on the transfer of agricultural property. The relief applies to the agricultural value of the asset only.

 

Alternative Investment Market (AIM) shares

Shares which are traded on the Alternative Investment Market.

 

Annual Allowance

This is the maximum amount of money you can put into your pension funds in a given tax year, and still claim tax relief.

 

Annual Exemption

The amount you can give away each tax year that will be exempt from Inheritance Tax. This is currently £3,000 and applies to one gift or a number of gifts up to that amount. There are other exemptions which can apply.

 

Annuity

At retirement, you have the option to buy an annuity with your pension fund. A series of fixed payments paid over a fixed number of years or during the lifetime of an individual, or both. usually paid monthly, which you’ll receive as a guaranteed regular income during your retirement.

 

Basic State Pension

This is the pension you receive from the government as a result of paying National Insurance (NI) contributions throughout your working life.

 

Business Property Relief (BRP) Investments

Business Property Relief (BPR) is an established form of tax relief that gives people an incentive to invest their money into trading businesses. It was introduced in 1976 to ensure that inheritance tax wasn’t paid on small businesses. Shares in a BPR-qualifying business can be left to beneficiaries free from inheritance tax, provided they have been owned for at least two years at the time of death.

 

Capital Gains Tax (CGT)

If the value of assets that you own increase in value, then you may need to pay Capital Gains Tax (CGT). For example, selling shares for more than you paid for them could involve paying some CGT. You get an exemption for capital gains tax up to a certain limit each year and only pay CGT on any gain over this amount.

 

Career Average Revalued Earnings (CARE) Schemes

These are a type of defined benefit pension scheme that are offered by employers. The benefits at retirement are based on your earnings and length of membership of the scheme.

 

Child Trust Fund

The Child Trust Fund (CTF) is a long-term savings and investment account for children. In December 2010, the Government decided to stop opening CTFs, but those which had already been set up by then are designed to make sure that your children have savings up until the age of 18.

 

Collective Investment Scheme

A Collective Investment Scheme a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group. These advantages include an ability to:

 

• hire a professional investment manager which theoretically offers the prospects of better returns and/or risk management.
• benefit from economies of scale – cost sharing, among others
• diversify more than would be feasible for most individual investors, which, theoretically, reduces risk.

 

Consumer Price Index (CPI)

The Consumer Price Index (CPI) is a measure of inflation used by the British Government for its UK inflation target. It measures changes in a ‘basket’ of goods and services purchased by households.

 

Contracting Out

When you opted to leave the State Second Pension (S2P) or State Earnings Related Pension Scheme (SERPS), this was known as contracting out. You would have received a rebate on or contributed less to National Insurance. The ability to Contract Out ceased in April 2012 for money purchase pensions and April 2016 for defined benefit pensions, however you may still have ‘Contracted Out’ benefits from the past.

 

Critical Illness Cover (CIC)

This is an insurance policy that you take out so that you can rely on having a lump sum paid if you’re diagnosed with a specified critical illness. Group Critical Illness benefits are often part of a company’s Employee Benefits offering.

 

Defined Benefit (DB)

In this type of pension scheme, members receive a set pension income on retirement – based on their final salary or average earnings in employment and how many years they’ve been working for the company. It’s may also be known as a final salary scheme.

 

Defined Contribution (DC)

In this type of pension scheme, the amount of money you will have in your retirement fund depends on the amount of money you (or your employer) put in, where the money was invested and how much it grows. It’s also known as a money purchase scheme.

 

Discretionary Trust

These are useful when the donor wants to keep some control over who benefits from the assets and when. Unlike the bare trust, beneficiaries can be changed at any time.

 

Disposition

A disposal or transfer of property or cash, including both the creation and the release of any debt or right. The legislation specifically includes certain types of transfer, and more information can be found in the inheritance tax manual.

 

Diversification

This is the process of spreading – or ‘diversifying’ – your investments over a range of assets, so that you reduce your exposure to risk. By diversifying your investment, if one type of investment falls in value, then the remaining ones may not fall at the same rate, or at all.

 

Dividend

Amount paid to a shareholder, usually in the form of cash, as a reward for investment in the company. The amount of dividend paid is proportionate to the number of shares held.

 

Dividend Cover

Earnings per share divided by dividend per share. dividend yield Dividend per share divided by current market price.

 

Domicile

Generally, a person’s domicile is where they have their fixed and permanent home and to which, when they are absent, they always have the intention of returning.

 

Effective Interest Rate

The rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument.

 

Efficient Markets Hypothesis

Share prices in a stock market react immediately to the announcement of new information.

 

Employee Trust

A discretionary trust set up to benefit employees of a particular occupation or firm and the relatives and dependants of those employees. For more information on employee benefit trusts, please see our guide – What are special trusts?

 

Endowment Policy

Assurance providing for the payment of a lump sum on death or maturity.

 

Enduring Power of Attorney

A power of attorney which is not revoked by any subsequent mental incapacity of the person granting the power.

 

Estate Planning

For inheritance tax (IHT) purposes, an individual’s estate is calculated as being his or her total assets less any liabilities at the time of their death. Proper estate planning could save your family hundreds of thousands of pounds, because IHT (sometimes called ‘death duty’) will be charged on what you leave behind, over the IHT threshold at time of death. Currently, IHT is due at a rate of 40% of the value of all the assets you leave behind on death above the IHT threshold.

 

Ethical Investment

Ethical investments are opportunities offered by businesses or funds that aim to avoid companies involved in some kinds of activities, but instead favour those involved in other activities. For example, companies trading in armaments, cigarettes, animal research or alcohol are unlikely to be considered ‘ethical’ – but a company that is highly committed to recycling or human rights issues, may be considered to have an ethical bias. They might also include investments in companies which engage in positive, socially responsible actions. Ethical investments can also be known as ‘green investments’ or ‘socially responsible investments.

 

Exchange Traded Funds (EFTs)

The FSA definition of an ETF is ‘An open-ended investment fund which tracks certain indexes and is bought and sold on an exchange rather than through a fund manager.’ Effectively an ETF is a hybrid of a pooled investment fund (in particular, an index tracker) and a share. This is similar in context to an Investment Trust but instead of investing in a spread of assets and regions an ETF will be dedicated to a specific index such as the FTSE 100. Where the two differ is that an investment trust is a closed-ended fund whereas the ETF is open. So essentially, the ETF is set up like a normal investment fund but whose shares for a retail client are listed on a ‘listed’ stock exchange and purchased via a stockbroker.

 

Because of the general lack of active management, they can give investors cheap and efficient access to a wide range of different indices, sectors and even commodities.

 

Units of an ETF can be purchased at any time (so long as the stock market is open) during the day (but a stockbroker does need to be used) as a result the price can change regularly based on this buying and selling, also as well as being held directly they can be held via a wrapper such as an ISA, SIPP, SSAS, offshore bond or child trust fund

 

It must be remembered that ETFs come in many different guises as they can use differing methods of tracking an index as shown below:

 

• Full index replication. The ETF will hold all the constituents of the index in the same proportion as the index.

 

• Sampling replication. The ETF will hold a sample of the constituents of the index which it is replicating. This could mean the ETF does not fully replicate the index and may return more or less.

 

• Synthetic replication. This involves the use of SWAPS and consequently there is a counter-party risk. The ETF buys investments that may not be within the index the ETF is tracking. It then swaps the return on these investments for the return on the index.

In addition to this there are more complex version which can involve high risk strategies such as gearing so that for every £100 put in the fund the fund will borrow additional monies so that more than original £100 is invest (i.e. the fund may borrow £100 so £200 in total is invested) this works well if the investment increases in value, as you would get nearly double the return (based on amount borrowed meaning £200 invested) but if it falls you loss twice as much and could lose all the investment.

As you can see the more complex the structure the higher the risk involved.

 

Exempt Gifts

Gifts that are exempt from inheritance tax. These include gifts to individuals more than seven years before death. See potentially exempt transfers gifts to spouses or civil partners gifts not exceeding £3,000 in any one tax year. See annual exemption gifts on consideration of marriage or civil partnership gifts to UK charities gifts for national purposes small gifts, gifts which are normal expenditure out of income.

 

Exempt Transfer

An exempt transfer is one that is wholly covered by one or more exemptions.

 

Exemptions

Some gifts are exempt from inheritance tax because the gifts are covered by exemptions. See exempt gifts for details of the exemptions from inheritance tax which may apply.

 

Final Salary Schemes

A final salary pension scheme is another description of a type of defined benefit scheme.

 

Flexible Drawdown

This is a way of drawing your pension fund in retirement. The level of income is set depending on the size of your fund and your income need. It is possible to take all of your fund, none of it, or anything in between. Because of the potential implications on tax and your retirement income needs it is vital to ensure that you consider carefully the level of income you choose to take.

 

Free Cover Limit

A free cover limit is also known as the ‘Free cover level’ or ‘No evidence limit’. A free cover limit or the no evidence limit is the amount of cover that each individual policy member within a Group Life Assurance, Group Income Protection or Group Critical Illness policy can have without any requirement of medical evidence or underwriting.

 

General Investment Account (GIA)

A General Investment Account (GIA) is a wrapper set up when you open your portfolio, which may hold investments and cash. It allows you to hold a broad range of investments including some which you may not be able to hold within other wrappers, usually for tax reasons. Taxation Growth within a GIA is subject to capital gains tax (CGT). Individuals have an annual exemption, for the year 2019/20 this is £12,000. This means on a joint portfolio the total of gains possible before becoming liable for CGT is £24,000 (based on the assumption that you have no other gains from other sources that need to be considered). For any sales carried out when rebalancing the GIA, we consider any potential capital gain that might arise to keep within the exemption limit. Each year you will also be able to transfer up to the value of your annual ISA allowance of unit trust holdings from your GIA to an ISA, therefore sheltering the holdings from any further income or capital gains taxation.

 

Gift Trust

Gifts of an amount up to the nil rate band, £325,000, can be given with no immediate IHT liability. To be effective for IHT the gift must be ‘irrevocable’. The same seven-year period (as mentioned in Gifts to Family) applies to gifts into trust, the donor needs to survive for seven years to make the gift exempt. As with outright gifts, you can insure against death within the seven-year period by taking life assurance. The main difference is that an individual, as trustee of the plan, would retain control over the capital and therefore when any payments are made to the beneficiaries. Only the original gift is potentially liable to IHT during the seven-year period, any growth on the capital belongs to the trust and the trust beneficiaries and is not liable to IHT. Once gifted the donor does not have access to the original capital or any income it generates.

 

Gift with Reservation of Benefit

A gift which is not fully given away so that the person getting the gift does so with conditions attached or the person making the gift keeps back some benefit for themselves.

 

Group Personal Pension (GPP)

If you work for a company, you may have a Group Personal Pension. It’s the name given to personal pension plans offered by employers to employees on a money purchase basis.

 

Immediately chargeable transfer (ICT)

Before 22 March 2006, there was an immediate claim for inheritance tax on gifts into discretionary trusts or to companies. For gifts made on or after 22 March 2006, an immediately chargeable transfer is one made to the trustees of a relevant property trust or to a company. Additional tax may be payable if the donor dies within seven years of the gift.

 

Income Drawdown

A particular situation where the deceased has reached pension age but has chosen not to buy an annuity that will provide their pension. Instead, they decide to ‘draw’ a certain level of income from the retirement fund with a view to buying an annuity at a later date.

 

Income Protection

This is an insurance policy that pays you a monthly income if you’re unable to work due to illness or injury, until you are able to return to work, or you retire, whichever is the sooner. Group Income Protection is often part of a company’s Employee Benefits offering.

 

Individual Savings Account (ISA)

There are two types of Individual Savings Account (ISA): Cash ISAs, and Stocks and Shares ISAs. Each tax year, you can put money into both types up to the annual limits. ISAs aren’t an investment in their own right, they’re a tax-free ‘wrapper’ in which you can shelter investments.

 

Inheritance Tax (IHT)

A tax on the value of a person’s estate on death and on certain gifts made by an individual during their lifetime.

 

Inheritance Tax Threshold

The inheritance tax threshold is the amount above which inheritance tax becomes payable. If the estate, including any assets held in trust and gifts made within seven years of death, is less than the threshold, no inheritance tax will be due on it. see the current threshold.

 

Interest in Possession

This is a term in general law. Generally, a person has an interest in possession in property held in trust if they have the immediate right to use or enjoy the property or receive any income arising from it. Up to 22 March 2006, all such trusts were treated for inheritance tax purposes as owned by the person having the interest in possession. An interest in a trust arising on or after 22 March 2006 will be regarded as an interest in possession (and therefore treated for IHT purposes as owned by the person having an interest in possession) if it is one of the following: an immediate post-death interest a disabled person’s interest a transitional serial interest.

 

Interest Only Mortgage

A mortgage whereby interest only is paid to the mortgagee and the capital amount of the original loan is repaid at the end of the mortgage team either by an endowment policy maturing or a pension or other savings plan maturing.

 

Interim Reports

Financial statements issued in the period between annual reports, usually half-yearly or quarterly.

 

Internal Reporting

Reporting financial information to those users inside a business, at various levels of management, at a level of detail appropriate to the recipient.

 

Intestate

If a person dies intestate, they died without making a will, or without fully disposing of their property by will. The administration of the estate is then governed by the provisions of the Administration of Estates Act 1925.

 

Intestacy

An estate where the person died intestate.

 

Inventory

Stocks of goods held for manufacture or for resale.

 

Inventory form c1

Confirmation with inventory is the form used for a Scottish estate on which the personal representative has to provide information such as assets of the estate, including assets situated outside of Scotland.

 

Investing Activities

The acquisition and disposal of long-term assets and other investments not included in cash equivalents.

 

Investment Trust

Investment Trusts invest in the shares of different companies, allowing investors to spread their risk. The main difference from unit trusts is that investment trusts are themselves companies in which you buy shares. So, you’re investing directly rather than indirectly through an open-ended fund.

 

Unlike open-ended investments such as OEICs, Investment Trusts are closed-ended meaning that the number of shares created and available is limited and is established when the company is first set up. Once all the shares are sold, they can only be bought or sold if buyers and sellers exist. This might make it very difficult to buy shares in a very popular Trust or sell shares in an unpopular one.

 

As a company, Investment Trusts are able to borrow money to boost the amount they have available for investing. The industry calls this Gearing and can be a great advantage when share prices are rising with the increasing value of investment far outstripping the cost of any borrowing. However, if share prices are falling, too much debt can leave an Investment Trust in difficulty as it has to sell investments at rock bottom prices to keep up with interest payments.

 

Because Investment Trust share prices are affected in part by supply and demand, their value can fluctuate more often than units in Unit Trusts as the price will trade at either a premium (due to greater demand) or discount (low demand) when compared to the value of the assets it has invested in.

 

As with Unit Trusts, Investment Trusts differ in the kinds of companies they invest in, some being more high risk than others. Some focus on capital growth with very little income from dividends, and others invest for a steady income from dividends with some chance of capital growth.

 

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.

 

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.

 

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.

 

Life Interest

A common form of interest in possession in settled property where a person has an interest for the duration of their lifetime. Life tenant A person who holds a life interest in settled property.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

Nil-Rate Band

The amount of an estate on which there is no inheritance tax to pay. If the value of an estate, including any assets held in trust and gifts made within seven years of death, falls within the nil-rate band there will be no IHT payable on the estate. Where the value of an estate exceeds the nil-rate band, only the amount above the nil-rate band is taxed at 40%.

 

Normal Expenditure out of Income

Gifts which are made purely out of income as part of a person’s normal expenditure are exempt from inheritance tax. The claimant must show that after allowing for the gifts the donor was left with sufficient income to maintain their usual standard of living and that there was an established pattern of giving.

 

Offshore Investment Bond

Offshore bonds have many of the characteristics of Onshore bonds – they are Life Insurance contracts; they benefit from the 5% withdrawal rule and predominantly invest in unit linked funds. Although a key difference is that they are not based/domiciled in the UK.

 

Where Offshore bonds differ is in the taxation and the investment choices available.

 

The taxation of an Offshore bond is governed by the tax regime of the territory where the life office is established. Naturally, most of these offices are set up in places where the income and capital gains in non-resident policyholders’ funds are not locally taxed. This feature is often referred to as “gross roll-up”. Dividend and other income which the life office receives from other territories may be subject to non-recoverable withholding tax. The effect of withholding tax can be minimised by investing for capital growth rather than income.

 

Whilst an Offshore bond may appear appealing due to the fact that minimal tax is paid on the fund whilst invested, when the plan is eventually encashed, it is taxed in the country where the person is resident for tax purposes. So, for a person resident and/or domiciled in the UK, they would pay UK tax (non-domiciled people could still pay UK tax if the money is remitted here).

 

Offshore bonds may carry a higher charging structure than UK based bonds.

 

It is important to understand that although projections relating to offshore bonds are on a 5%, 7% and 9% basis (compared with 4%, 6% or 8% for onshore bonds) to reflect the absence of UK tax within the underlying funds, the figures provided ignore the important fact that most UK investors will eventually pay tax (or more tax) on the chargeable gain. The amount the investor will be left with after tax should be considered when comparing bond illustrations from UK and offshore life offices.

 

It is difficult to confirm which circumstances an Offshore bond would be better suited to. Some potential situations are as follows:

 

Investors planning to live or retire abroad, who would be subject to local rather than UK tax on policy gains. (Although these may be worse than the UK).

Investors planning to live abroad for part of the time they intend to hold the bond and encash it when they return, may receive relief under the time apportionment relief rules.

Investors who will definitely be non-taxpayers at the time of an encashing the bond (although care needs to be taken here).

Investors who are investing for the long term so there is greater opportunity for the bond to offset the effects of tax (and charges) and outperform an onshore equivalent.

An important aspect of investing abroad is that the investment will not be covered by UK legislation should the offshore provider/fund become insolvent and will be subject to the laws and compensation scheme applicable in the jurisdiction where the plan/fund is based.

 

Onshore Investment Bond

Investment Bonds are actually Life Insurance Policies. As such they come with some different taxation rules and product design in what the industry calls a Tax Wrapper. While they differ from other collective investments, the funds they operate in are almost identical to those you might buy for an ISA, Pension, OEIC or Unit Trust.

 

Investment Bonds (including With Profit Bonds) pay all Basic Rate tax and Capital Gains Tax due on their investors behalf. Investment Bonds also have a unique feature in that under current rules you can choose to withdraw up to 5% of your initial investment each year without the need to pay any income tax straight away. You can do this for up to 20 years which is one of the reasons Investment Bonds have been such a popular part of tax planning.

 

Some Investment Bond Advantages:

 

Wide range of investment Funds available including Managed Funds, Multi Manager Funds, Property Funds and Funds that specialise in a specific country or asset class.

 

Very useful for tax planning for those who are currently higher taxpayers but will be basic or non-taxpayers when encashing, as all Capital Gains Tax and basic rate income tax has already been deducted.

 

Because they are officially a Life Insurance product each Bond comes with a very small amount of life cover usually about 101% or so of the Bond.

 

Investment Bond Disadvantages:

 

One of the drawbacks of investment bonds is that their charges are not always easy to understand. Sometimes there is an initial charge, plus an annual management charge (AMC) (typically 1 – 1.5% of the fund value), while other bonds have no initial charge, but a higher annual charge in the first three to five years. There is also the ‘allocation rate’ on your bond to be taken into account. This may be more than 100% for larger investments. After the initial charge this may turn out to be less 100%

 

Many Investment Bonds come with exit penalties for early withdrawal. These are usually put in place to pay for any up-front special offers or discounts.

 

If you take the 5% withdrawals, it should be noted that the tax is only deferred. If you don’t plan carefully, you may incur a larger tax bill later on.

 

As Capital Gains Tax is paid by the fund automatically you can’t reclaim this if you don’t actually use up your CGT allowance so you might be paying tax unnecessarily.

 

The tax within the bond cannot be reclaimed by the individual, irrespective of their tax status.

 

Open-ended Investment Companies (OEIC)

Collective investment vehicles with one price for investors. OEICs are able to issue more shares if demand increases from investors, unlike investment trusts.

 

Partnership

Two or more persons in business together with the aim of making a profit.

 

Personal Allowance

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

 

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.

 

Potentially Exempt Transfer (PET)

Up to 22 March 2006, a PET was an outright gift to an individual, to an accumulation and maintenance trust, or to a disabled person’s interest, which becomes an exempt transfer if the donor lives for seven years after the date of the gift. For transfers made on or after 22 March 2006, a PET is an outright gift to an individual, to a disabled person’s interest, or to a bereaved minor’s trust on the coming to an end of an immediate post-death interest which becomes exempt if the donor lives for seven years after the date of the gift.

 

Private Medical Insurance (PMI)

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.

 

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.

 

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.

 

Relevant Business Property

Types of property on which business relief may be available. These include a business an interest in a business, such as a partner unquoted shares which are not listed on a recognised stock exchange shares or securities which give the transferor control of a business and, buildings, plant or machinery used wholly or mainly in the business or partnership.

 

Relevant Property

Settled property held on a relevant property trust.

 

Relevant Property Trust

From 22 March 2006, a relevant property trust is any trust in which the beneficiary’s interest is not one of the following:

• an immediate post-death interest
• a transitional serial interest
• a disabled person’s interest
• a trust for a bereaved minor
• an age 18 to 25 trust

 

Reliability

Qualitative characteristic of being free from material error and bias, representing faithfully.

 

Relievable Property

Property on which business relief or agricultural relief is available.

 

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.

 

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.

 

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.

 

Settlor

A person who puts property into a trust. For inheritance tax purposes a settlor is the person who makes a settlement or who directly or indirectly provides the assets for a settlement.

 

Small Gifts

Small gifts which are exempt from inheritance tax of up to £250 in each tax year to any number of different recipients. The exemption cannot be combined with any other exemption such as the annual exemption.

 

Small Self-administered Scheme (SSAS)

A SSAS is a company scheme where the members are usually all company directors or key staff. A SSAS is set up by a trust deed and rules and allows members/employers, greater flexibility and control over the scheme’s assets.

 

Loans can be made to the sponsoring employer but are subject to certain conditions set by HMRC. These include:

 

• The loan should not exceed 50% of the net market value of the scheme’s assets.
• The loan should be secured against assets of an equal value by way of a first charge.
• The loan’s terms should be no longer than 5 years.
• Interest of at least 1% above bank base rate should be charged on the loan.

 

The trustees of a SSAS can invest in a broad range of investments, including:

 

• Commercial property and land
• UK quoted shares, stocks, gilts and debentures
• Stocks and shares quoted on a recognised overseas stock exchange.
• Futures and options quoted on a recognised stock exchange.
• OEICs, unit and investment trusts
• Hedge funds
• Insurance company funds
• Bank and building society deposits.
• Gold bullion

 

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.

 

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.

 

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.

 

Taper Relief

If the total chargeable value of all the gifts made between three and seven years before a death is more than the threshold at death, then taper relief is due. The relief reduces the amount of tax payable on a gift, not the value of the gift itself. Find out more in the article how do I calculate taper relief.

 

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.

 

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.

 

Ten-yearly Charge

An inheritance tax charge which arises on a relevant property trust on the tenth anniversary of the setting up of the trust and each subsequent ten-year anniversary.

 

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.

 

Trust

An obligation binding a person who holds the legal title, the trustee, to deal with the property for the benefit of another person, the beneficiary.

 

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.

 

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.

 

Yield

Yield is a general term for the rate of income that comes from an investment, expressed as an annualised percentage and ba