At a glance

  • Financial services jargon can get in the way of feeling confident about managing your money.
  • Understanding the various tax terms and acronyms, such as ISAs, IHT, CGT or  pension allowances not only improves your financial wellbeing – it could save you tax too.
  • Even if you’re quite financially astute, tax rules can change from Budget to Budget – our financial advisers can help you stay on top of the fine print without drowning in the detail.

Every industry has its share of jargon, acronyms and tech-speak – but it sometimes feels like financial services has more than most. The amount of jargon associated with managing your taxes and your money can seem unnecessarily complex – even deliberately confusing! That can undermine our confidence and put us off making sound decisions.

Here we identify the top seven terms when dealing with your finances or taxes – and explain them. So if you’re not 100% clear on what Capital Gains Tax or Inheritance Tax actually are, or whether they apply to you – read on.

People often ask… why so much financial jargon?

The simple answer is financial services is quite a complex area, particularly with regards to taxation. But even if you’ve been investing for a while, it’s likely you won’t get far before tripping over a new tax term you’ve never heard of. It’s fine if you’re an ‘insider’ and speak the language, but we understand that for consumers, it can be intensely frustrating. Financial jargon can be a key reason why many people doubt their own ability to deal with their finances.

If you ask around friends and family, or google a term, you’ll probably get various explanations or interpretations that don’t quite line up. Asking a professionally qualified financial adviser to explain, builds your own knowledge and confidence.  

Top seven tax terms jargon–busted!

1. What does CGT stand for?

CGT stands for Capital Gains Tax – the tax you pay if you sell certain assets or investments that have increased in value since you acquired them. You pay tax on the increase in value, or the ’gain’ ¬ not on the total value of the asset itself when you decide to sell. 

For the current tax year, 2024/25, the first £3,000 of a capital gain is tax-free – this is sometimes called your annual CGT exception. If you’ve made a gain in excess of £3,000, and have no capital losses to offset against this, you’ll be liable for CGT. You may need to pay CGT if you sell an additional property such as a second home or buy-to-let, if you sell stocks and shares, other investments that have made a gain, or personal possessions sold for £6,000 or more, such as jewellery.

CGT rules and regulations can be quite complex. Even when you understand the principle, there are different levels of CGT, depending on your tax band and the asset you’ve made a gain on, as well as some CGT exemptions. The CGT rates have increased too as a result of the Autumn Budget. Speaking to a financial adviser can demystify CGT, so you understand when CGT applies and what it applies to – and crucially, whether you’ll need to pay it.

2. What is an ISA?

Stocks and Shares ISAs, Innovative Finance ISAs and Lifetime ISAs (for people saving up for their first home or to save for later life). Junior ISA’s (JISAs) are also available for children until they read the age of 18.

You can invest up to £20,000 into an ISA for the current tax year, and this can be spread across any of the different types of ISAs  with the exception of lifetime ISAs which have a subscription limit of £4,000 a year at present. JISAs have an annual allowance of £9,000, but unlike ISAs, a child can only hold one cash JISA or one stocks and shares JISA, or a combination of both – for example, the cash JISA can only be held with one provider and the same rule applies to the stocks and shares JISA. Lifetime ISAs aren’t available through SJP, but an independent financial adviser can advise whether it’s a good option if you’re saving up for a deposit on your first home.

3. What does IHT stand for?

IHT stands Inheritance Tax. IHT is the tax charged on the ‘estate’ you leave behind when you die. It only applies to the value of the estate which is in excess of the individual’s available nil rate band (NRB) and residence nil rate band (RNRB)where applicable. For reference, the standard NRB is currently £325,000 and the standard RNRB £175,000, but the actual amounts available on death will depend on an individual’s specific circumstances and whether the criteria to be eligible for the RNRB are met. The estate value in excess of the available NRB and RNRB will be liable to IHT at 40%, unless lifetime IHT has been paid previously, more than 10% of the estate is left to charity or taper relief on previous gifts apply.   

If you’d like to see how much Inheritance Tax you might pay on your estate, you can use our IHT calculator It can be a good starting point for a conversation about legacy planning with a financial adviser. 

Family conversations about inheritances and legacies, can be quite challenging and become heated. It can help to involve a financial adviser to help facilitate those conversations or help explain all the options so you can reach decisions that everyone feels comfortable with.  

4. What is HMRC?

HMRC stands for His Majesty’s Revenue & Customs, the government department responsible for collecting all taxes and assessing how much tax you need to pay. It issues your tax code, which you’ll need to file your tax return.

5. Is there an annual Pensions allowance?

The Pensions annual allowance is the maximum amount that can be paid into your pension each tax year on which you can receive tax relief. The current amount you can pay in is capped at £60,000.

This Includes contributions from yourself, your employer or any third party, plus the government’s pensions tax relief. This tax relief acts as a cash boost to your pension.

If you didn’t use all your allowance in the previous three tax years you can carry it forward for up to 3 tax years. Any amount paid in excess of your available annual allowance, including any carried forward will be subject to Income Tax.

If you’d like to see how much your pension might be worth when you retire, you can use our Pensions calculator. 

6. What is Pensions tax relief?

Pensions tax relief increases the amount you pay into your pension by giving back some of the tax you have paid on your earnings. This is limited to 100% of your earnings in the tax year or 
£3,600 if lower.

The basic rate of tax relief is currently 20%. So, if you’re a basic rate taxpayer or don’t pay tax because your earnings are too low, an £80 personal contribution is worth 
£100 through tax relief.

If you’re a higher rate 40% taxpayer, you can claim another £20 through your self-assessment tax return. This effectively means your contribution could cost you £60, and the government pays £40.

And for those on the top rate of 45% tax, a £100 contribution costs £55, with £45 coming from the government. You’ll need to reclaim that additional tax relief when you submit your tax return.

7. What is compound interest?

Compound interest is sometimes called “interest on interest.” If you’re investing or saving, and the account pays compound rather than simple interest, you’ll be earning interest on the amount you’ve contributed plus any interest it has earned (unless you withdraw the interest). This is called ‘compounding’ or compound interest. In the long term, compound interest can give savings, pensions or other investments a powerful boost.

Easier, simpler conversations about your money

These are some of the key terms and acronyms you may come across. But financial services is an industry that adds to its jargon every year, and one where rules and regulations can change.

Never worry about asking your adviser to explain a term. We’re here to provide clarity and ensure you fully understand what everything means so you can make informed decisions.

Always get in touch if you come across a term you haven’t heard before. Feeling confident and in control of your money is a key driver of financial wellbeing.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

A Stocks and Shares ISA does not have the security of capital associated with a Cash ISA.

The levels and bases of taxation and reliefs from taxation can change at any time and are generally dependent on individual circumstances.

Please note that St. James’s Place do not offer Cash, Innovative or Lifetime ISAs.
 

SJP Approved 19/12/2024