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Inheritance Tax (IHT) Planning

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A professional who maintains accounts for businesses and individuals. Businesses use accountants for services such as maintaining financial records, tax affairs and payroll services. Individuals sometimes use accountants for tax returns.

Adviser/ Advisor

A professional, who is qualified to give you advice. Among others, this could be an independent financial adviser (IFA).

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 statement

A statement from your financial services product provider sent to you once a year, showing how much you’ve paid, what your plan is worth (and if it’s in relation to a loan, what you still owe).


At retirement – but before you reach age 75 – you have to buy an annuity with your pension fund. It’s a payment that’s usually paid monthly, which you’ll receive as a guaranteed regular income during your retirement.

Approval in principle

This is the certificate that some lenders issue to show how much they’d be prepared to lend you. It’s not a guarantee, but it can be helpful when you’re looking at property to purchase.


Annual Percentage Rate. The figure next to this abbreviation shows you the total cost of taking out a loan, as a percentage, taking into account the term, interest rate and other costs.

Asset allocation

Asset allocation is the process of putting your investment into a range of different investments such as equities, gilts, 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.

Authorised firm

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

Basic rate taxpayers

You are a basic rate taxpayer if you are earning below the higher tax rate threshold and are paying 20% income tax for the tax year.

Buy-to-let mortgage

This is a loan you take out to buy a property that you intend to let to tenants. Buy-to-let investors need to be aware that properties can fall in value as well as rise. You should always avoid borrowing more than a reasonable percentage of the overall value, and make sure that you budget for periods when you’re not receiving rental income.

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 annual allowance for capital gains and only pay CGT on any gain over this amount.


This is a term that’s used to describe a company’s issued stocks and shares. If you own shares in a company you own some of the company’s equity. It can also be used to describe the amount, or value, of your home that you own. If you ‘have equity’ in a property, it means that you own a portion of it above the value of any debts secured on that property, such as a mortgage.

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.

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 40% of the value of all the assets you leave behind on death above the IHT threshold.


Fees are one of the ways you can pay your adviser for their advice and services. They’re usually fixed and agreed before the financial or legal advice and service is provided.

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

Some mortgage lenders will offer a period of time, normally 2 to 5 years, during which the interest rate is fixed. After this time, it will revert to the Standard Variable Mortgage Rate (often referred to as SVR). Fixed rate mortgages can make budgeting for mortgage payments easier for borrowers in the first years.


The Financial Conduct Authority (the FCA) is the UK’s financial services regulator.


These may also be called gilt-edged or Treasury bonds. They’re bonds that are issued by the UK government. They’re regarded as being very low-risk, secure investments because it’s the government that promises to pay you back.

Group Personal Pension

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

Higher rate taxpayer

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

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.

Independent financial adviser

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.

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)

Inheritance tax (IHT) is charged on an estate after a person’s death. It’s currently charged at 40% on amounts above the IHT threshold, which can change every year. A person’s estate includes the total of everything owned, less any liabilities at the time of their death. If this amount is less than the threshold, no IHT is payable.

Interest-only mortgage

With an interest-only mortgage, you only pay the interest charges on the loan each month. This means that you’re not reducing the loan amount (or capital) itself, which will need to be repaid in some other way. With a repayment mortgage, the loan is reduced to zero at the end of the term.

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.

Key facts document

All financial advisers must provide customers with at least two ‘Key facts’ documents: one explaining their status (whether they are tied, multi-tied or independent) and one explaining the services they offer and a menu of their charges. This helps you understand the value and cost of the adviser’s advice and service.

Key features document

A ‘Key features’ document is one that all firms authorised and regulated by the FSA must give you to explain their services, or products, and details about anything that you’re interested in buying.

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 mortgages

These are also known as ‘equity release mortgages’. They’re products that release a share of the equity in your property and put a mortgage into place, to repay the amount of money that’s been released. A lifetime mortgage is different from a traditional mortgage: the interest charged is ‘rolled-up’, so that borrowers never have to make monthly mortgage repayments. The minimum age of the youngest borrower is usually 55. The older the borrower, the higher the portion of the equity of the home may be borrowed. This tends to be in the region of 15% of the property value at age 55, rising to a maximum of 55% at age 85.

Money laundering

The government has introduced tough money laundering laws in a bid to combat international crime and terrorism. This means that solicitors 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 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 contributions, over what time period you invest them, and how well your investments grow.


A loan to buy a property, which is then ‘secured’ on the property. This means that the lender may eventually have the right to take over the property if you do not keep up with the terms of the mortgage.

Mortgage broker

A mortgage broker can recommend a mortgage for you or they can give you information that helps you make your own choice. Mortgage brokers can be independent, or have a restricted range of mortgages available to them. Remember to ask a mortgage broker what his or her status is.

Mortgage protection insurance

Accident, sickness and sometimes unemployment insurance (or payment protection insurance) is a policy that’s used to help pay for your mortgage if your income is reduced due to certain circumstances.

National Insurance contributions

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 pension age (currently 60 for women, 65 for men) 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.

Personal pension

This is a pension policy that’s taken out through a pension company, into which you pay contributions and will at retirement provide some or all of your pension income. These are invested in funds, which you can choose according to your attitude to risk and plans for the future. A personal pension is set up on a money purchase (defined contribution) basis.


This is the name given to the regular amount you must pay for an insurance policy. Providers sometimes offer annual premiums, but most commonly premiums are paid monthly, although some companies charge interest on these arrangements and it is worth checking how much extra you may have to pay.

Repayment mortgage

This is a mortgage that pays off both the capital and the interest at the same time. Pay all the repayments and the mortgage will be fully repaid at the end of the term.


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.

Stakeholder Pension

This is a personal pension in its most simple form. A stakeholder pension will allow you to make a minimum investment of £20 per month and offer a range of funds in which to invest – and there must be no penalties for transferring away from the fund. Your employer may offer access to a stakeholder pension scheme.

State 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.

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.


This is the length of the contract you make with your mortgage, policy or investment provider.

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’s also known as Life Assurance.

Tracker mortgage

This is a mortgage that has a level of interest rate linked to a particular rate, set independently from the lender. The level of interest you’ll pay will move up and down, as the rate moves up or down.

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.

Unsecured pension

An unsecured pension is a way of taking an income from your pension fund up to age 75, while leaving the rest of your fund invested. 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.