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.

 

 

 

Abstract of Title

A schedule listing the documents which set out the history of ownership of a property.

 

Account Payable

An amount due for payment to a supplier of goods or services, also described as a trade creditor.

 

Account Receivable

An amount due from a customer, also described as a trade debtor.

 

Accountancy Firm

A business partnership (or possibly a limited company) in which the partners are qualified accountants or chartered accountants. The firm undertakes work for clients in respect of audit, accounts preparation, tax and similar activities.

 

Accountancy Profession

The collective body of persons qualified in accounting and working in accounting-related areas. Usually, they are members of a professional body, membership of which is attained by passing examinations.

 

Accounting

The process of identifying, measuring and communicating financial information about an entity to permit informed judgements and decisions by users of the information.

 

Accounting Equation

The relationship between assets, liabilities and ownership interest. accounting period Time period for which financial statements are prepared (e.g. month, quarter, year).

 

Accounting Policies

Accounting methods which have been judged by business enterprises to be most appropriate to their circumstances and adopted by them for the purpose of preparing their financial statements.

 

Accounting Standards

Definitive statements of best practice issued by a body having suitable authority.

 

Accounting Standards Board

The authority in the UK which issues definitive statements of best accounting practice.

 

Accruals Basis

The effects of transactions and other events are recognised when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate (see also matching).

 

Accumulated Depreciation

Total depreciation of a non-current (fixed) asset, deducted from original cost to give net book value.

 

Accumulation

When the income of a fund is saved up and not paid out to any beneficiaries, it is said to be accumulated.

 

Acid Test

The ratio of liquid assets to current liabilities.

 

Acquiree Company

That becomes controlled by another.

 

Acquirer Company

That obtains control of another.

 

Acquisition

An acquisition takes place where one company – the acquirer – acquires control of another – the acquiree – usually through purchase of shares.

 

Acquisition Method

Production of consolidated financial statements for an acquisition.

 

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’.

 

Administrative Expenses

Costs of managing and running a business.

 

Administrator

A man who is appointed by the courts to administer a deceased person’s estate in England, Wales and Northern Ireland; usually where there is no will or they are not named in the will.

 

Administratrices

Plural of administratrix.

 

Administratrix

A woman who is appointed by the courts to administer a deceased person’s estate in England, Wales and Northern Ireland; usually where there is no will or they are not named in the will.

 

Adopted Highway

A road maintained by the local authority.

 

Advance

The original amount of the loan.

 

Age 18 To 25 Trust

From 22 March 2006, an ‘age 18 to 25 trust’ is a discretionary trust set up under the will or intestacy of a deceased parent or step-parent, where the property is held on trust for the benefit of someone aged over 18 and under 25. accumulation and maintenance trusts set up before 22 March 2006 which provide for beneficiaries to become absolutely entitled to the trust fund on or before the age of 25 will become age 18 to 25 trusts if, before 6 April 2008, they rewrite the trust to comply with the new rules. The property in an 18 to 25 trust is subject to age 18 to 25 exit charges when property leaves the trust on or before the beneficiary’s twenty-fifth birthday.

 

Age 18 To 25 Exit Charge

The inheritance tax charge on an age 18 to 25 trust which occurs when the beneficiary becomes absolutely entitled to the property in the trust between their 18th and 25th birthdays some of the property in the trust is distributed to the beneficiary or the beneficiary dies aged over 18.

 

Agency

A relationship between a principal and an agent. In the case of a limited liability company, the shareholder is the principal, and the director is the agent.

 

Agency Theory

A theoretical model, developed by academics, to explain how the relationship between a principal and an agent may have economic consequences.

 

Aggregate Chargeable Transfer

The total amount on which inheritance tax is charged. This is made up of the deceased’s personal and real estate, any interest in possession trusts in which the deceased was treated as having a beneficial interest, gifts with reservation, the deceased’s share of joint property, all chargeable transfers made by the deceased in the seven years prior to death and the value of any alternatively secured pension from which the deceased was entitled to benefit as the original scheme member.

 

Aggregate Depreciation

See accumulated depreciation.

 

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.

 

Agricultural Property

Land or pasture used in the growing of crops or intensive rearing of animals for food consumption. Also, can include farmhouses and farm cottages.

 

Agricultural Value

The value a property would have if it could only be used as agricultural property. more on agricultural value.

 

Allocate

To assign a whole item of cost, or of revenue, to a simple cost centre, account or time period.

 

Alternative Investment Market (AIM) shares

Shares which are traded on the Alternative Investment Market.

 

Alternatively Secured Pension Fund (ASP)

A fund (whether sums or assets) held under a money purchase arrangement that have been ‘designated’ to provide a scheme member (who is aged 75 or over) with an alternatively secured pension.

 

Amortisation

Process similar to depreciation, usually applied to intangible fixed assets.

 

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.

 

Annual Report

A document produced each year by limited liability companies containing the accounting information required by law. Larger companies also provide information and pictures of the activities of the company.

 

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.

 

Appeal

The personal representatives may appeal against a notice of determination in writing within 30 days of the date of issue of the notice. The appeal will be heard either by the special commissioners or the lands tribunal.

 

Articles Of Association

Document setting out the relative rights of shareholders in a limited liability company.

 

Articulation

The term ‘articulation’ is used to refer to the impact of transactions on the balance sheet and profit and loss account through application of the accounting equation.

 

Asset

Rights or other access to future economic benefits controlled by an entity as a result of past transactions or events.

 

Asset Allocation

Asset allocation is the process of investing in a range of different assets such as equities, property and bonds. By diversifying the assets into which you invest, you can protect against any reduction in value of any one or more asset class. Asset allocation depends on your investment plans and attitude to risk.

 

Assent

A formal document required to transfer ownership of property to a person entitled to the property following the death of the owner.

 

Associated Company

One company exercises significant influence over another, falling short of complete control.

 

Assured Shorthold Tenancy

A special form of tenancy agreement designed to simplify the process of obtaining vacant possession of the property at the end of the agreed tenancy period.

 

Attorney

Someone appointed formally to act on behalf of another either generally or for a specific purpose.

 

Audit

An audit is the independent examination of, and expression of opinion on, financial statements of an entity.

 

Audit Manager

An employee of an accountancy firm, usually holding an accountancy qualification, given a significant level of responsibility in carrying out an audit assignment and responsible to the partner in charge of the audit.

 

Authorised Firm

An authorised firm is one that has permission from the Financial Conduct Authority (FCA) to carry out regulated activities.

 

Authorised Unit Trust (AUT)

A unit trust scheme authorised by the Financial Services Authority. A UK unit trust must be authorised before it can be offered to the general public in the UK.

 

Bad Debt

It is known that a credit customer (debtor) is unable to pay the amount due.

 

Balance Sheet

A statement of the financial position of an entity showing assets, liabilities and ownership interest.

 

Bank

A bank is defined in s840A Taxes Act 1988 as an institution authorised under the Banking Act 1987 a relevant European institution. It is a relevant international organisation which is designated as a bank for the purposes of that provision by an order made by the Treasury.

 

Bankruptcy Search

A search of the Land Charges Register to see if any bankruptcy proceedings are pending or established against a person.

 

Bank Facility

An arrangement with a bank to borrow money as required up to an agreed limit.

 

Bare Trust

When named beneficiaries, who can’t be changed in any way, have the absolute right to trust capital and its income from age 16 in Scotland, or 18 in England and Wales.

 

Base Rate

The basic rate of interest upon which other interest rates are based.

 

Basic Rate Taxpayers

Simply put, you are a basic rate taxpayer if you are earning below the higher tax rate threshold and more than the ‘Personal Allowance’.

 

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.

 

Beneficiary

A beneficiary is a person named in a will or under a trust as entitled to receive a bequest or benefit.

 

Bereaved Minor

A person who is aged under 18 and at least one of whose parents or step-parents have died.

 

Bonds

There are two main types of Bonds.

1. A type of security held on a debt, with a company or the Government for example.
2. A single premium life assurance investment bond.

 

Book Value

A company’s value as it appears on a balance sheet, equal to total assets and intangible assets such as goodwill, minus liabilities. The value of assets as they appear on a balance sheet will be equal to the cost of the assets minus accumulated depreciation. Book value therefore often differs substantially from the open market value.

 

Brine Search

A search to establish if a property might be affected as a result of salt workings near the property.

 

Broker (Stockbroker)

Member of a stock exchange who arranges purchase and sale of shares and may also provide an information service giving buy/sell/hold recommendations.

 

Broker’s Report

Bulletin written by a stockbroking firm for circulation to its clients, providing analysis and guidance on companies as potential investments.

 

Building Regulation Consent

Approval by the local authority on the design, structure and materials used in building work.

 

Business

For the purpose of business relief, business includes any business carried on in the exercise of a profession or vocation.

 

Business Combination

A transaction in which one company acquires control of another.

 

Business Cycle

Period (usually 12 months) during which the peaks and troughs of activity of a business form a pattern which is repeated on a regular basis.

 

Business Entity

A business which exists independently of its owners.

 

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.

 

Business Relief

Relief from Inheritance Tax which is due on a transfer of relevant business property.

 

Buyer

Someone who buys a property.

 

Called Up (Share Capital)

The company has called upon the shareholders who first bought the shares, to make their payment in full.

 

Capital

An amount of commercial finance provided to enable a business to acquire assets and sustain its operations.

 

Capital Expenditure

Spending on non-current (fixed) assets of a business.

 

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.

 

Capitalisation Issue

Issue of shares to existing shareholders in proportion to shares already held. Raises no new finance but changes the mix of share capital and reserves.

 

Capped Rate

A mortgage interest rate which is a variable rate but capped at a maximum upper limit usually for a limited period.

 

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.

 

Cash

Cash on hand (such as money held in a cash box or a safe) and deposits in a bank that may be withdrawn on demand.

 

Cashback

A sum of money usually paid by the lender on completion of a mortgage.

 

Cash Equivalents

Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

 

Cash Flow Projections

Statements of cash expected to flow into the business and cash expected to flow out over a particular period.

 

Cash Flow Statement

Provides information about changes in financial position.

 

Cesate Grant

A grant of representation which terminates at the end of a specified time span. Application for this is made on the form Cap A5C which is available from the Probate and IHT Helpline on 0845 3020900.

 

Chain

Where a property seller is also buying another property, this is a chain of transactions, and some chains can have many links.

 

Chairman

The person who chairs the meetings of the board of directors of a company (preferably not the chief executive).

 

Character Appropriate

For the purposes of agricultural relief, a farmhouse, cottage or building must be proportionate in size and nature to the requirements of the farming activities conducted on the agricultural land or pasture in question.

 

Charge

In relation to interest or taxes, describes the reduction in ownership interest reported in the income statement (profit and loss account) due to the cost of interest and tax payable.

 

Chargeable Amount on An Age 18 To 25 Trust

On an age 18 to 25 trust the chargeable amount is the amount by which the value of the trust has decreased as a result of a disposition by the trustees.

 

Chargeable Event on an ASP

There are three occasions where a chargeable event arises on an ASP.

1. the scheme member dies with an ASP.
2. a relevant dependant of an original scheme member dies or ceases to qualify as a relevant dependant and they had benefits derived from the left-over ASP funds of the original scheme member or, where neither 1 nor 2 (above) applies.
3. when a dependant, of a scheme member dies and that dependant had an ASP derived from the pension lump sum death benefit of the scheme member who died before the age of 75.

 

Chargeable Gift

From 22 March 2006, a chargeable gift is, broadly, any gift which is not wholly covered by exemptions and given to the trustees of a relevant property trust or to a company. Gifts from one individual to another or to a disabled person’s trust are not chargeable gifts but are potentially exempt transfers.

 

Chargeable Transfer

A transfer of value made by an individual which is not an exempt transfer.

 

Chargeable Value

The chargeable value of an estate on death is the total of the assets less liabilities, less exempt gifts and capital reliefs.

 

Charitable Trust

A trust which is held indefinitely for charitable purposes only.

 

Charity

For inheritance tax purposes a charity is a UK registered charity or other qualifying body. Other qualifying bodies include organisations such as St John’s Ambulance, hospices and orphanages.

 

Charity Exemption

A transfer that is made to a charity or other qualifying body is exempt from inheritance tax.

 

Chartered Financial Planner

A Chartered Financial Planner is currently one of the highest distinctions of financial adviser qualifications, set at level 6, or the equivalent of having taken a university degree. Chartered Financial Planners have proved that on a technical level they are at the top of their game.

 

Chattels

Personal property such as household and personal goods, furniture, jewellery, antiques and works of art, stamp and coin collections, cars, caravans and boats, electrical equipment, clothes, books and garden equipment.

 

Chief Executive

The director in charge of the day-to-day running of a company and in turn receives many executive benefits including pensions, bonuses.

 

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.

 

Civil Partner

A person who has formed a civil partnership with someone else.

 

Civil Partnership

The legal relationship existing between two civil partners who have registered their partnership in accordance with the Civil Partnership Act 2004, which came into force on 5 December 2005.

 

Clearance Certificate

The personal representatives can apply for a clearance certificate using form iht30 once they have supplied the necessary forms and paid all the Inheritance Tax and interest due. Find out more about clearance certificates in the guide: ‘inheritance tax and record keeping’.

 

Close Company

A company which is under the control of five or fewer participators, or of participators who are directors.

 

Close Season

Period during which those who are ‘insiders’ to a listed company should not buy or sell shares.

 

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.

 

Commercial Paper

A method of borrowing money from commercial institutions such as banks.

 

Commission

This is a payment that’s made to a financial adviser for services that he or she provides, based on a percentage of the value of the investment or premiums paid. It’s paid to the adviser by the product provider. If your adviser takes a commission, you may not need to pay any fees. From 2012 commission is no longer allowable in respect of Investments or Pensions, but might still be payable in respect of older plans and Life Assurance or other forms of insurance.

 

Commons Registration Search

A search at the local authority to check the property is not registered as common land or part of a village green which may therefore mean there are third party rights over the property (e.g. grazing) resulting in the enjoyment of the property being limited.

 

Companies Act

The Companies Act 1985 as modified by the Companies Act 1989. Legislation to control the activities of limited liability companies.

 

Comparability

Qualitative characteristic expected in financial statements, comparable within company and between companies.

 

Compensation Funds

A fund which is set up by a trade or professional organisation to pay compensation to people who have suffered loss or hardship which has been caused by the actions of members of the organisation.

 

Completeness

Qualitative characteristic expected in financial statements.

 

Completion

The moment when the buyer becomes the new owner of the seller’s house, and the seller must have left the property.

 

Completion Date

Written when the buyer becomes the new owner of the seller’s house, and the seller must have left the property.

 

Completion Statement

A written calculation of all receipts and payments due in respect of the transaction.

 

Conacre

The name for a grazing licence in Northern Ireland.

 

Conceptual Framework

A statement of principles providing generally accepted guidance for the development of new reporting practices and for challenging and evaluating the existing practices.

 

Confirmation

The process of obtaining a grant of confirmation. in Scotland. In England, Wales and Northern Ireland this is known as probate.

 

Conservatism

Sometimes used with a stronger meaning of understating assets and overstating liabilities.

 

Consideration

A legal term meaning ‘something given for something done’, i.e., the payment made for goods or services received. For a contract to be valid some consideration must be given.

 

Consistency

The measurement and display of similar transactions and other events is carried out in a consistent way throughout an entity within each accounting period and from one period to the next, and also in a consistent way by different entities.

 

Consolidated Financial Statements

Present financial information about the group as a single reporting entity.

 

Consolidation

Consolidation is a process that aggregates the total assets, liabilities and results of the parent and its subsidiaries (the group) in the consolidated financial statements.

 

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.

 

Contaminated Land

Land affected by contamination which could arise from a past use of a property (e.g oil refinery) or by things stored on the property in the past (e.g. petrol station)

 

Contingent Liabilities

Obligations that are not recognised in the balance sheet because they depend upon some future event happening.

 

Contract

The form of the legal agreement prepared in duplicate for signature by the seller and buyer setting out all the legal rights and obligations.

 

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.

 

Control

The power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

 

Convertible Loan

Loan finance for a business that is later converted into share capital.

 

Conveyance

A document transferring ownership of an unregistered property from one person to another.

 

Conveyancing

The legal work needed to buy and sell properties.

 

Covenants

Legal obligations.

 

Corporate Bonds

These are Bonds that are issued by companies when they need to borrow money. As an investment, they often offer higher rates of return than banks and building societies but with a varying amount of risk depending on the financial security of the company issuing the bond.

 

Corporate Governance

The system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies.

 

Corporate Recovery Department

Part of an accountancy firm which specialises in assisting companies to recover from financial problems.

 

Corporate Social Responsibility

Companies integrate social and environmental concerns in their business operations and in their interactions with stakeholders.

 

Corporation Tax

Tax payable by companies, based on the taxable profits of the period.

 

Corporeal Movables

The Scottish term for chattels.

 

Cost Of a Non-Current Asset

The cost of making it ready for use, cost of finished goods is cost of bringing them to the present condition and location.

 

Cost Of Goods Sold

Materials, labour and other costs directly related to the goods or services provided.

 

Cost Of Sales

See cost of goods sold.

 

Coupon

Rate of interest payable on a loan.

 

Credit (Bookkeeping System)

Entries in the credit column of a ledger account represent increases in liabilities, increases in ownership interest, revenue, or decreases in assets.

 

Credit (Terms of Business)

The supplier agrees to allow the customer to make payment some time after the delivery of the goods or services. Typical trade credit periods range from 30 to 60 days, but each agreement is different.

 

Credit Note

A document sent to a customer of a business cancelling the customer’s debt to the business, usually because the customer has returned defective goods or has received inadequate service.

 

Credit Purchase

A business entity takes delivery of goods or services and is allowed to make payment at a later date.

 

Credit Sale

A business entity sells goods or services and allows the customer to make payment at a later date.

 

Creditor

A person or organisation to whom money is owed by the entity.

 

Critical Even

The point in the business cycle at which revenue may be recognised.

 

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.

 

Current Asset

An asset that is expected to be converted into cash within the trading cycle.

 

Current Liability

A liability which satisfies any of the following criteria: (a) it is expected to be settled in the entity’s normal operating cycle; (b) it is held primarily for the purpose of being traded; (c) it is due to be settled within 12 months after the balance sheet date.

 

Current Value

A method of valuing assets and liabilities which takes account of changing prices, as an alternative to historical cost.

 

Customers’ Collection Period

Average number of days credit taken by customers.

 

Cut-Off Procedures

Procedures applied to the accounting records at the end of an accounting period to ensure that all transactions for the period are recorded and any transactions not relevant to the period are excluded.

 

Debenture

A written acknowledgement of a debt – a name used for loan financing taken up by a company.

 

Debt

If you’ve borrowed money, then you are ‘in debt’, typically owing interest as well as the money initially borrowed.

 

Debtor

A person or organisation that owes money to the entity.

 

Deed of Covenant

A document confirming an agreement to pay or do something.

 

Deed of Gift

A document transferring the ownership of a property from one person to another without any payment being made for it.

 

Deed of Guarantee

A document used where one person agrees to be responsible for someone else’s debt or mortgage obligations if that person fails to carry out their own obligations.

 

Deed of Postponement or Priority

Where a mortgage agrees to their mortgage ranking after another lender’s mortgage.

 

Deeds

The official documents confirming who owns a property which is in the possession of the owner or mortgage if the property is mortgage.

 

Deemed Domicile

A legal concept for inheritance tax purposes where a person is treated as if they were domiciled in the UK at the time of a transfer if they were domiciled in the UK within three years of the transfer, or they were resident in the UK in at least 17 of the last 20 years.

 

Deep Discount Bond

A loan issued at a relatively low price compared to its nominal value.

 

Default

Failure to meet obligations as they fall due for payment.

 

Deferred Asset

An asset whose benefit is delayed beyond the period expected for a current asset, but which does not meet the definition of a fixed asset.

 

Deferred Income

Revenue, such as a government grant, is received in advance of performing the related activity. The deferred income is held in the balance sheet as a type of liability until performance is achieved and is then released to the income statement.

 

Deferred Taxation

The obligation to pay tax is deferred (postponed) under tax law beyond the normal date of payment.

 

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.

 

Dependant

A dependant of a registered pension scheme is defined as a person who at the time of the scheme member’s death was the spouse or civil partner of the member.

• a child of the member who was under 23
• a child of the member who was over 23 and in the opinion of the scheme administrator was dependent on the scheme member because of physical or mental impairment
• any other person who in the opinion of the scheme administrator:
• was financially dependent on the member.
• had a financial relationship of mutual dependence with a member, or
• was dependent on the member because of physical or mental impairment.

 

Deposit

The agreed amount to be paid on exchange of contracts usually forfeited if the buyer fails to complete.

 

Depreciable Amount

Cost of a non-current (fixed) asset minus residual value.

 

Depreciation

The systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount is cost less residual value.

 

Derecognition

The act of removing an item from the financial statements because the item no longer satisfies the conditions for recognition.

 

Difference On Consolidation

Difference between fair value of the payment for a subsidiary and the fair value of net assets acquired, more commonly called goodwill.

 

Direct Method (Of Operating Cash Flow)

Presents cash inflows and cash outflows. Directive A document issued by the European Union requiring all Member States to adapt their national law to be consistent with the Directive.

 

Direct Payment Scheme

Scheme by which the inheritance tax that is due can be paid by transferring the funds directly from the deceased’s bank account. More details about this scheme can be found in the iht400 notes – guide to completing your inheritance tax account.

 

Director(s)

Person(s) appointed by shareholders of a limited liability company to manage the affairs of the company.

 

Disabled Person

For inheritance tax purposes a disabled person is someone who, because of a mental disorder, is not capable of managing their own affairs or administering their own property or someone who is in receipt of attendance allowance or a disability allowance because they are entitled to the care component at the higher or middle rate.

 

Disabled Person’s Interest

A trust where more than half of the assets in the trust are applied for the benefit of a disabled person. Or, for trusts set up on or after 22 March 2006, a trust set up for their own benefit by a person who is suffering from a condition which can be expected to lead to them becoming disabled.

 

Disbursements

Payments made on your behalf e.g. search fees.

 

Disclosed, Disclosure

An item which is reported in the notes to the accounts is said to be disclosed but not recognised.

 

Discount Rate

A mortgage interest rate which will rise and fall with the variable rate, but which will always be the discounted amour below the variable rate.

 

Discount Received

A supplier of goods or services allows a business to deduct an amount called a discount, for prompt payment of an invoiced amount. The discount is often expressed a percentage of the invoiced amount.

 

Discounted Gift Trust

A Discounted Gift Trust has two parts; the first is the same as a Gift Trust in that once monies are gifted into the trust the seven-year period that the donor needs to survive starts. The difference is that the donor sets a level of income that they wish to receive from the capital for the rest of their life at the outset of the trust. Depending on various factors such as the level of income, age, health etc. this gives the donor an immediate ‘discount’ on the original gift that is potentially liable to IHT for the seven-year period. The donor has no access to the original capital but will receive an income for the rest of their life. This income cannot be varied or stopped in any way. It is also not possible to pass on any monies from the trust to the beneficiaries until after the donor has died, this is far less flexible than other trust options.

 

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.

 

Domicile Of Choice

Where a person has left their country of domicile to live in another country with the intention of settling permanently in the new country.

 

Domicile Of Dependency

Under the age of 16 a child has the same domicile as the person on whom they are legally dependent. This is called a domicile of dependency.

 

Domicile Of Origin

This is acquired by a child at birth and is usually the domicile of the child’s father at that time. It need not be the country in which the child is born.

 

Donor

A person who makes a gift of some of their assets.

 

Donee

A person who receives a gift.

 

Double Taxation Convention (DTC)

A treaty which helps prevent a transfer from being taxed by two countries if both countries have the right to tax the same property when a death occurs, or a gift is made.

 

Doubtful Debts

Amounts due from credit customers where there is concern that the customer may be unable to pay.

 

Drawings

Cash taken for personal use, in sole trader or partnership business, treated as a reduction of ownership interest.

 

Due Date

Date on which the Inheritance Tax is due.

 

Earnings For Ordinary Shareholders

Profit after deducting interest charges and taxation and after deducting preference dividends (but before deducting extraordinary items).

 

Earnings Per Share

Calculated as earnings for ordinary shareholders divided by the number of shares which have been issued by the company.

 

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.

 

Emolument

The payment that is made for work that has been done including salary, bonuses and some other forms of benefit in kind.

 

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?

 

Endorsed

International financial reporting standards approved for use in Member States of the European Union through a formal process of endorsement.

 

Endowment Mortgage

A mortgage where you pay the interest on the mortgage only and a premium towards an endowment policy. The policy is then intended to pay off the original amount borrowed at the end of the mortgage term. If you need some extra help to understand this term, please seek suitable mortgage advice.

 

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.

 

Enterprise

A business activity or a commercial project.

 

Entity, Entities

Something that exists independently, such as a business which exists independently of the owner.

 

Entry Price

The value of entering into acquisition of an asset or liability, usually replacement cost.

 

Environmental Search

A search against a property to check whether there is any record kept suggesting that the property may be affected by contamination or other environmental issues.

Equity Usually means the difference between the value of property and the amount owed to the mortgagee.

 

Equities Analyst

A person who investigates and writes reports on ordinary share investments in companies (usually for the benefit of investors in shares).

 

Equity

A description applied to the ordinary share capital of an entity.

 

Equity Accounting

Reports in the balance sheet the parent or group’s share of the investment in the share capital and reserves of an associated company.

 

Equity Portfolio

A collection of equity shares.

 

Equity Release

Equity release is the process of using the value of your home to raise cash – releasing the equity. There are two main types of equity release scheme available: lifetime mortgage (sometimes known as equity release mortgages) and home reversion schemes. When the property is sold, the plan provider reclaims their loan and any interest due with the remainder going towards the plan owner or to their estate.

 

Equity Shares

Shares in a company which participate in sharing dividends and in sharing any surplus on winding up, after all liabilities have been met.

 

Estate

Up to 22 March 2006, for inheritance tax purposes, a person’s estate was made up of: assets in the sole name of the deceased, their share of any jointly owned assets, assets held in a trust in which the deceased had a right to benefit any ‘nominated’ assets, and any assets they have given away, but kept an interest in (see gift with reservation). From 22 March 2006, a person’s estate is made up of assets in the sole name of the deceased, their share of any jointly owned assets, assets held in a trust in which the deceased had an immediate post-death interest, a disabled person’s interest, or a transitional serial interest any ‘nominated’ assets, and any assets they have given away, but kept an interest in (see gift with reservation).the value of an alternatively secured pension fund (ASP) from which the deceased benefited as the original scheme member, or as a dependant who received benefits from the left over ASP fund of an original scheme member. In both cases, the total of all these assets is added to the chargeable value of any gifts made within seven years of the death to work out the amount on which tax is charged.

 

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.

 

Eurobond Market

A market in which bonds are issued in the capital market of one country to a non-resident.

 

Excepted Asset

An asset on which business relief is not available because it is not used wholly or mainly for the purposes of a business throughout the two years before a transfer. For more information, see the guide on business relief.

 

Excepted Estate

An estate where a full inheritance tax account is not required. From 6 April 2004 there are three types of excepted estate low value estates exempt estates foreign domiciliary.

 

borrower from another country.

 

Exchange Of Contracts

The formal exchanging of the two parts of the contract when the seller and buyer become legally bound to complete on an agreed date and in the case of the seller, to move out of the property.

 

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.

 

Excluded Property

The term ‘excluded property’ is a technical term and covers certain types of property which, subject to certain conditions, are outside the charge to IHT. Excluded property includes British Government securities in foreign ownership property situated outside the UK, where the person beneficially entitled to the property is not domiciled in the UK reversionary interests settled property, where the settlor was domiciled outside the UK when the settlement was made.

 

Executor

A man who administers a deceased person’s estate in England, Wales and Northern Ireland and is named in the will.

 

Executor-Dative

A man who is appointed by the courts in Scotland to administer a deceased person’s estate; usually where there is no will or they are not named in the will.

 

Executor-Nominate

A man who administers a deceased person’s estate in Scotland and is named in the will.

 

Executrices

Plural of executrix.

 

Executrix

A woman who administers a deceased person’s estate in England, Wales and Northern Ireland and is named in the will.

 

Executrix-Dative

A woman who is appointed by the courts in Scotland to administer a deceased person’s estate; usually where there is no will or they are not named in the will.

 

Executrix-Nominate

A woman who administers a deceased person’s estate in Scotland and is named in the will.

 

Exempt Estate

A type of excepted estate where the gross value of the estate does not exceed £1,000,000 and there can be no liability to inheritance tax because spouse or civil partner exemption or charity exemption bring the estate below the inheritance tax threshold. Some restrictions apply to this, and further details can be found in our guide: is it an excepted estate.

 

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.

 

Exit Charge

Also known as a proportionate charge.

 

Exit Value

A method of valuing assets and liabilities based on selling prices, as an alternative to historical cost.

 

Expense

An expense is caused by a transaction or event arising during the ordinary activities of the business which causes a decrease in the ownership interest.

 

External Reporting

Reporting financial information to those users with a valid claim to receive it, but who are not allowed access to the day-to-day records of the business.

 

External Users (Of Financial Statements)

Users of financial statements who have a valid interest but are not permitted access to the day-to-day records of the company.

 

Fact Find Document

This is the form which your financial planner will complete with the details of your personal and financial circumstances, prior to giving you any advice.

 

Fair Value

The amount at which an asset or liability could be exchanged in an arm’s-length transaction between a willing buyer and a willing seller.

 

Faithful Presentation

Qualitative characteristic, information represents what it purports to represent.

 

Fall In Value Relief

When tax, or additional tax, is payable on a gift because the donor has died and the value of a gift has fallen between the date of the gift and the date of death, then tax is usually charged on the reduced value of the gift.

 

Final Salary Schemes

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

 

Financial Accounting

A term usually applied to external reporting by a business where that reporting is presented in financial terms.

 

Financial Adaptability

The ability of the company to respond to unexpected needs or opportunities.

 

Financial Gearing

Ratio of loan finance to equity capital and reserves.

 

Financial Information

Information which may be reported in money terms.

 

Financial Reporting Standard

Title of an accounting standard issued by the UK Accounting Standards Board as a definitive statement of best practice (issued from 1990 onwards – predecessor documents are Statements of Standard Accounting Practice, many of which remain valid).

 

Financial Risk

Exists where a company has loan finance, especially long-term loan finance where the company cannot relinquish its commitment. The risk relates to being unable to meet payments of interest or repayment of capital as they fall due.

 

Financial Services Authority (FSA)

The government agency that regulates investment business as required by Financial Services Act 1986.

 

Financial Statements

Documents presenting accounting information which is expected to have a useful purpose.

 

Financial Viability

The ability to survive on an ongoing basis.

 

Financing Activities

Activities that result in changes in the size and composition of the contributed equity and borrowings of the entity.

 

Fixed Asset

An asset that is held by an enterprise for use in the production or supply of goods or services, for rental to others, or for administrative purposes on a continuing basis in the reporting entity’s activities.

 

Fixed Assets Usage

Revenue divided by Net book value of Fixed assets.

 

Fixed Capital

Finance provided to support the acquisition of fixed assets.

 

Fixed Cost

One which is not affected by changes in the level of output over a defined period of time.

 

Fixed Interest Security

This is another name for a ‘bond’ or ‘corporate bond’. The amount of interest you receive, when you invest in a fixed interest security, is stated at the time of purchase. These are usually regarded as a lower risk investment than stocks or shares.

 

Fixed Rate

An interest rate that’s fixed is one that doesn’t move up or down for a set period of time.

 

Fixed Rate Mortgage

A mortgage interest rate where the mortgagee agrees to charge a fixed rate of interest over a given period whether or not the variable rate changes.

 

Fixtures Fittings & Contents Form

A standard form where the seller sets out all those items in the property which they have agreed to leave as part of the sale price, and which is attached to and forms part of the contract.

 

Flat-Rate Charge

The inheritance tax charge on accumulation and maintenance trusts, age 18 to 25 trusts and certain other special trusts where proportionate, exit and ten-yearly charges do not apply.

 

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.

 

Floating Charge

Security taken by lender which floats over all the assets and crystallises over particular assets if the security is required.

 

Flying/Creeping Freehold

This arises when part of one property is built on top of part of another property and so the upper property owner does not own the building or land underneath the “flying” part. Consequently, the lower property is known as the “creeping” part.

 

Forecast

Estimate of future performance and position based on stated assumptions and usually including a quantified amount.

 

Foreign Domiciliary

A type of excepted estate. Where the deceased died after 5 April 2004 and was never domiciled or deemed domiciled in the UK the estate can be treated as an excepted estate provided the UK estate consists only of cash or quoted shares not exceeding £100,000 in total.

 

Format

A list of items which may appear in a financial statement, setting out the order in which they are to appear.

 

Former Civil Partner

A person whose civil partnership has been legally dissolved.

 

Forward Exchange Contract

An agreement to buy foreign currency at a fixed future date and at an agreed price.

 

Free of Tax to Residents Abroad (FOTRA)

Some UK Government securities are issued on FOTRA terms and are exempt from UK inheritance tax where the beneficial owner of the security was not ordinarily resident in the UK.

 

FOTRA Gilts

FOTRA gilts are securities issued by the Treasury with the condition that they, and the interest on them, are exempt from UK taxation so long as they are held beneficially by or on behalf of persons whose ordinary residence is outside the UK. This is excluded property.

 

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.

 

Freehold

Absolute ownership in land.

 

Freeholder

The person who owns the freehold title.

Full Title Guarantee An assurance by the owner of unfettered ownership.

Further Advance       An additional amount lent to the mortgagor under the terms of the original mortgage.

 

Friendly Society Plan

These plans are issued by Mutual Societies known as Friendly Societies and are regular premium endowment plans. These are investment plans which must provide life cover equal to 75% of the total premiums that would be payable over the life of the plan.

 

Unlike most endowments these are exempt from paying tax on most of the growth in the fund. They are sometimes known as tax-exempt plans. You can pay up to £25 a month or £270 per annum into a tax-exempt policy and they must last a minimum of 10 years. Although almost anyone including children can take a plan out.

 

They invest either in the profits of the society (with profits) or in unit linked funds.

 

Two key aspects of these plans are the charges (which can be high) and the fact that life cover must be part of the plan which may or may not be an attraction as the cost of this is paid out of the premiums and will therefore reduce the overall returns.

 

Fully Paid

Shares on which the amount of share capital has been paid in full to the company.

 

Fund Manager

A person who manages a model portfolio of investments, usually for an insurance company, a pension fund business or a professional fund management business which invests money on behalf of clients.

 

Gearing (Financial)

The ratio of debt capital to ownership claim.

 

General Purpose Financial Statements

Documents containing accounting information which would be expected to be of interest to a wide range of user groups. For a limited liability company there would be a balance sheet, a profit and loss account, a statement of recognised gains and losses and a cash flow statement.

 

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 In Consideration of Marriage or Civil Partnership

A gift made to a person who is about to get married or to form a civil partnership. These gifts are exempt from IHT up to the following amounts: £5,000 made by the person’s parent£2,500 made by the person’s grandparent£1,000 made by anyone else.

 

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.

 

Gifts To Charity

As long as gifts made are to a registered charity, they are excluded from your IHT calculation. Where more than 10% of your net estate is left to charity you can benefit from a reduced rate of IHT at 36% on the remainder of your estate.

 

Gifts To Family

Gifts of any amount can be given with no immediate IHT liability. To be effective for IHT the gift must be ‘irrevocable’. The donor (person making the gift) is required to survive a seven-year period to make this gift exempt. This is called a Potentially Exempt Transfer (PET) and is added back to the estate in full if the value of the gift is less than the nil rate band, £325,000, and death occurs within the seven-year period. Gifts of more than £325,000 benefit from tapering relief between years 3-7 where the amount added back at death is reduced on a sliding scale.

 

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.

 

Going Concern Basis

The assumption that the business will continue operating into the foreseeable future.

 

Goodwill

Goodwill on acquisition is the difference between the fair value of the amount paid for an investment in a subsidiary and the fair value of the net assets acquired.

 

Government Securities

Securities issued by the Treasury quoted on the stock exchange.

 

Grant

The term used to describe whatever type of grant of representation is taken out.

 

Grant ad Colligenda Bona

A grant of representation which is limited to a particular purpose and allows the administrator power to preserve the deceased’s estate. For example, where part of the deceased’s estate consists of perishable goods.

 

Grant Caeterorum

A grant of representation which follows an initial grant in respect of limited property thus giving the administrator power over the remaining assets. Application for this type of grant requires the submission of a form iht400.

 

Grant of Administration de Bonis Non

Grant of representation ‘concerning goods not administered’. It is used where, following a grant of representation, the personal representative dies without completing the administration of the estate.

 

Grant of Confirmation

The proof of legal authority required by the person who is entrusted with dealing with a deceased person’s estate in Scotland.

 

Grant of Double Probate

A grant of representation where one executor does not wish to prove the will and the right to join others later is reserved. When the non-proving executor wishes to take up office later, a grant of double probate is made. Application for this is made on the form Cap A5C which is available from the Probate and IHT Helpline on 0845 3020900.

 

Grant of Representation

The proof of legal authority required by the person who is entrusted with dealing with a deceased person’s estate.

 

Grant of Letters of Administration

The proof of legal authority required by the person who is entrusted with dealing with a deceased person’s estate where there is no will, or any will made is invalid.

 

Grant of Letters of Administration with Will Annexed

The proof of legal authority required by the person who is entrusted with dealing with a deceased person’s estate where there is a will but there is no executor named, or when the executors are unable or unwilling to apply for the grant.

 

Grant of Probate

The proof of legal authority required by the person who is entrusted with dealing with a deceased person’s estate where there is a will.

 

Grant Pendente Lite

An interim grant of representation which is only effective for a limited time, for example, while the validity of a will is being contested.

 

Grasskeep

Another name for a grazing licence.

 

Grazing Licence

A licence granted for a period of less than twelve months which allows the licensee to graze animals or take grass from land for a season. In this situation the owner may still be regarded as occupying the land and so agricultural relief from inheritance tax is due at the higher rate.

 

Gross

Before making deductions.

 

Gross Margin

Sales minus cost of sales before deducting administration and selling expenses (another name for gross profit). Usually applied when discussing a particular line of activity.

 

Gross Margin Ratio

Gross profit as a percentage of sales.

 

Gross Profit

Sales minus cost of sales before deducting administration and selling expenses.

 

Gross Value of the Estate

The total of all the assets that make up the deceased’s estate before any of their debts are taken off.

 

Ground Rent

This is paid by a lessee to a lessor where a property is leasehold and is usually expressed as a yearly sum.

 

Group

Economic entity formed by parent and one or more subsidiaries.

 

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.

 

Health Cash Plan

Health Cash Plan is a policy which reimburses individuals up to pre-determined levels of everyday medical bills such as optical (e.g. prescription lenses), dental treatment, chiropody, physiotherapy, sports massages, health screening, specialist consultations, personal accident cover etc. This is increasingly becoming part of companies Employee Benefits offering.

 

Hedge Fund

Hedge funds are a high-risk investment: they comprise a complicated set of strategies that aims to make attractive returns sometimes using complex financial instruments and often with the intention of creating positive returns despite market conditions. They may require very high initial levels of investment.

 

Her Majesty’s Revenue & Customs

The Government department created from the merger of the Inland Revenue and HM Customs & Excise.

 

High Loan to Value Fee

This is sometimes charged by a mortgage where a borrower borrows more than a certain percent of the value of a property to insure the mortgagee only against loss arising if the property is sold by them sue to the borrower’s failure to pay the mortgage.

 

Higher Rate Taxpayer

You are a higher rate taxpayer if you are earning more than the higher tax rate threshold and are paying 40% income tax for the tax year and less than the additional rate threshold.

 

Highlights Statement

A page at the start of the annual report setting out key measures of performance during the reporting period.

 

Historical Cost

Method of valuing assets and liabilities based on their original cost without adjustment for changing prices.

 

HM Revenue and Customs (HMRC)

The UK government’s tax-gathering organisation (previously called the Inland Revenue).

 

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.

 

Immediate Post-Death Interest (IPDI)

The Finance Act 2006 defined an IPDI as one where a person has an interest in possession in settled property and all the following apply the settlement was affected by will or under an intestacy the beneficiary became beneficially entitled to the interest in possession on the death of the testator or intestate.

 

Immovable Property

A person’s possessions in the form interests in land and the permanent buildings on the land.

 

Impairment

A reduction in the carrying value of an asset, beyond the expected depreciation, which must be reflected by reducing the amount recorded in the balance sheet.

 

Impairment Review

Testing assets for evidence of any impairment.

 

Impairment Test

Test that the business can expect to recover the carrying value of the intangible asset, through either using it or selling.

 

Improvement

A change in, or addition to, a non-current (fixed) asset that extends its useful life or increases the expected future benefit. Contrast with repair which restores the existing useful life or existing expected future benefit.

 

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.

 

Income Statement

Financial statement presenting revenues, expenses, and profit. Also called profit and loss account.

 

Income Tax

This is the tax paid on your income. Generally, all income is taxable. The exceptions are for income falling within personal allowances and income that’s generated from certain tax-efficient investments such as ISAs.

 

Incorporation, Date Of

The date on which a company comes into existence.

 

Independent Financial Adviser (IFA)

Independent financial advisers (IFAs) are professionals who give financial advice about products and services across the whole market. They act on your behalf and may charge a fee or be paid by commission.

 

Independent Financial Planner

A Financial Planner is a practising professional who prepares chartered financial planning covering various aspects of personal finance, which includes cash flow management, education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners).

 

Index Map

A search at Land Registry of the Index Map can be made to establish if a property is registered of unregistered.

 

Indirect Method (Of Operating Cash Flow)

Calculates operating cash flow by adjusting operating profit for non-cash items and for changes in working capital.

 

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.

 

Insider Information

Information gained by someone inside, or close to, a listed company which could confer a financial advantage if used to buy or sell shares. It is illegal for a person who is in possession of inside information to buy or sell shares on the basis of that information.

 

 

Instalments Inheritance

Tax can be paid in ten annual instalments on certain assets, such as houses, business property and unlisted shares and securities. find out more about paying inheritance tax in instalments.

 

Instalment Option Property

A phrase used in HMRC Inheritance Tax to describe property on which the instalment option may be chosen, such as land and buildings, business property and certain shares and securities.

 

Institutional Investor

An organisation whose business includes regular investment in shares of companies, examples being an insurance company, a pension fund, a charity, an investment trust, a unit trust, a merchant bank.

 

Intangible

Without shape or form, cannot be touched.

 

Interest

Interest will be charged on any unpaid inheritance tax from the day the tax is due until the date of payment, no matter what caused the delay in payment. Interest is also charged on instalments. Further information about interest can be found in the guide: ‘interest on inheritance tax – when and how it is charged’.

 

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.

 

International Accounting Standard (IAS)

Issued by the IASB’s predecessor body.

 

International Accounting Standards Board (IASB)

An independent financial adviser body that sets accounting standards accepted as a basis for accounting in many countries, including all Member States of the European Union.

 

IASB System

The accounting standards and guidance issued by the IASB. IFRS International Financial Reporting Standard, issued by the IASB.

 

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.

 

Interest (On Loans)

The percentage return on capital required by the lender (usually expressed as a percentage per annum).

 

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.

 

Investors

Persons or organisations which have provided money to a business in exchange for a share of ownership.

 

Issue

Children or remoter issue of the deceased.

 

Joint And Several Liability (In A Partnership)

The partnership liabilities are shared jointly but each person is responsible for the whole of the partnership.

 

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.

 

Joint Property

Something that is jointly owned by two or more people either as a ‘joint tenancy’ or as ‘tenants in common’. find out more about joint property in our guide to passing on your home to your children.

 

Joint tenancy

A form of joint ownership where all the joint owners have an identical interest in the property. On the death of one owner, their interest passes to the remaining owner(s) by survivorship.

 

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.

 

Key Performance Indicators

Quantified measures of factors that help to measure the performance of the business effectively.

 

Land Charges Search

If a property is unregistered a search at the land charges registry is made to see if a person has any bankruptcy proceedings pending or established or to see if there are any mortgages or interests registered which affect the property.

 

Land Registry

A government organisation maintaining a register of properties and their ownership in England and Wales.

 

Lands Tribunal

A tribunal with the powers to determine questions relating to land. An appeal against a notice of determination in respect of the valuation of land can be heard at a lands tribunal.

 

Leasing

Acquiring the use of an asset through a rental agreement.

 

Lease for Life

A type of settled property where a lease has been granted on a property for which full consideration has not been paid by the lessee.

 

Legal Form

Representing a transaction to reflect its legal status, which might not be the same as its economic form.

 

Lessee

A person to whom a lease is granted.

 

Lessor

A person who grants a lease.

 

Leverage

Alternative term for gearing, commonly used in the USA.

 

Liabilities

Obligations of an entity to transfer economic benefits as a result of past transactions or events.

 

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.

 

Limited Liability

A phrase used to indicate that those having liability in respect of some amount due may be able to invoke some agreed limit on that liability.

 

Limited Liability Company

Company where the liability of the owners is limited to the amount of capital they have agreed to contribute.

 

Limited Probate

Where an executor is appointed in respect of certain assets only, such as literary works.

 

Liquidity

The extent to which a business has access to cash or items which can readily be exchanged for cash.

 

Listed Company

A company whose shares are listed by the Stock Exchange as being available for buying and selling under the rules and safeguards of the Exchange.

 

Listing Requirements

Rules imposed by the Stock Exchange on companies whose shares are listed for buying and selling.

 

Listing Rules

Issued by the UK Listing Authority of the Financial Services Authority to regulate companies listed on the UK Stock Exchange. Includes rules on accounting information in annual reports.

 

Loan Covenants

Agreement made by the company with a lender of long-term finance, protecting the loan by imposing conditions on the company, usually to restrict further borrowing.

 

Loan Notes

A method of borrowing from commercial asset finance institutions such as banks.

 

Loan Stock

Loan finance traded on a stock exchange.

 

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.

 

Long-Term Finance, Long-Term Liabilities

Money lent to a business for a fixed period, giving that business a commitment to pay interest for the period specified and to repay the loan at the end of the period Also called non-current liabilities information in the financial statements should show the commercial substance of the situation.

 

Loss on Sale of Land

If, within 12 months of a death, listed securities in the estate are disposed of for less than the value returned in the iht400, the personal representatives can make a claim on form iht38 that the total gross proceeds should replace the date of death value.

 

Loss on Sale of Shares

If, within four years of a death, land or buildings in the estate is sold for less than the value returned in the iht400, the personal representatives can make a claim on iht35 that the gross sale price should be substituted for the date of death value.

 

Loss to the Estate

The value of a gift for inheritance tax purposes is the amount of the loss to the estate. It is worked out by looking at the value of the estate before and after the gift was made. The difference between those two figures is the loss to the estate.

 

Low Value Estates

A type of excepted estate where there can be no liability to inheritance tax because the total value of the estate, including the deceased’s share of jointly owned assets, any specified transfers and specified exempt transfers, does not exceed the inheritance tax threshold. See our guide inheritance tax thresholds for information on the correct threshold to use.

 

Maintenance Funds for Historic Land & Buildings

A type of discretionary trust set up for the maintenance of designated lands and buildings. Relief from full discretionary trust charges is available for these funds, but a tax charge may arise if any property ceases to be held on the relevant trusts, or when the trustees make a disposition which reduces the value of the trusts.

 

Management

Collective term for those persons responsible for the day-to-day running of a business.

 

Management Accounting

Reporting accounting information within a business, for management use only.

 

Market Value (Of A Share)

The price for which a share could be transferred between a willing buyer and a willing seller.

 

Marking To Market

Valuing a marketable asset at its current market price. margin Profit, seen as the ‘margin’ between revenue and expense.

 

Matching

Expenses are matched against revenues in the period they are incurred (see also accruals basis).

 

Materiality

Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements.

 

Maturity

The date on which a liability is due for repayment.

 

Maturity Profile of Debt

The timing of loan repayments by a company in the future.

 

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.

 

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.

 

Memorandum (For A Company)

Document setting out main objects of the company and its powers to act.

 

Merger

Two organisations agree to work together in a situation where neither can be regarded as having acquired the other.

 

Milk Quota

A producer’s right to sell a fixed number of litres of milk a year without having to pay a penalty.

 

Minority Interest

The ownership interest in a company held by persons other than the parent company and its subsidiary undertakings. Also called a non-controlling interest.

 

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.

 

Money Purchase Arrangement

An arrangement is a money purchase arrangement if, at that time, all the benefits that may be provided to or in respect of the member under the arrangement are cash balance or other money purchase benefits.

 

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.

 

Movable Property

Goods, furniture and other items which can be moved from place to place.

 

National Insurance Contributions (NICs)

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.

 

National Purposes

Exemption from inheritance tax is given for gifts and bequests to certain national institutions such as the National Gallery.

 

Net

After making deductions.

 

Net Assets

Assets minus liabilities (equals ownership interest).

 

Net Book Value

Cost of non-current (fixed) asset minus accumulated depreciation.

 

Net Profit

Sales minus cost of sales minus all administrative and selling costs.

 

Net Realisable Value

The proceeds of selling an item, less the costs of selling.

 

Neutral

Qualitative characteristic of freedom from bias.

 

Newspaper Trusts

Trusts set up for newspaper publishing companies or newspaper holding companies. These are treated like employee trusts for inheritance tax purposes.

 

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%.

 

Nominal Value (Of A Share)

The amount stated on the face of a share certificate as the named value of the share when issued.

 

Nominated Asset

Certain assets, such as deposits with Friendly societies, National Savings Bank accounts and National Savings Certificates, can be transferred on death direct to chosen beneficiaries by nomination. Nominated property does not pass under the will or intestacy but it does form a part of the estate for inheritance tax purposes.

 

Nominee

A person who holds property on behalf of another.

 

Non-Current Assets

Any asset that does not meet the definition of a current asset. Also described as fixed assets.

 

Non-Current Liabilities

Any liability that does not meet the definition of a current liability. Also described as long-term liabilities.

 

Non-Instalment Option Property

A phrase used in HMRC Inheritance Tax to describe property on which the instalment option may not be chosen, such as bank accounts, household and personal goods and life insurance policies.

 

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.

 

Notes To the Accounts

Information in financial statements that gives more detail about items in the financial statements.

 

Notice of Determination

A notice of determination may be issued where the personal representatives do not agree the value of the transfer. It is a written notice which states that the outstanding matters have been determined or payment of the outstanding tax has not been made. There is a right of appeal.

 

Off-Balance-Sheet Finance

An arrangement to keep matching assets and liabilities away from the entity’s balance sheet.

 

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.

 

Offer For Sale

A company makes a general offer of its shares to the public.

 

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.

 

Open Market Value

For inheritance tax, the open market value of an asset is the price it might reasonably fetch if it was sold on the open market at the time of the transfer of that asset.

 

Operating Activities

The principal revenue-producing activities of the entity and other activities that are not investing or financing activities.

 

Operating And Financial Review

Section of the annual report of many companies which explains the main features of the financial statements.

 

Operating Gearing

The ratio of fixed operating costs to variable operating costs.

 

Operating Margin

Operating profit as a percentage of sales.

 

Operating Risk

Exists where there are factors, such as a high level of fixed operating costs, which would cause profits to fluctuate through changes in operating conditions.

 

Ordinary Shares

Shares in a company which entitle the holder to a share of the dividend declared and a share in net assets on closing down the business.

 

Outright Gift

A gift where the donor gives away full ownership of the gift and does not retain any benefit.

 

Ownership Interest

The residual amount found by deducting all of the entity’s liabilities from all of the entity’s assets. (Also called equity interest.)

 

Parent Company

Company which controls one or more subsidiaries in a group.

 

Partnership

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

 

Partnership Deed

A document setting out the agreement of the partners on how the partnership is to be conducted (including the arrangements for sharing profits and losses).

 

Partnership Law

Legislation which governs the conduct of a partnership, and which should be used where no partnership deed has been written.

 

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.

 

Pecuniary Legacy

A gift of a sum of money under a will.

 

Pension Plan for Children & Grandchildren

A parent or grandparent can contribute into a pension for a child. And this contribution will benefit from a 20% tax relief ‘top up’ from HM Revenue and Customs. 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.

 

Permanent Home

The country where a person intends to live for the remainder of their life. It is the country whose laws decide, for example, whether a Will is valid, or how the estate of a person who has not made a Will is dealt with when they die.

 

Per Stirpes

If a property is to be divided ‘per stirpes’ among the children of a deceased person, then each child takes an equal share. If a child has predeceased the deceased that child’s children will take equally between them the share that the predeceased child would have taken.

 

Personal Allowance

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

 

Personal Applicant

A person who is applying for a grant of representation without the help of a solicitor or other agent.

 

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).

 

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.

 

Personal Representative

A person who administers a deceased person’s estate. If there is a will and the personal representative is named in it, they are known as an executor. If there is no will, or they are appointed by the court, they are known as an administrator. More on the responsibilities of a personal representative.

 

Phased Retirement

Where the deceased has divided their pension entitlement into a series of segments and has agreed a plan on retirement with their pension provider to take so many segments each year.

 

Political Party

A gift to a political party qualifies for exemption from inheritance tax if at the last general election preceding the transfer either two members of the party were elected to the House of Commons, or one member of the party was so elected and not less than 150,000 votes were given to candidates who were members of that party.

 

Portfolio (Of Investment)

A collection of investments.

 

Portfolio Of Shares

A collection of shares held by an investor.

 

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.

 

Power of Attorney

An authority given by one person to another to act for him in their absence. The person authorised to act is the attorney of the other. See also enduring power of attorney.

 

Preference Shares

Shares in a company which give the holder a preference (although not an automatic right) to receive a dividend before any ordinary share dividend is declared.

 

Preliminary Announcement

The first announcement by a listed company of its profit for the most recent accounting period. Precedes the publication of the full annual report. The announcement is made to the entire stock market so that all investors receive information at the same time.

 

Premium

An amount paid in addition, or extra.

 

Prepayment

An amount paid for in advance for a benefit to the business, such as insurance premiums or rent in advance. Initially recognised as an asset, then transferred to expense in the period when the benefit is enjoyed. (Also called a prepaid expense.)

 

Present Fairly

A condition of the IASB system, equivalent to true and fair view in the UK ASB system.

 

Price–Earnings Ratio

Market price of a share divided by earnings per share.

 

Price-Sensitive Information

Information which, if known to the market, would affect the price of a share.

 

Primary Financial Statements

The balance sheet, profit and loss account, statement of total recognised gains and losses and cash flow statement.

 

Principal (Sum)

The agreed amount of a loan, on which interest will be charged during the period of the loan.

 

Private Limited Company (Ltd)

A company which has limited liability but is not permitted to offer its shares to the public.

 

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.

 

Privileged Will

A will made by a soldier on active service or a sailor at sea which does not have to comply with the usual formalities to make it valid. It does not have to be in writing, or, if it is in writing, does not have to be witnessed by two witnesses. The soldier or sailor can also be a minor.

 

Probate

Strictly, the exhibiting and proving of a will by the executors. In common usage as a general term describe the process of obtaining a grant of representation.

 

Production Overhead Costs

Costs of production that are spread across all output, rather than being identified with specific goods or services.

 

Profit

Calculated as revenue minus expenses.

 

Profit And Loss Account

Financial statement presenting revenues, expenses, and profit. Also called income statement.

 

Proper Liferent

A Scottish interest in property.

 

Property

The word ‘property’ for inheritance tax purposes includes all types of assets, cash, stocks and shares etc as well as land and buildings, including all rights and interests of any description that are legally enforceable.

 

Proportionate Charge

An inheritance tax charge on a relevant property trust (link to relevant property trust in the glossary) which arises when property in the trust ceases to be relevant property or when the trustees make a disposition which reduces the value of the relevant property. The main examples of property ceasing to be relevant property are when the settlement comes to an end or when some of the property is distributed to beneficiaries.

 

Prospective Investor

An investor who is considering whether to invest in a company.

 

Prospectus

Financial statements and supporting detailed descriptions published when a company is offering shares for sale to the public.

 

Provision

A liability of uncertain timing or amount.

 

Provision For Doubtful Debts

An estimate of the risk of not collecting full payment from credit customers, reported as a deduction from trade receivables (debtors) in the balance sheet.

 

Prudence

A degree of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty, such that gains and assets are not overstated, and losses and liabilities are not understated.

 

Public Limited Company (plc)

A company which has limited liability and offers its shares to the public.

 

Purchase Method

Method of producing consolidated financial statements (see acquisition method).

 

Purchases

Total of goods and services bought in a period.

 

Qualified Audit Opinion

An audit opinion to the effect that: the accounts do not show a true and fair view; or the accounts show a true and fair view except for particular matters.

 

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.

 

Quality Of Earnings

Opinion of investors on reliability of earnings (profit) as a basis for their forecasts.

 

Quoted Company

Defined in section 262 of the Companies Act 1985 as a company that has been included in the official list in accordance with the provisions of Part VI of the Financial Services and Markets Act 2000, or is officially listed in an EEA state, or is admitted to dealing on either the New York Stock Exchange or the exchange known as Nasdaq.

 

Quoted Shares

Shares in a company which are quoted on a recognised stock exchange, including one situated outside the UK.

 

Realised Profit, Realisation

A profit arising from revenue which has been earned by the entity and for which there is a reasonable prospect of cash being collected in the near future.

 

Recognised

An item is recognised when it is included by means of words and amount within the main financial statements of an entity.

 

Registrar Of Companies

An official authorised by the government to maintain a record of all annual reports and other documents issued by a company.

 

Related Property

Related property is property that is in the estate of a spouse or civil partner or belonging to a charity or one of the political, national or public bodies to which exempt transfers may be made. There are special rules for valuing related property.

 

Related Settlement

When settlor sets up a trust, any other trusts he sets up on the same day are related settlements.

 

Relevance

Qualitative characteristic of influencing the economic decisions of users.

 

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 Dependant

A relevant dependant of a member of a registered pension scheme is someone who at the date of the scheme member’s death was a dependant who was the person’s spouse or civil partner or is financially dependent on the member at that time.

 

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.

 

Remoter Issue

Grandchildren, great-grandchildren (and so-on) of the deceased.

 

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.

 

Replacement Cost

A measure of current value which estimates the cost of replacing an asset or liability at the date of the balance sheet. Justified by reference to value to the business.

 

Reserves

The claim which owners have on the assets of a company because the company has created new wealth for them over the period since it began.

 

Resident

For inheritance tax purposes, residence has the same meaning as for income tax purposes. To be regarded as resident in the UK you must normally be physically present in the country at some time in the tax year. You will always be resident if you are here for 183 days or more in the tax year. More information about this can be found in the booklet ir20 (pdf 640k).

 

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.

 

Residue

The part of an estate which is left after the payment of specific and pecuniary legacies, debts, funeral expenses and IHT.

 

Residual Value

The estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated cost of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.

 

Restriction on disposal

The value of an asset may be reduced if the right to dispose of it is restricted.

 

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.

 

Retained Earnings

Accumulated past profits, not distributed in dividends, available to finance investment in assets.

 

Retained Profit

Profit of the period remaining after dividend has been deducted.

 

Return

The yield or reward from an investment.

 

Return On Capital Employed

Operating profit before deducting interest and taxation, divided by share capital plus reserves plus long-term loans.

 

Return On Total Assets

Operating profit before deducting interest and taxation, divided by total assets.

 

Return On Shareholders’ Equity

Profit for shareholders divided by share capital plus reserves.

 

Return (In Relation to Investment)

The reward earned for investing money in a business. Return may appear in the form of regular cash payments (dividends) to the investor, or in a growth in the value of the amount invested.

 

Revaluation Reserve

The claim which owners have on the assets of the business because the balance sheet records a market value for an asset that is greater than its historical cost.

 

Revenue

Created by a transaction or event arising during the ordinary activities of the business which causes an increase in the ownership interest.

 

Reversionary Interest

The future right to an interest in settled property.

 

Rights Issue

A company gives its existing shareholders the right to buy more shares in proportion to those already held.

 

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’.

 

Sales Invoice

Document sent to customers recording a sale on credit and requesting payment.

 

Secured Loan

Loan where the lender has taken a special claim on particular assets or revenues of the company.

 

Segmental Reporting

Reporting revenue, profit, cash flow assets, liabilities for each geographical and business segment within a business, identifying segments by the way the organisation is managed.

 

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.

 

Settlement

A settlement occurs when property is held in trust for successive beneficiaries. The property which a settlor puts into trust is known as the trust fund or ‘settled property’.

 

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.

 

Settlor’s Cumulative Total

When the settlor sets up a trust, the settlor’s cumulative total is all the chargeable transfers made in the seven years before the setting up of the trust. While the settlor is alive, the cumulative total does not include the amount of any potentially exempt transfers (pets). If the settlor’s cumulative total is later adjusted to include PETs which become chargeable as a result of the settlor’s death, the charges on the trust will be revised, and extra tax may become payable.

 

Share Capital

Name given to the total amount of cash which the shareholders have contributed to the company.

 

Share Certificate

A document providing evidence of share ownership.

 

Share Premium

The claim which owners have on the assets of a company because shares have been purchased from the company at a price greater than the nominal value.

 

Shareholders

Owners of a limited liability company.

 

Shareholders’ Funds

Name given to total of share capital and reserves in a company balance sheet.

 

Shares

The amount of share capital held by any shareholder is measured in terms of a number of shares in the total capital of the company.

 

Short-Term Finance

Money lent to a business for a short period of time, usually repayable on demand and also repayable at the choice of the business if surplus to requirements.

 

Simultaneous Deaths

For inheritance tax, if two or more people die and it is not known who died first, we assume that they have died at the same moment. This does not alter the legal position for the administration of the estate which is that the elder is presumed to have died first. This is also known as commorientes and further information on this subject can be found in the IHT manual.

 

Situated Assets

Situated Assets are situated according to general law. Common examples of where assets are situated are land and houses and household goods are situated where the property is located bank notes and coins are situated wherever they happen to be at the time of the transfer registered shares and securities are situated where they are registered bank accounts are situated at the branch where the account is held.

 

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

 

Sole Trader

An individual owning and operating a business alone.

 

Special Commissioners

The Special Commissioners hear and determine appeals concerning decisions of the Inland Revenue relating to all direct taxes including income tax, corporation tax, capital gains tax and inheritance tax.

 

Special Trust

Types of discretionary trusts where the settled property held on them is not relevant property.

 

Specific Gifts

A gift other than a gift of residue Typical specific gifts are pecuniary legacies, gifts of particular assets such as the deceased’s residence, furniture, jewellery and other household and personal goods and effects or shares in companies and business assets.

 

Specific Purpose Financial Statements

Documents containing accounting information which is prepared for a particular purpose and is not normally available to a wider audience.

 

Specified Exempt Transfers

Gifts made to the deceased’s spouse or civil partner charities, political parties, housing associations, maintenance funds for historic buildings and employee trusts must be added back to the estate to see if the estate qualifies as an excepted estate.

 

Specified Transfers

Gifts of cash, chattels or corporeal movables, quoted shares or securities, or outright gifts of land or buildings to individuals, not gifts into trust. For an estate to qualify as an excepted estate (excepted estate), specified transfers made within 7 years of death cannot exceed £100,000.

 

Spouse

A person who is legally married to someone else.

 

Spouse or Civil Partner Exemption

Gifts made between spouses or civil partners are exempt from inheritance tax. This exemption is limited to £55,000 if the deceased (or donor) was domiciled in the UK and their spouse or civil partner was not domiciled in the UK at the time of the transfer.

 

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.

 

Stakeholders

A general term devised to indicate all those who might have a legitimate interest in receiving financial information about a business because they have a ‘stake’ in it.

 

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.

 

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.

 

Statement Of Changes in Equity

A financial statement reporting all items causing changes to the ownership interest during the financial period, under the IASB system.

 

Statement Of Principles

A document issued by the Accounting Standards Board in the United Kingdom setting out key principles to be applied in the process of setting accounting standards.

 

Statement Of Recognised Income and Expense

A financial statement reporting realised and unrealised income and expense as part of a statement of changes in equity under the IASB system.

 

Statement Of Total Recognised Gains and Losses

A financial statement reporting changes in equity under the UK ASB system.

 

Stepped Bond

Loan finance that starts with a relatively low rate of interest which then increases in steps.

 

Stewardship

Taking care of resources owned by another person and using those resources to the benefit of that person.

 

Stock

A word with two different meanings. It may be used to describe an inventory of goods held for resale or for use in business. It may also be used to describe shares in the ownership of a company. The meaning will usually be obvious from the way in which the word is used.

 

Stock Exchange

An organisation which has the authority to set rules for persons buying and selling shares. The term ‘stock’ is used loosely with a meaning similar to that of ‘shares.

 

Stock Holding Period

Average number of days for which inventory (stock) is held before use or sale.

 

Stocks & 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.

 

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.

 

Subsidiary Company

Company in a group which is controlled by another (the parent company). (See Chapter 7 for full definition.) Sometimes called subsidiary undertaking.

 

Substance (Economic)

Information in the financial statements should show the economic or commercial substance of the situation.

 

Subtotal

Totals of similar items grouped together within a financial statement.

 

Successive Charges Relief

A relief designed to reduce the burden of IHT where an estate taxable on death reflects the benefit of property received within the previous five years under a transfer on which tax was (or becomes) payable. Calculation of the relief is shown in the article- tell me how to calculate successive charges relief.

 

Suppliers’ Payment Period

Average number of days credit taken from suppliers.

 

Surviving Civil Partner

A person whose civil partnership has ended through the death of their civil partner.

 

Survivorship

Where property is owned jointly under a joint tenancy, on the death of one of the joint tenants, the deceased’s share of the joint property passes automatically to the surviving joint tenant(s). The property cannot be passed to anyone else under a will or intestacy.

 

Tangible Fixed Assets

A fixed asset (also called a non-current asset) which has a physical existence.

 

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 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.

 

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.

 

Tax Exempt Special Savings Account (TESSA)

From April 2008, TESSAs automatically became ISAs.

 

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.

 

Tenants in Common

Joint ownership of property where each joint tenant owns a separate share in the property. On the death of one of the joint owners, their share passes to their beneficiaries by their will or intestacy. There is more on joint property in Passing on your home to your children.

 

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.

 

Testator

A man who has made a will.

 

Testatrix

A woman who has made a will.

 

The Rule of 72

Let’s say that someone offered you the chance to invest for a return of 10% interest. Divide 72 by 10, and you get 7.2 which is the number of years it will take for you to double the value of your investment. If it’s 5% interest, it’s 14.4 years. Having an intuitive grasp of the ‘opportunity cost’ of this can help you frame either investing or getting into debt. That is, you Debt or Profit Snowball.

 

Timeliness

Qualitative characteristic that potentially conflicts with relevance.

 

Total Assets Usage

Sales divided by total assets.

 

Trade Creditors

Persons who supply goods or services to a business in the normal course of trade and allow a period of credit before payment must be made.

 

Trade Debtors

Persons who buy goods or services from a business in the normal course of trade and are allowed a period of credit before payment is due.

 

Trade Payables

Amounts due to suppliers (trade creditors), also called accounts payable.

 

Trade Receivables

Amounts due from customers (trade debtors), also called accounts receivable.

 

Transfer

Inheritance tax is charged on a transfer of value. That transfer can occur either during a person’s lifetime, in the form of a gift, or on a person’s death.

 

Transferee

A person who receives a transfer.

 

Transferor

A person who makes a transfer.

 

Transfer of Value

A transfer of value is a disposition made by a person as a result of which the value of his estate has decreased. All lifetime transfers must start with a disposition. Charges arising on death and on settled property where an interest in possession exists are deemed transfers of value.

 

Transitional Serial Interest (TSI)

Where an interest in possession trust arises before 6 April 2008, it will be regarded as a transitional serial interest (TSI) if it arises on or after 22 March 2006, but follows a previous interest in possession in effect immediately before that date. An interest in possession trust may also be regarded as a TSI if it arises on the death of the holder of the previous interest on or after 6 April 2008 and if either the new holder is the spouse or civil partner of the previous holder, or the settled property consists of a contract of life insurance.

 

True And Fair View

Requirement of UK company law for UK companies not using IASB system.

 

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.

 

Trustee

The person who holds the legal title to settled property and who is obliged to deal with the property for the benefit of the beneficiaries.

 

Trust for a Bereaved Minor

A trust for a bereaved minor is a trust which is exempt from mainstream inheritance tax charges if it is held either on the statutory trusts applying to minor children aged up to 18 on intestacy or on trusts in similar terms established under the terms of a parent’s will or by the Criminal Injuries Compensation Scheme.

 

Trusts for Disabled People

A discretionary trust set up for the benefit of a disabled person. After 9 March 1991 these trusts were treated as if the disabled person had an interest in possession in the property held in the trust. Any distributions from the trust to the disabled person are not taxable, but a charge to IHT will arise on their death and the trust fund will form part of their estate.

 

Turnover

The sales of a business or other form of revenue from operations of the business.

 

UK ASB System

The accounting standards and company law applicable to corporate reporting by UK companies that do not report under the IASB system.

 

Understandability

Qualitative characteristic of financial statements, understandable by users.

 

Unilateral Relief

Where a transfer is liable to Inheritance Tax and also to a similar tax imposed by another country on assets situated in that country with which the UK does not have a double taxation agreement, relief may be available under unilateral relief provisions.

 

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.

 

Unlisted (Company)

Limited liability company whose shares are not listed on any stock exchange.

 

Unquoted Shares

Shares in a company which are not quoted on a recognised stock exchange.

 

Unrealised

Gains and losses representing changes in values of assets and liabilities that are not realised through sale or use.

 

Unsecured Creditors

Those who have no claim against particular assets when a company is wound up but must take their turn for any share of what remains.

 

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).

 

Unsecured Loan

Loan in respect of which the lender has taken no special claim against any assets.

 

USM

Market shares which are traded on the Unlisted Securities Market.

 

Value To the Business

An idea used in deciding on a measure of current value.

 

Variable Interest Rate

These are interest rates, offered by banks and financial institutions on loans or deposits, which 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.

 

Variance

The difference between a planned, budgeted or standard cost and the actual cost incurred. An adverse variance arises when the actual cost is greater than the standard cost. A favourable variance arises when the actual cost is less than the standard cost.

 

Variation

If all of the original beneficiaries agree, an inheritance under a will or under an intestacy can be changed after death.

 

Wealth Management

Wealth Management is an investment advisory discipline that incorporates financial planning, investment portfolio management and a number of aggregated financial services including private wealth management. High Net worth Individuals (HNWIs), small business owners and families who desire the assistance of a credentialed financial advisory specialist call upon wealth managers to coordinate retail banking, estate planning, legal resources, chartered tax advisers and discretionary investment management.

 

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.

 

Will

The legal document by which a person declares their intention as to what should happen to their estate after their death.

 

Working Capital

Finance provided to support the short-term assets of the business (stocks and debtors) to the extent that these are not financed by short-term creditors. It is calculated as current assets minus current liabilities.

 

Working Capital Cycle

Total of stock holding period plus customers collection period minus suppliers’ payment period.

 

Work-In-Progress

Cost of partly completed goods or services, intended for completion and recorded as an asset.

 

Yield

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