Taxes: jargon buster

You pay this on earnings, withdrawals from pensions (after you’ve taken your tax-free allowance), rental income, and certain benefits. Currently everyone has a personal allowance of £12,570, meaning you won’t pay income tax on this. Basic-rate income is taxed at 20%, higher-rate income is taxed at 40% and additional-rate is taxed at 45%. Your personal allowance reduces by £1 for every £2 you earn over £100,000.

This is paid by employees, employers, and the self-employed to fund state benefits and pensions. Employees and employers pay Class 1 NICs. The self-employed pay Class 2 and Class 4 NICs. You have to earn above a certain amount to start paying. Changes to NIC rates or thresholds can affect take-home pay and pension contributions via salary sacrifice.

CGT is a tax that’s charged on profits from selling assets like shares or property (excluding your main home). For most assets, it’s 10% for basic-rate taxpayers and 20% for higher-rate taxpayers. For property, basic-rate taxpayers pay 18% and higher-rate taxpayers pay 24%. There is an annual tax-free allowance of £3,000 before CGT applies.

• Learn more about Capital Gains Tax

Inheritance tax is a 40% tax on someone’s estate (money, property and possessions) when they die. This only applies if the estate is above the nil-rate band (currently £325,000 per person). If you pass your home to direct descendants, you may also qualify for an extra £175,000 allowance (the residence nil-rate band). You can also transfer any unused allowance to your spouse or civil partner.

• Read more about inheritance tax

This is a yearly tax on dividend income that applies when your dividends exceed your personal allowance. The annual dividend allowance is £500.

•  Learn more about your tax allowances
   

This is a tax you pay on interest you earn on your savings - like the money in a bank account-once it goes over your personal savings allowance (PSA). Your PSA depends on what rate of income tax you pay.

VAT is a consumption tax charged at 20% on most goods and services. There are reduced rates of 5% applied to certain items (like children’s car seats and home energy), and some are zero-rated (like most food and children's clothes).

IPT is charged on most insurance policies, including home and car insurance.

This is applied to specific products such as alcohol, tobacco and fuel to discourage over-consumption.

Council tax is the local tax you pay to your council for services like rubbish collection and street lighting. It’s charged according to council tax bands – A to H in England and Scotland, and A to I in Wales – which are based on your home’s value. Northern Ireland doesn’t use council tax; instead, it has a domestic rates system based on the capital value of your property.

SDLT is paid when purchasing property or land over a certain price in England and Northern Ireland. Scotland and Wales have their own versions.

This is also known as car tax or road tax. It’s an annual tax required for most vehicles used or kept on public roads in the UK.

Fuel duty is a tax on fuels like petrol, diesel and other fuels used in vehicles or for heating.

APD is a tax on flights from UK airports, with rates depending on distance and class of travel. 

When you pay into a pension, the government adds back the tax you would’ve paid on that income - effectively boosting your savings.

• Learn more about pension tax relief

This is the maximum amount you can contribute to your pension each tax year while still getting tax relief. For most people, the limit is £60,000 or 100% of your annual earnings (whichever is lower).

If you earn over £260,000, your allowance may be reduced through the tapered annual allowance. And if you haven’t used up your full allowance from the last three tax years, you can often carry it forward - useful if you want to make a larger contribution later.

• Read more about your annual pension allowance

Each tax year you can save or invest up to £20,000 in ISAs, and any returns or interest are tax-free.

• Read more about your ISA allowance

If one partner earns less than the personal allowance, they can transfer part of it to their spouse or civil partner, reducing the couple’s overall tax bill.