VouchedFor's comprehensive jargon buster

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A guide that puts those technical financial terms in simple, plain English.

The world of finance is chock-full of jargon, waffle and industry-specific terminology. Here at VouchedFor we want to make things as easy to understand as possible, so we’ve put together a jargon buster to help you become fluent in the language of money.

A

Accountant – A professional whose job it is to keep or inspect financial accounts. To find an accountant in your area, visit the VouchedFor site.

Annuity – A fixed sum of money paid to someone each year, typically for the rest of their life.

Arrears – Money, generally part of a debt, which is overdue. An account will be regarded as in arrears if one or more payments have been missed in transactions where regular payments are required.

Auto enrolment – A law which states that, by 2018, all employers must eventually offer a workplace pension scheme and automatically enrol eligible workers in it. To learn more about auto enrolment, visit the government’s dedicated website.

Asset – An item of property owned by either a person or a company. Anything of value that can be converted into money is generally regarded as an asset.

Audit – An inspection of a company’s accounts, generally carried out by an accountant or auditor.

B

Balance – The balance of an account is the amount of money that is stored in said account. However, balance can also mean the total amount owed to a third party.

Bankruptcy – The legal status of a person that cannot repay their debts. To declare yourself bankrupt, you must apply to a court.

Beneficiaries – Someone eligible to receive money or other assets from a benefactor. This will most often occur when the benefactor dies and leaves items in a will.

Bonds – A long-term debt that has been sold to investors.

Bridging loan – A short-term funding option that is utilised by people wanting to ‘bridge’ a financial gap, generally between the sale of one house and the purchase of another.

Broker – An individual or company that acts as an agent for a consumer. A mortgage broker, for example, will help you unearth the best mortgage deal for your particular situation.

Business property relief (BPR) - Tax relief designed to encourage investment in trading businesses. Qualifying shares will be exempt from IHT once they have been held.

Buy-to-let – A property that has been bought specifically so it can be rented out.

C

Capital Gains Tax (CGT) – A tax on the profit when you sell something that has increased in value. The gain is all that is taxed, not the total amount. To learn more about CGT, click here.

Charity relief - A reduction in the inheritance tax (IHT) rate from 40 to 36 per cent for estates where the deceased left more than 10 per cent of the value of the estate to a qualifying charity.

Child Benefit – A regular payment by the state to parents of a child under 16 (or under 20 if they remain in education or training). To see if you are eligible for Child Benefit, visit the government website.

Commission – A fee charged by a broker or adviser, in which they receive a percentage of the value of the transaction.

Compound interest - Interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.

Cooling off period – A period of time after a sale is agreed which allows the buyer to consider the deal. If they decide to cancel the contract, they will receive no penalty. When used in relation to a divorce, a cooling off period usually refers to a period of time in which a couple decide whether they wish to continue with divorce proceedings.

Credit report – A document that details an individual’s financial history, and is specifically related to said person’s ability to repay borrowed money.

D

Deposit – A sum of money paid into a bank or building society account.

Deposit (housing) – A down payment that is paid up front and is not included in the mortgage. The larger the deposit, the smaller the mortgage required for the property.

Direct descendant - A child, adopted child, foster child, stepchild, grandchild or step-grandchild who can benefit from the family home allowance of £100,000

Diversification – Spreading investments so that money is dispersed across a number of investments. This strategy limits the chance of encountering heavy losses by reducing risk.

Dividend – A sum of money paid regularly by a company to its shareholders.


E

Emergency fund – A supply of money set aside to cover unexpected financial outlays, such as fixing a broken car, repairing a boiler or replacing a washing machine.

Equity release – A means of retaining your home while also obtaining a lump sum or stream of income by using the value of the property. Only those over the age of 55 are eligible for equity release schemes.

F

Family home allowance - An extra allowance, starting at £100,000 in 2017-18 and eventually rising to £175,000 by 2020- 21, added to the IHT nil-rate band for those who own a family home and are passing it.

Fixed rate - A fixed interest rate loan is a loan where the interest rate doesn't fluctuate during the fixed rate period of the loan. This allows the borrower to accurately predict their future payments.

G

Gross pay – The total amount you are paid before any taxes or other deductions are subtracted.

H

Help to Buy ISA - If you are saving to buy your first home, you can save money into a Help to Buy ISA and the government will boost your savings by 25%. So, for every £200 you save, you will receive a government bonus of £50. This bonus will only apply, however, if you use the savings to purchase a home. Read more on the government’s dedicated website.

Help to Buy loan – Where government lends you up to 20% of the cost of your newly built home, so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest. Visit the government’s dedicated website to learn more.

HM Treasury – The government department responsible for developing and executing the British government's public finance policy and economic policy. To learn more, click here.

I

Income tax – A tax levied directly on personal income. From April 2017 the personal allowance, below which no income tax is paid, will increase to £11,500.

Interest – Money paid regularly at a particular rate. To the borrower it is the cost of renting the money, and to the lender it is the income accrued from lending it.

Intestate - Dying without a will.

Interest rate – The proportion of a loan that is charged as interest to the borrower. This is generally expressed as an annual percentage.

Investment – An asset or item that is purchased with the hope that, in the future, it can earn income or be sold on for a profit.

Independent financial adviser (IFA) – A professional that can help you invest, save and handle your money in an efficient manner. An IFA will generally be able to provide advice about pensions, saving for retirement, investments, and a wide range of other services. To find an IFA in your area, visit the VouchedFor site.

Income drawdown – A way to make money from your pension fund. You can use the money saved in your pension pot to provide you with a regular retirement income by reinvesting it.

Inheritance Tax (IHT) – A tax levied on property. Inheritance Tax is paid if a person's estate (their property, money and possessions) is worth more than £325,000 when they die.

ISA – An ISA – or individual savings account – is a tax-efficient way to save money. The interest you earn is tax free. The allowance for the 2015/2016 tax year is £15,240, but will rise to £20,000 in April 2017.

Individual voluntary arrangement (IVA) – An agreement with creditors to pay all or part of an unsecured debt.

L

Life insurance – Insurance that pays out a sum of money either on the death of the insured person, or after a set period.

Lifetime ISA – A savings account in which you can save £4,000 annually. The government will then give you a bonus of 25% (maximum of £1,000 each year) that can be used to help an individual buy their first home, or can be used as a savings vehicle to assist with retirement. To learn more, read the government’s one-page fact sheet.

M

Mortgage – A loan that helps finance the purchase of a home. It is likely to be the largest debt you will take on in your life.

Mortgage adviser – A professional that will help people find and apply for a mortgage when buying a property. An adviser will be able search for and assess a number of products, and help the buyer find a mortgage that best suits their needs. To find a mortgage adviser in your area, visit the VouchedFor site.

N

National Insurance – You pay National Insurance contributions to qualify for certain benefits, such as the state pension, maternity allowance and bereavement benefits. If you are over 16 and an employee earning more than £155 each week or self-employed and making a profit of £5,965 or more a year, you will pay National Insurance.

Negative equity – When the market value of a property falls below the outstanding mortgage amount owed.

Net pay – The amount of wages an employee takes home. This amount does not include monies used for taxes or national insurance contributions, for example.

P

Personal budget sheet (PBS) – A budget sheet will help you sort out your debts. You should use it to list all of the income and expenses for your household; when the figures are added up, you will be able to see if you have any money left over to pay your debts.

Pension – A long-term savings plan to give an individual an income once they stop working. It has favourable tax treatment compared to other forms of saving.

Pensions freedom – Since April 2015, anyone aged 55 or over can take all of the money out of their pension as a lump sum. No tax will be paid on the first 25%, with the rest taxed as if it were a salary at their income tax rate.

Personal pension – A pension scheme that is independent of the contributor’s employer. The individual will choose the provider and who invests the money paid in.

Portfolio – A range of investments held by a person or organisation, or a range of products/services offered by a company.

Probate - A legal document that proves a will valid and allows the executor to distribute the estate as per deceased’s wishes.

R

Remortgage – The process of paying off one mortgage with the proceeds from a new mortgage, while using the same property as security.

Repossession – When a financial institution – often a bank – takes possession of an object (a house, for example) when scheduled payments have been missed.

Risk – Usually associated with investing. The higher the risk, the more likely it is you will lose capital on your investment.

S

Savings – The money an individual has saved, either through a bank, building society, or another savings scheme (pension, for example).

Second mortgage – A mortgage taken out on a property that is already mortgaged. You can use equity you have in your home as security against another loan.

Self-assessment – A calculation of one’s own taxable liability, mainly utilised by those that are self-employed. For most employees, tax is generally deducted from wages, pensions and savings automatically.

Solicitor – A legal professional who provides expert advice and support to clients. To find a solicitor in your area, visit the VouchedFor site.

Stamp duty – You will be required to pay stamp duty if you buy a property over a certain price. The rate you pay depends on the purchase price of the property. You can work out how much stamp duty you are likely to pay by using this calculator.

State Pension – A regular payment from the government that you get when you reach State Pension age. You can check your State Pension age here.

T

Tax year – The UK tax year runs from 6 April to 5 April the following year.

Trust - A legal arrangement where cash, investments or property are given to someone to look after for a third person’s benefit.

V

Variable rate - A loan in which the interest rate charged on the outstanding balance varies as market interest rates alter.

VouchedFor.co.uk – The best way to find a top IFA, mortgage adviser, accountant or solicitor in your area.

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