Tax glossary

Plain-English definitions for the terms and acronyms used across this site.

Tax types

IHT — Inheritance Tax: A tax on the estate of someone who has died. Charged at 40% on the value above the nil-rate band. Also applies to certain lifetime transfers, particularly gifts to trusts.
CGT — Capital Gains Tax: A tax on the profit when you sell or dispose of an asset that has increased in value. For most individuals the rate is 18% (basic rate taxpayer) or 24% (higher or additional rate taxpayer), applying broadly across asset types including residential property.
CT — Corporation Tax: The tax a limited company pays on its profits. The main rate is 25% for profits above £250,000, with a small profits rate of 19% for profits below £50,000 and marginal relief in between.
SDLT — Stamp Duty Land Tax: A tax on property purchases in England and Northern Ireland. Rates vary by property value and type. An additional 5% surcharge applies to second homes and buy-to-let properties. When a company acquires property from a connected person, SDLT is charged on market value rather than actual consideration.
VAT — Value Added Tax: A tax on goods and services charged at each stage of the supply chain. The standard rate is 20%. Businesses with taxable turnover above the registration threshold (currently £90,000) must register for VAT.
NIC — National Insurance Contributions: A payroll tax paid by employees, employers, and the self-employed. Rates and thresholds vary by class and tax year.
PAYE — Pay As You Earn: The system through which employers deduct income tax and National Insurance from employees' wages before paying them. The deductions are paid to HMRC on behalf of the employee.

Reliefs and exemptions

BADR — Business Asset Disposal Relief: A CGT relief that applies a flat 18% rate to the first £1 million of lifetime qualifying gains (raised from 10% in earlier years). Conditions typically include a minimum two-year ownership period and active involvement in the business.
BPR — Business Property Relief: An IHT relief that can reduce the taxable value of qualifying business assets by 50% or 100%. Since 6 April 2026, a £2.5 million allowance applies to the combined value of qualifying property eligible for 100% BPR and APR, with 50% relief applying above that level.
APR — Agricultural Property Relief: An IHT relief for qualifying agricultural property. Since April 2026, APR shares a combined allowance of £2.5 million with BPR per person.
SSE — Substantial Shareholding Exemption: A corporation tax exemption that may apply on the disposal of shares in a trading subsidiary. Key conditions include that the selling company has held at least 10% of the ordinary share capital for a continuous 12-month period in the two years prior to disposal.
Section 162 incorporation relief: A CGT relief under section 162 TCGA 1992 that allows a sole trader or partnership to defer the capital gain when transferring a business (including a property business) to a company. The gain is rolled into the cost of the shares — it is not cancelled, but deferred until the shares are sold.
Holdover relief: A CGT relief that defers a gain by reducing the recipient's base cost instead of taxing the donor. Available on gifts of business assets (s165 TCGA 1992) and certain transfers to trusts (s260 TCGA 1992).
PPR — Principal Private Residence relief: Available if the property qualifies as your only or main residence throughout ownership. Where the property was your main residence for part of the ownership period, the final 9 months of ownership qualify regardless of actual occupation, with further reliefs potentially available. The rules are complex and professional advice is recommended.
Taper relief (IHT): A reduction in the IHT charge on failed PETs and CLTs where the donor dies between 3 and 7 years after the gift. The tax charge is reduced on a sliding scale: 80% of the full charge in years 3–4, 60% in years 4–5, 40% in years 5–6, and 20% in years 6–7.
Annual exemption (IHT): Each person can give away £3,000 per tax year free of IHT. If unused, the previous year's exemption can be carried forward for one year only.
Spousal exemption: Transfers between spouses or civil partners are exempt from IHT, whether made during lifetime or on death. There is no upper limit where both parties are UK-domiciled.
Normal expenditure out of income: An IHT exemption for regular gifts made from surplus income — not capital — that do not reduce the donor's standard of living. There is no upper limit. Requires a pattern of giving and evidence that income exceeds normal expenditure.

Thresholds and allowances

NRB — Nil-Rate Band: The IHT-free threshold — £325,000 per person, frozen since 2009 and fixed at that level until 5 April 2031. Any unused NRB can be transferred to a surviving spouse or civil partner.
RNRB — Residence Nil-Rate Band: An additional IHT-free amount of up to £175,000 per person, available when a residence is passed to direct descendants on death. Subject to a taper for estates above £2 million. Can also be transferred between spouses.
Personal allowance: The amount of income you can earn tax-free each year — currently £12,570. It is gradually withdrawn for income above £100,000, creating an effective 60% tax rate between £100,000 and £125,140.
Annual allowance (pensions): The maximum amount that can be contributed to pensions in a tax year with tax relief — currently £60,000. Reduced for individuals with adjusted income above £260,000 (tapered annual allowance), to a minimum of £10,000.
Dividend allowance: The amount of dividend income that is tax-free each year — currently £500. Dividends above this are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate).

Structures and planning

Holding company: A parent company that holds shares in one or more trading subsidiaries. Can allow surplus cash to be moved out of the trading company by inter-company dividend, typically without an immediate personal tax charge, subject to the relevant conditions. Not suitable for every business — the restructuring cost and ongoing complexity must justify the benefit.
FIC — Family Investment Company: A company used to hold family wealth — typically investments, property, or cash — while allowing the founders to retain control through different share classes. May be used as part of IHT and succession planning in some cases to transfer value to the next generation while the founders keep voting rights and income.
PET — Potentially Exempt Transfer: A lifetime gift from one individual to another. Exempt from IHT if the donor survives for 7 years. If the donor dies within 7 years, the gift becomes chargeable and taper relief may apply from year 3.
CLT — Chargeable Lifetime Transfer: A transfer into a trust (or certain other arrangements) that is immediately chargeable to IHT at 20% on the value above the available nil-rate band. If the donor dies within 7 years, additional tax may be due at up to 40%.
Deed of variation: A legal document that redirects an inheritance within two years of death. For IHT and CGT purposes, the variation is treated as if the deceased had made the revised disposition — allowing beneficiaries to restructure an estate after death. Must include a statement under s142 IHTA 1984.
Trust: A legal arrangement where assets are held by trustees for the benefit of beneficiaries. Used in tax planning for asset protection, IHT mitigation, and control over how wealth is distributed. Different types (discretionary, interest in possession, bare) have different tax consequences.
Earn-out: Part of a business sale price that is deferred and contingent on future performance. The CGT treatment depends on whether the amount is ascertainable (fixed formula) or unascertainable (unknown) at the point of sale — the distinction affects when tax is paid and how much.

Property and landlords

Mortgage interest restriction (Section 24): Since April 2020, individual landlords can no longer deduct mortgage interest as an expense before calculating their tax bill on residential lettings. Instead, they receive a basic rate (20%) tax credit. Higher-rate taxpayers pay 40% tax on gross rental profit but only get 20% relief on finance costs — meaning some landlords effectively pay tax on profit they have not actually received.
Property incorporation: The process of transferring a personally held property portfolio into a limited company. May reduce the ongoing personal income tax burden in some cases, but can also create CGT, SDLT, financing and extraction issues. Section 162 relief may defer the CGT if the portfolio qualifies as a business.
SDLT additional dwelling surcharge: An additional 5% SDLT charge on purchases of additional residential properties (second homes, buy-to-let). Applies on top of the standard SDLT rates. Also applies when a company purchases residential property.

Profit extraction

Salary vs dividends: The two main ways a director extracts profit from a limited company. Salary is deductible for corporation tax and subject to income tax and NIC. Dividends are paid from post-CT profits and subject to dividend tax rates but not NIC. The optimal mix depends on profit level, other income, and pension position — and changes as rates change.
Distributable profits: The accumulated profits a company has available to pay as dividends. A company cannot legally pay dividends in excess of its distributable profits: retained profits that have already been subject to corporation tax.
Employer pension contribution: A pension contribution made by the company on behalf of a director or employee. Deductible for corporation tax purposes (subject to the “wholly and exclusively” test) and not treated as a benefit in kind if within the annual allowance. Often used as a tax-efficient way to extract value from a company, depending on the company’s circumstances and the individual’s pension position.

Compliance and filing

HMRC — His Majesty's Revenue & Customs: The UK government department responsible for collecting taxes, administering the tax system, and enforcing tax law.
Self-Assessment: The system under which individuals report their income, gains, and tax liability to HMRC annually. Commonly required for the self-employed, many landlords, company directors with untaxed income, and others whose tax is not fully collected at source. The deadline for online returns is 31 January following the end of the tax year.
MTD — Making Tax Digital: An HMRC programme requiring businesses and landlords to keep digital records and submit quarterly updates using compatible software. MTD for VAT is already in effect. MTD for Income Tax applies from 6 April 2026 for those with qualifying income over £50,000, from 6 April 2027 for those over £30,000, and from 6 April 2028 for those over £20,000.
SA100: The main Self-Assessment tax return form for individuals. Supplementary pages cover specific income types: SA102 (employment), SA103 (self-employment), SA105 (property), SA108 (capital gains).
CT600: The corporation tax return filed by limited companies. Due 12 months after the end of the accounting period, with tax payable 9 months and 1 day after the period end.
HMRC enquiry: A formal review by HMRC of a tax return. Can be a random check or triggered by risk indicators. HMRC has 12 months from the filing date to open an enquiry into a personal tax return. The process ends with a closure notice confirming whether any additional tax is due.

VAT concepts

Partial exemption: When a VAT-registered business makes both taxable and exempt supplies, it can only recover input VAT attributable to taxable supplies. The standard method apportions residual input tax by the ratio of taxable to total supplies. Special methods (floor space, headcount, transaction count) may be agreed with HMRC.
TOGC — Transfer of a Going Concern: When a business is sold as a going concern, the transfer can be treated as outside the scope of VAT — meaning no VAT is charged on the sale. Four conditions must be met, including that the buyer intends to carry on the same kind of business.
Flat Rate Scheme: A simplified VAT scheme for small businesses (taxable turnover below £150,000). Instead of accounting for VAT on each transaction, the business pays a fixed percentage of gross turnover to HMRC. The percentage varies by sector. Limited cost traders pay a flat rate of 16.5%.
Capital Goods Scheme: A VAT adjustment mechanism for high-value capital assets — land and buildings (over £250,000) and computers (over £50,000). When first acquired, input VAT is recovered based on the proportion of taxable use at that time. That recovery is then reviewed annually over a 10-year period for land and buildings (5 years for computers) — if the proportion of taxable use changes in any year, the original recovery is corrected up or down accordingly.

These definitions are provided for general guidance only and are based on current legislation at the time of writing. Tax treatment depends on individual circumstances and may change in future. You should not act on this information without obtaining professional advice specific to your circumstances.