– to investigate, especially into the personal affairs of others
– to look or inquire closely or curiously
Dis (latin, adjective)
– rich, possessing wealth, fertile, profitable
– an investment advisory discipline that incorporates financial planning, investment portfolio management and a number of aggregated financial services including private wealth management. High Net worth Individuals (HNWIs), small business owners and families who desire the assistance of a credentialed financial advisory specialist call upon wealth managers to coordinate retail banking, estate planning, legal resources, chartered tax advisers and discretionary investment management.
– a practising professional who prepares chartered financial planning for people covering various aspects of personal finance which includes: cash flow management, education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners).
– the main purpose of an independent financial adviser is to assist clients in the planning and arrangement of their financial affairs, such as savings, retirement provisions, tax treatment,probates, trusts & wills.
Collective investment scheme
– a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group. These advantages include an ability to:
- hire a professional investment manager, which theoretically offers the prospects of better returns and/or risk management;
- benefit from economies of scale – cost sharing among others;
- diversify more than would be feasible for most individual investors which, theoretically, reduces risk.
Self-invested personal pension (SIPP)
A sipp is the name given to the type of UK-government-approved personal pension scheme, which allows individuals to make their own investment decisions from the full range of investments approved by HM Revenue & Customs (HMRC).
Investors may make choices about what assets are bought, leased or sold, and decide when those assets are acquired or disposed of, subject to the agreement of the SIPP trustees (usually the SIPP provider who organises the SIPP).
All assets are permitted by HMRC, however some will be subject to tax charges. The assets that are not subject to a tax charge are:
- Stocks and shares listed on a recognised exchange
- Futures and options traded on recognised futures exchange
- Validated carbon credits (VCS & Gold standard)
- Authorised UK unit trusts and OEICs and other UCITS funds
- Unauthorised unit trusts that do not invest in residential property
- Unlisted Shares
- Investment trusts subject to FSA regulation
- Unitised insurance funds from EU insurers and IPAs
- Deposits and deposit interests
- commercial property (inc. hotel rooms)
- Ground rents (as long as they do not contain any element of residential property)
- Traded endowments policies
- Derivatives products such as a Contract for difference (CFD)
- Gold bullion, which is specifically allowed for in legislation
Small Self-administered Scheme (SSAS) is a company scheme where the members are usually all company directors or key staff. A SSAS is set up by a trust deed and rules and allows members / employers, greater flexibility and control over the scheme’s assets.
Loans can be made to the sponsoring employer but are subject to certain conditions set by HMRC. These include:
- The loan should not exceed 50% of the net market value of the scheme’s assets
- The loan should be secured against assets of an equal value by way of a first charge
- The loan’s terms should be no longer than 5 years
- Interest of at least 1% above bank base rate should be charged on the loan
The trustees of a SSAS can invest in a broad range of investments, including:
- Commercial property and land;
- UK quoted shares, stocks, gilts and debentures;
- Stocks and shares quoted on a recognised overseas stock exchange;
- Futures and options quoted on a recognised stock exchange;
- OEICs, unit and investment trusts;
- Hedge funds;
- Insurance company funds;
- Bank and building society deposits
- Gold bullion
Shares are small stakes in a company. When you buy shares you become a joint-owner of the company along with all the other shareholders. You can buy existing shares which are already being traded on a stock market or new shares when a company first sells them to raise money for its business (for example a stock market flotation, or buying private shares in a small business start-up).
The value of shares generally rises and falls in line with the performance of a business. If the company does well you may be able to sell your shares at a profit at a later date. If it doesn’t your shares may fall in value or even lose their value altogether.
A company doing well may also pay you income in the form of dividends. Dividends may rise and fall in line with how well the company is doing.
OEICs and unit trusts
Unit Trusts are collective investments which enable individuals to pool their money into a fund, which is then invested in a wide spread of shares or fixed interest securities.
Unit Trusts are ‘open-ended’ which means they may create or cancel units on a daily basis depending on demand. With Unit Trusts, the price of a unit is directly determined by the value of the assets it holds.
Each Unit Trust fund has a stated investment strategy, enabling you to invest according to your attitude to risk. Funds investing in emerging markets or smaller companies, for example, would be considered to carry much higher risks than those investing in large UK companies.
You buy or sell units through a fund manager. Their price depends upon the value of its underlying funds/shares.
In time you would hope that the value of your units will rise in line with the underlying asset values. But if these perform badly the value of the units could fall. You may also get dividend income or interest distributions from your units, based on the dividends or interest paid by the underlying shares or other investments.
OEICs (Open ended Investment companies) are a more recent form of a Unit Trust created to enable UK companies to comply with EU rules and not be at a disadvantage to their foreign competitors.
Advantages of OEICs and Unit Trusts:
Easy to invest in on a monthly or lump sum basis. Investments can also be arranged on behalf of Children or Grandchildren.
OEICs and Unit Trusts offer one of the widest selections of investment funds available. Fund choices range from the fashionable and speculative such as Gold or African funds through to the traditional such as Managed Funds, Multi Manager Funds and funds that specialise in a specific country or asset class.
Funds can be purchased to match your personal investment objectives and plans.
Investors can opt to receive an income from their investment based on the underlying income the fund earns. Some high income funds are available for those who just want to maximise their monthly or quarterly income.
Growth investors can opt to re-invest any income earned by their investment to boost the value of their fund.
Dis-advantages of OEICs and Unit Trusts:
Switching between funds could give rise to a tax liability and/or an inital charge for investing in the new fund.
Care needs to be taken as to the type of units initially purchased, as any subsequent change from accumulation to income units or vice versa would require the units to be encashed and repurchased.
Investment trusts invest in the shares of different companies, allowing investors to spread their risk. The main difference from unit trusts is that investment trusts are themselves companies in which you buy shares. So you’re investing directly, rather than indirectly through an open-ended fund.
Unlike the open ended investments such as OEICs , Investment Trusts are closed ended. This means that the number of shares created and available is limited and is established when the company is first set up. Once all the shares are sold they can only be bought or sold if buyers and sellers exist. This might make it very difficult to buy shares in a very popular Trust or sell shares in an unpopular one.
As a company, Investment Trusts are able to borrow money to boost the amount they have available for investing. The industry calls this Gearing and can be a great advantage when share prices are rising with the increasing value of investment far outstripping the cost of any borrowing. However, if share prices are falling, too much debt can leave an Investment Trust in difficulty as it has to sell investments at rock bottom prices to keep up with interest payments.
Because Investment Trust share prices are affected in part by supply and demand, their value can fluctuate more often than units in Unit Trusts as the price will trade at either a premium (due to greater demand) or discount (low demand) when compared to the value of the assets it has invested in.
As with Unit Trusts, Investment Trusts differ in the kinds of companies they invest in, some being more high risk than others. Some focus on capital growth with very little income from dividends, and others invest for a steady income from dividends with some chance of capital growth.
EFTs (exchange traded funds)
The FSA definition of an ETF is ‘An open-ended investment fund which tracks certain indexes and is bought and sold on an exchange rather than through a fund manager.’ Effectively an ETF is a hybrid of a pooled investment fund (in particular an index tracker) and a share. This is similar in context to an Investment Trust but instead of investing in a spread of assets and regions an ETF will be dedicated to a specific index such as the FTSE 100. Where the two differ is that an investment trust is a closed ended fund whereas the ETF is open. So essentially then the ETF is set up like a normal investment fund but whose shares for a retail client are listed on a ‘listed’ stock exchange and purchased via a stock broker.
Because of the general lack of active management they can give investors cheap and efficient access to a wide range of different indices, sectors and even commodities.
Units of an ETF can be purchased at any time (so long as the stock market is open) during the day (but a stockbroker does need to be used) as a result the price can change regularly based on this buying and selling, also as well as being held directly they can be held via a wrapper such as an ISA, SIPP, SSAS, offshore bond or child trust fund
It must be remembered that ETFs come in many different guises as they can use differing methods of tracking an index i.e.
Full index replication
The ETF will hold all the constituents of the index in the same proportion as the index.
The ETF will hold a sample of the constituents of the index which it is replicating. This could mean the ETF does not fully replicate the index and may return more or less.
This involves the use of SWAPS and consequently there is a counter-party risk. The ETF buys investments that may not be within the index the ETF is tracking. It then swaps the return on these investments for the return on the index.
In addition to this there are more complex version which can involve high risk strategies such as gearing so that for every £100 put in the fund the fund will borrow additional monies so that more than original £100 is invest (i.e. the fund may borrow £100 so £200 in total is invested) this works well if the investment increases in value, as you would get nearly double the return (based on amount borrowed meaning £200 invested) but if it falls you loss twice as much and could lose all the investment.
As you can see the more complex the structure the higher the risk involved.
Individual Savings Accounts (ISAs) are tax-free savings accounts, which means you do not have to declare any income from them. They were introduced in 1999 to replace PEPs and TESSAs. You can use an ISA to save in Cash usually via a bank, or invest in Stocks and Shares either via a Unit Trust, OEIC or directly into shares via a Self Select ISA.
You are able to invest in two separate ISAs in any one tax year: one Cash ISA and one Stocks and Shares ISA.
Due to the tax advantages of ISAs there are rules on the transfer of these as follows:
- You can transfer your Cash ISA to another ISA manager, either into another Cash ISA or into a Stocks and Shares ISA.
- You can transfer your Stocks and Shares ISA to another ISA manager, but only into another Stocks and Shares ISA. You cannot transfer a Stocks and Shares ISA into a Cash ISA.
- You are able to transfer some or all of the money saved in previous tax years without affecting your annual ISA investment allowance.
A Stocks and Shares ISAs (PEPs have now been reclassified as this) can invest either directly into shares (usually via a Self-Select ISA) or in Unit Trust/OEICs/Investment Trust.
A Cash ISA can only invest in cash and are usually offered by Banks and Building Societies, it should also be remembered that TESSAs(Tax Exempt Special Savings Account) and TOISA (Tessa Only ISA) have now been reclassified as ISAs
From 01/11/2011, Junior ISA’s are available to any child born on or after 3rd January 2011 and any child under 18 years of age born before September 2002, they replicate a number of features of the Adult ISA but also contain one or two special benefits:
- There are two types of Junior ISA: A cash Junior ISA and an Investment Junior ISA (Stocks and shares Junior ISA) and each child will be able to hold one of each account with different providers should they wish.
- Once money is deposited in a Junior ISA it will be free of Income tax and Capital Gains tax.
- You can transfer between the cash and the stocks and shares Junior ISA and between providers.
- Decisions on where and when to invest ISA contributions are made by the child’s parents but the account is held in the child’s name. The money is ring-fenced for the child until they are 18 – no withdrawals are permitted before then except in the event of terminal illness or death
- Once the child has reached adulthood (currently 18 years of age) they are able to withdraw the funds whenever they want without losing any tax benefits. Management of the account will pass onto the child once they reach 16 years of age.
- At 18 the product can be rolled directly into an adult ISA.
- Once parents open an ISA for their child anyone, friend or family, is able to make a contribution subject to the overall annual limit.
Onshore investment bond
Investment Bonds are actually Life Insurance Policies. As such they come with some different taxation rules and product design in what the industry calls a Tax Wrapper. While they differ from other collective investments, the funds they operate in are almost identical to those you might buy for an ISA, Pension, OEIC or Unit Trust.
Investment Bonds (including With Profit Bonds) pay all Basic Rate tax and Capital Gains Tax due on their investors behalf. Investment Bonds also have a unique feature in that under current rules you can choose to withdraw up to 5% of your initial investment each year without the need to pay any income tax straight away. You can do this for up to 20 years which is one of the reasons Investment Bonds have been such a popular part of tax planning.
Some Investment Bond Advantages:
Wide range of investment Funds available including Managed Funds, Multi Manager Funds, Property Funds and Funds that specialise in a specific country or asset class.
Very useful for tax planning for those who are currently higher tax payers but will be basic or non tax payers when encashing, as all Capital Gains Tax and basic rate income tax has already been deducted.
Because they are officially a Life Insurance product each Bond comes with a very small amount of life cover usually about 101% or so of the Bond.
Investment Bond Disadvantages:
One of the drawbacks of investment bonds is that their charges are not always easy to understand. Sometimes there is an initial charge, plus an annual management charge (AMC) (typically 1 – 1.5% of the fund value), while other bonds have no initial charge, but a higher annual charge in the first three to five years. There is also the ‘allocation rate’ on your bond to be taken into account. This may be more than 100% for larger investments. After the initial charge this may turn out to be less 100%
Many Investment Bonds come with exit penalties for early withdrawal. These are usually put in place to pay for any up front special offers or discounts.
If you take the 5% withdrawals, it should be noted that the tax is only deferred. If you don’t plan carefully you may incur a larger tax bill later on.
As Capital Gains Tax is paid by the fund automatically you can’t reclaim this if you don’t actually use up your CGT allowance so you might be paying tax unnecessarily.
The tax within the bond cannot be reclaimed by the individual, irrespective of their tax status.
Offshore investment bond
Offshore bonds have many of the characteristics of Onshore bonds – they are Life Insurance contracts, they benefit from the 5% withdrawal rule and predominantly invest in unit linked funds. Although a key difference is that they are not based/domiciled in the UK.
Where Offshore bonds differ is in the taxation and the investment choices available.
The taxation of an Offshore bond is governed by the tax regime of the territory where the life office is established. Naturally, most of these offices are set up in places where the income and capital gains in non-resident policyholders’ funds are not locally taxed. This feature is often referred to as “gross roll-up”. Dividend and other income which the life office receives from other territories may be subject to non-recoverable withholding tax. The effect of withholding tax can be minimised by investing for capital growth rather than income.
Whilst an Offshore bond may appear appealing due to the fact that minimal tax is paid on the fund whilst invested, when the plan is eventually encashed it is taxed in the country where the person is resident for tax purposes. So for a person resident and/or domiciled in the UK, they would pay UK tax (non domiciled people could still pay UK tax if the money is remitted here).
Offshore bonds may carry a higher charging structure than UK based bonds.
It is important to understand that although projections relating to offshore bonds are on a 5%, 7% and 9% basis (compared with 4%, 6% or 8% for onshore bonds) to reflect the absence of UK tax within the underlying funds, the figures provided ignore the important fact that most UK investors will eventually pay tax (or more tax) on the chargeable gain. The amount the investor will be left with after tax should be considered when comparing bond illustrations from UK and offshore life offices.
It is difficult to confirm which circumstances an Offshore bond would be better suited to. Some potential situations are as follows:
- Investors planning to live or retire abroad, who would be subject to local rather than UK tax on policy gains. (Although these may be worse than the UK).
- Investors planning to live abroad for part of the time they intend to hold the bond and encash it when they return, may receive relief under the time apportionment relief rules.
- Investors who will definitely be non-tax payers at the time of a encashing the bond (although care needs to be taken here).
- Investors who are investing for the long term so there is greater opportunity for the bond to offset the effects of tax (and charges) and outperform an onshore equivalent.
An important aspect of investing abroad is that the investment will not be covered by UK legislation should the offshore provider/fund become insolvent and will be subject to the laws and compensation scheme applicable in the jurisdiction where the plan/fund is based.
Friendly society plan
These plans are issued by Mutual Societies known as Friendly Societies and are regular premium endowment plans. These are investment plans which must provide life cover equal to 75% of the total premiums that would be payable over the life of the plan.
Unlike most endowments these are exempt from paying tax on most of the growth in the fund. They are sometimes known as tax-exempt plans. You can pay up to £25 a month or £270 per annum into a tax-exempt policy and they must last a minimum of 10 years. Although almost anyone including children can take a plan out.
They invest either in the profits of the society (with profits) or in unit linked funds.
Two key aspects of these plans are the charges (which can be high) and the fact that life cover must be part of the plan which may or may not be an attraction as the cost of this is paid out of the premiums and will therefore reduce the overall returns.
Account payable an amount due for payment to a supplier of goods or services, also described as a trade creditor.
Account receivable an amount due from a customer, also described as a trade debtor.
Accountancy firm A business partnership (or possibly a limited company) in which the partners are qualified accountants or chartered accountants. The firm undertakes work for clients in respect of audit, accounts preparation, tax and similar activities.
Accountancy profession The collective body of persons qualified in accounting, and working in accounting-related areas. Usually they are members of a professional body, membership of which is attained by passing examinations.
Accounting The process of identifying, measuring and communicating financial information about an entity to permit informed judgements and decisions by users of the information.
Accounting equation The relationship between assets, liabilities and ownership interest. accounting period Time period for which financial statements are prepared (e.g. month, quarter, year).
Accounting policies Accounting methods which have been judged by business enterprises to be most appropriate to their circumstances and adopted by them for the purpose of preparing their financial statements.
Accounting standards Definitive statements of best practice issued by a body having suitable authority.
Accounting Standards Board The authority in the UK which issues definitive statements of best accounting practice.
Accruals basis The effects of transactions and other events are recognised when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate (see also matching).
Accumulated depreciation Total depreciation of a non-current (fixed) asset, deducted from original cost to give net book value.
Acid test The ratio of liquid assets to current liabilities.
Acquiree Company that becomes controlled by another.
Acquirer Company that obtains control of another.
Acquisition An acquisition takes place where one company – the acquirer – acquires control of another – the acquiree – usually through purchase of shares.
Acquisition method Production of consolidated financial statements for an acquisition.
Administrative expenses Costs of managing and running a business.
Agency A relationship between a principal and an agent. In the case of a limited liability company, the shareholder is the principal and the director is the agent.
Agency theory A theoretical model, developed by academics, to explain how the relationship between a principal and an agent may have economic consequences.
Aggregate depreciation See accumulated depreciation.
Allocate To assign a whole item of cost, or of revenue, to a simple cost centre, account or time period.
Allocated, allocation See allocate.
Amortisation Process similar to depreciation, usually applied to intangible fixed assets.
Annual report A document produced each year by limited liability companies containing the accounting information required by law. Larger companies also provide information and pictures of the activities of the company.
Articles of association Document setting out the relative rights of shareholders in a limited liability company.
Articulation The term ‘articulation’ is used to refer to the impact of transactions on the balance sheet and profit and loss account through application of the accounting equation.
Assets Rights or other access to future economic benefits controlled by an entity as a result of past transactions or events.
Associated company One company exercises significant influence over another, falling short of complete control.
Audit An audit is the independent examination of, and expression of opinion on, financial statements of an entity.
Audit manager An employee of an accountancy firm, usually holding an accountancy qualification, given a significant level of responsibility in carrying out an audit assignment and responsible to the partner in charge of the audit.
Bad debt It is known that a credit customer (debtor) is unable to pay the amount due.
Balance sheet A statement of the financial position of an entity showing assets, liabilities and ownership interest.
Bank facility An arrangement with a bank to borrow money as required up to an agreed limit.
Bond The name sometimes given to loan finance (more commonly in the USA).
Broker (stockbroker) Member of a stock exchange who arranges purchase and sale of shares and may also provide an information service giving buy/sell/hold recommendations.
Broker’s report Bulletin written by a stockbroking firm for circulation to its clients, providing analysis and guidance on companies as potential investments.
Business combination A transaction in which one company acquires control of another.
Business cycle Period (usually 12 months) during which the peaks and troughs of activity of a business form a pattern which is repeated on a regular basis.
Business entity A business which exists independently of its owners.
Called up (share capital) The company has called upon the shareholders who first bought the shares, to make their payment in full.
Capital An amount of commercial finance provided to enable a business to acquire assets and sustain its operations.
Capital expenditure Spending on non-current (fixed) assets of a business.
Capitalisation issue Issue of shares to existing shareholders in proportion to shares already held. Raises no new finance but changes the mix of share capital and reserves.
Cash Cash on hand (such as money held in a cash box or a safe) and deposits in a bank that may be withdrawn on demand.
Cash equivalents Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Cash flow projections Statements of cash expected to flow into the business and cash expected to flow out over a particular period.
Cash flow statement Provides information about changes in financial position.
Chairman The person who chairs the meetings of the board of directors of a company (preferably not the chief executive).
Charge In relation to interest or taxes, describes the reduction in ownership interest reported in the income statement (profit and loss account) due to the cost of interest and tax payable.
Chief executive The director in charge of the day-to-day running of a company and in turn receives many executive benefits including pensions, bonuses.
Close season Period during which those who are ‘insiders’ to a listed company should not buy or sell shares.
Commercial paper A method of borrowing money from commercial institutions such as banks.
Companies Act The Companies Act 1985 as modified by the Companies Act 1989. Legislation to control the activities of limited liability companies.
Comparability Qualitative characteristic expected in financial statements, comparable within company and between companies.
Completeness Qualitative characteristic expected in financial statements.
Conceptual framework A statement of principles providing generally accepted guidance for the development of new reporting practices and for challenging and evaluating the existing practices.
Conservatism See prudence. Sometimes used with a stronger meaning of understating assets and overstating liabilities.
Consistency The measurement and display of similar transactions and other events is carried out in a consistent way throughout an entity within each accounting period and from one period to the next, and also in a consistent way by different entities.
Consolidated financial statements Present financial information about the group as a single reporting entity.
Consolidation Consolidation is a process that aggregates the total assets, liabilities and results of the parent and its subsidiaries (the group) in the consolidated financial statements.
Contingent liabilities Obligations that are not recognised in the balance sheet because they depend upon some future event happening.
Control The power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
Convertible loan Loan finance for a business that is later converted into share capital.
Corporate governance The system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies.
Corporate recovery department Part of an accountancy firm which specialises in assisting companies to recover from financial problems.
Corporate social responsibility Companies integrate social and environmental concerns in their business operations and in their interactions with stakeholders.
Corporation tax – Tax payable by companies, based on the taxable profits of the period.
Cost of a non-current asset is the cost of making it ready for use, cost of finished goods is cost of bringing them to the present condition and location.
Cost of goods sold Materials, labour and other costs directly related to the goods or services provided.
Cost of sales See cost of goods sold.
Coupon Rate of interest payable on a loan.
Credit (bookkeeping system) Entries in the credit column of a ledger account represent increases in liabilities, increases in ownership interest, revenue, or decreases in assets.
Credit (terms of business) The supplier agrees to allow the customer to make payment some time after the delivery of the goods or services. Typical trade credit periods range from 30 to 60 days but each agreement is different.
Credit note A document sent to a customer of a business cancelling the customer’s debt to the business, usually because the customer has returned defective goods or has received inadequate service.
Credit purchase A business entity takes delivery of goods or services and is allowed to make payment at a later date.
Credit sale A business entity sells goods or services and allows the customer to make payment at a later date.
Creditor A person or organisation to whom money is owed by the entity.
Critical event The point in the business cycle at which revenue may be recognised.
Current asset An asset that is expected to be converted into cash within the trading cycle.
Current liability A liability which satisfies any of the following criteria: (a) it is expected to be settled in the entity’s normal operating cycle; (b) it is held primarily for the purpose of being traded; (c) it is due to be settled within 12 months after the balance sheet date.
Current value A method of valuing assets and liabilities which takes account of changing prices, as an alternative to historical cost.
Customers’ collection period Average number of days credit taken by customers.
Cut-off procedures Procedures applied to the accounting records at the end of an accounting period to ensure that all transactions for the period are recorded and any transactions not relevant to the period are excluded.
Debenture A written acknowledgement of a debt – a name used for loan financing taken up by a company.
Debtor A person or organisation that owes money to the entity.
Deep discount bond A loan issued at a relatively low price compared to its nominal value.
Default Failure to meet obligations as they fall due for payment.
Deferred asset An asset whose benefit is delayed beyond the period expected for a current asset, but which does not meet the definition of a fixed asset.
Deferred income Revenue, such as a government grant, is received in advance of performing the related activity. The deferred income is held in the balance sheet as a type of liability until performance is achieved and is then released to the income statement.
Deferred taxation The obligation to pay tax is deferred (postponed) under tax law beyond the normal date of payment.
Depreciable amount Cost of a non-current (fixed) asset minus residual value.
Depreciation The systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount is cost less residual value.
Derecognition The act of removing an item from the financial statements because the item no longer satisfies the conditions for recognition.
Difference on consolidation Difference between fair value of the payment for a subsidiary and the fair value of net assets acquired, more commonly called goodwill.
Direct method (of operating cash flow) Presents cash inflows and cash outflows. Directive A document issued by the European Union requiring all Member States to adapt their national law to be consistent with the Directive.
Director(s) Person(s) appointed by shareholders of a limited liability company to manage the affairs of the company.
Disclosed, disclosure An item which is reported in the notes to the accounts is said to be disclosed but not recognised.
Discount received A supplier of goods or services allows a business to deduct an amount called a discount, for prompt payment of an invoiced amount. The discount is often expressed a percentage of the invoiced amount.
Dividend Amount paid to a shareholder, usually in the form of cash, as a reward for investment in the company. The amount of dividend paid is proportionate to the number of shares held.
Dividend cover Earnings per share divided by dividend per share. dividend yield Dividend per share divided by current market price.
Doubtful debts Amounts due from credit customers where there is concern that the customer may be unable to pay.
Drawings Cash taken for personal use, in sole trader or partnership business, treated as a reduction of ownership interest.
Earnings for ordinary shareholders Profit after deducting interest charges and taxation and after deducting preference dividends (but before deducting extraordinary items).
Earnings per share calculated as earnings for ordinary shareholders divided by the number of shares which have been issued by the company.
Effective interest rate The rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument.
Efficient markets hypothesis Share prices in a stock market react immediately to the announcement of new information.
Endorsed International financial reporting standards approved for use in Member States of the European Union through a formal process of endorsement.
Endorsement See endorsed.
Enterprise a business activity or a commercial project.
Entity, entities Something that exists independently, such as a business which exists independently of the owner.
Entry price The value of entering into acquisition of an asset or liability, usually replacement cost.
Equities analyst A person who investigates and writes reports on ordinary share investments in companies (usually for the benefit of investors in shares).
Equity A description applied to the ordinary share capital of an entity.
Equity accounting Reports in the balance sheet the parent or group’s share of the investment in the share capital and reserves of an associated company.
Equity interest See ownership interest.
Equity portfolio A collection of equity shares.
Equity shares Shares in a company which participate in sharing dividends and in sharing any surplus on winding up, after all liabilities have been met.
Eurobond market A market in which bonds are issued in the capital market of one country to a non-resident borrower from another country.
Exit price See exit value.
Exit value A method of valuing assets and liabilities based on selling prices, as an
alternative to historical cost.
Expense An expense is caused by a transaction or event arising during the ordinary
activities of the business which causes a decrease in the ownership interest.
External reporting Reporting financial information to those users with a valid claim to receive it, but who are not allowed access to the day-to-day records of the business.
External users (of financial statements) Users of financial statements who have a valid interest but are not permitted access to the day-to-day records of the company.
Fair value The amount at which an asset or liability could be exchanged in an arm’s-length transaction between a willing buyer and a willing seller.
Faithful presentation Qualitative characteristic, information represents what it purports to represent.
Financial accounting A term usually applied to external reporting by a business where that reporting is presented in financial terms.
Financial adaptability The ability of the company to respond to unexpected needs or opportunities.
Financial gearing Ratio of loan finance to equity capital and reserves. financial information Information which may be reported in money terms.
Financial Reporting Standard Title of an accounting standard issued by the UK Accounting Standards Board as a definitive statement of best practice (issued from 1990 onwards – predecessor documents are Statements of Standard Accounting Practice, many of which remain valid).
Financial risk Exists where a company has loan finance, especially long-term loan finance where the company cannot relinquish its commitment. The risk relates to being unable to meet payments of interest or repayment of capital as they fall due.
Financial statements Documents presenting accounting information which is expected to have a useful purpose.
Financial viability The ability to survive on an ongoing basis.
Financing activities Activities that result in changes in the size and composition of the contributed equity and borrowings of the entity.
Fixed asset An asset that is held by an enterprise for use in the production or supply of goods or services, for rental to others, or for administrative purposes on a continuing basis in the reporting entity’s activities.
Fixed assets See Non-current assets.
Fixed assets usage Revenue divided by Net book value of Fixed assets.
Fixed capital Finance provided to support the acquisition of fixed assets.
Fixed cost One which is not affected by changes in the level of output over a defined period of time.
Floating charge Security taken by lender which floats over all the assets and crystallises over particular assets if the security is required.
Forecast estimate of future performance and position based on stated assumptions and usually including a quantified amount.
Format A list of items which may appear in a financial statement, setting out the order in which they are to appear.
Forward exchange contract An agreement to buy foreign currency at a fixed future date and at an agreed price.
Fully paid Shares on which the amount of share capital has been paid in full to the company.
Fund manager A person who manages a model portfolio of investments in the form of either a prydis protective portfolio, prydis lower risk income portfolio, prydis adventurous portfolio,prydis temperate portfolio or prydis income seeker portfolio , usually for an insurance company, a pension fund business or a professional fund management business which invests money on behalf of clients.
Gearing (financial) The ratio of debt capital to ownership claim.
General purpose financial statements Documents containing accounting information which would be expected to be of interest to a wide range of user groups. For a limited liability
company there would be: a balance sheet, a profit and loss account, a statement of recognised gains and losses and a cash flow statement.
Going concern basis The assumption that the business will continue operating into the foreseeable future.
Goodwill Goodwill on acquisition is the difference between the fair value of the amount paid for an investment in a subsidiary and the fair value of the net assets acquired.
Gross Before making deductions.
Gross margin Sales minus cost of sales before deducting administration and selling expenses (another name for gross profit). Usually applied when discussing a particular line of activity.
Gross margin ratio Gross profit as a percentage of sales.
Gross profit Sales minus cost of sales before deducting administration and selling expenses
(see also gross margin).
Group Economic entity formed by parent and one or more subsidiaries.
Highlights statement A page at the start of the annual report setting out key measures of performance during the reporting period.
Historical cost Method of valuing assets and liabilities based on their original cost without adjustment for changing prices.
HM Revenue and Customs (HMRC) The UK government’s tax-gathering organisation (previously called the Inland Revenue).
IAS International Accounting Standard, issued by the IASB’s predecessor body.
IASB International Accounting Standards Board, an independent financial adviser body that sets accounting standards accepted as a basis for accounting in many countries, including all Member States of the European Union.
IASB system The accounting standards and guidance issued by the IASB. IFRS International Financial Reporting Standard, issued by the IASB.
Impairment A reduction in the carrying value of an asset, beyond the expected depreciation, which must be reflected by reducing the amount recorded in the balance sheet.
Impairment review Testing assets for evidence of any impairment.
Impairment test Test that the business can expect to recover the carrying value of the intangible asset, through either using it or selling.
Improvement A change in, or addition to, a non-current (fixed) asset that extends its useful life or increases the expected future benefit. Contrast with repair which restores the existing useful life or existing expected future benefit.
Income statement Financial statement presenting revenues, expenses, and profit. Also called profit and loss account.
Incorporation, date of. The date on which a company comes into existence.
Indirect method (of operating cash flow) Calculates operating cash flow by adjusting operating profit for non-cash items and for changes in working capital.
Insider information Information gained by someone inside, or close to, a listed company which could confer a financial advantage if used to buy or sell shares. It is illegal for a person who is in possession of inside information to buy or sell shares on the basis of that information.
Institutional investor An organisation whose business includes regular investment in shares of companies, examples being an insurance company, a pension fund, a charity, an investment trust, a unit trust, a merchant bank.
Intangible Without shape or form, cannot be touched.
Interest (on loans) The percentage return on capital required by the lender (usually expressed as a percentage per annum).
Interim reports Financial statements issued in the period between annual reports, usually half-yearly or quarterly.
Internal reporting Reporting financial information to those users inside a business, at various levels of management, at a level of detail appropriate to the recipient.
Inventory Stocks of goods held for manufacture or for resale.
Investing activities The acquisition and disposal of long-term assets and other investments not included in cash equivalents.
Investors Persons or organisations which have provided money to a business in exchange for a share of ownership.
Joint and several liability (in a partnership) The partnership liabilities are shared jointly but each person is responsible for the whole of the partnership.
Key performance indicators Quantified measures of factors that help to measure the performance of the business effectively.
Leasing Acquiring the use of an asset through a rental agreement.
Legal form Representing a transaction to reflect its legal status, which might not be the same
as its economic form.
Leverage Alternative term for gearing, commonly used in the USA.
Liabilities Obligations of an entity to transfer economic benefits as a result of past transactions or events.
Limited liability A phrase used to indicate that those having liability in respect of some amount due may be able to invoke some agreed limit on that liability.
Limited liability company Company where the liability of the owners is limited to the amount of capital they have agreed to contribute.
Liquidity The extent to which a business has access to cash or items which can readily be exchanged for cash.
Listed company A company whose shares are listed by the Stock Exchange as being available for buying and selling under the rules and safeguards of the Exchange.
Listing requirements Rules imposed by the Stock Exchange on companies whose shares are listed for buying and selling.
Listing Rules Issued by the UK Listing Authority of the Financial Services Authority to regulate companies listed on the UK Stock Exchange. Includes rules on accounting information in annual reports.
Loan covenants Agreement made by the company with a lender of long-term finance, protecting the loan by imposing conditions on the company, usually to restrict further borrowing.
Loan notes A method of borrowing from commercial asset finance institutions such as banks.
Loan stock Loan finance traded on a stock exchange.
Long-term finance, long-term liabilities Money lent to a business for a fixed period, giving that business a commitment to pay interest for the period specified and to repay the loan at the end of the period Also called non-current liabilities information in the financial statements should show the commercial substance of the situation.
Management Collective term for those persons responsible for the day-to-day running of a business.
Management accounting Reporting accounting information within a business, for management use only.
Market value (of a share) The price for which a share could be transferred between a willing buyer and a willing seller.
Marking to market Valuing a marketable asset at its current market price. margin Profit, seen as the ‘margin’ between revenue and expense.
Matching Expenses are matched against revenues in the period they are incurred (see also accruals basis).
Material See materiality.
Materiality Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements.
Maturity The date on which a liability is due for repayment.
Maturity profile of debt The timing of loan repayments by a company in the future.
Memorandum (for a company) Document setting out main objects of the company and its powers to act.
Merger Two organisations agree to work together in a situation where neither can be regarded as having acquired the other.
Minority interest The ownership interest in a company held by persons other than the parent company and its subsidiary undertakings. Also called a non-controlling interest.
Net After making deductions.
Net assets Assets minus liabilities (equals ownership interest).
Net book value Cost of non-current (fixed) asset minus accumulated depreciation.
Net profit Sales minus cost of sales minus all administrative and selling costs.
Net realisable value The proceeds of selling an item, less the costs of selling.
Neutral Qualitative characteristic of freedom from bias.
Nnominal value (of a share) The amount stated on the face of a share certificate as the named value of the share when issued.
Non-controlling interest See minority interest.
Non-current assets Any asset that does not meet the definition of a current asset. Also described as fixed assets.
Non-current liabilities Any liability that does not meet the definition of a current liability. Also described as long-term liabilities.
Notes to the accounts Information in financial statements that gives more detail about items in the financial statements.
Off-balance-sheet finance An arrangement to keep matching assets and liabilities away from the entity’s balance sheet.
Offer for sale A company makes a general offer of its shares to the public.
Operating activities The principal revenue-producing activities of the entity and other activities that are not investing or financing activities.
Operating and financial review Section of the annual report of many companies which explains the main features of the financial statements.
Operating gearing The ratio of fixed operating costs to variable operating costs.
Operating margin Operating profit as a percentage of sales.
Operating risk Exists where there are factors, such as a high level of fixed operating costs, which would cause profits to fluctuate through changes in operating conditions.
Ordinary shares Shares in a company which entitle the holder to a share of the dividend declared and a share in net assets on closing down the business.
Ownership interest The residual amount found by deducting all of the entity’s liabilities from all of the entity’s assets. (Also called equity interest.)
Par value See nominal value.
Parent company Company which controls one or more subsidiaries in a group.
Partnership Two or more persons in business together with the aim of making a profit.
Partnership deed A document setting out the agreement of the partners on how the partnership is to be conducted (including the arrangements for sharing profits and losses).
Partnership law Legislation which governs the conduct of a partnership and which should be used where no partnership deed has been written.
Portfolio (of investment) A collection of investments.
Portfolio of shares A collection of shares held by an investor.
Preference shares Shares in a company which give the holder a preference (although not an automatic right) to receive a dividend before any ordinary share dividend is declared.
Preliminary announcement The first announcement by a listed company of its profit for the most recent accounting period. Precedes the publication of the full annual report. The announcement is made to the entire stock market so that all investors receive information at the same time.
Premium An amount paid in addition, or extra.
Prepayment An amount paid for in advance for an benefit to the business, such as insurance premiums or rent in advance. Initially recognised as an asset, then transferred to expense in the period when the benefit is enjoyed. (Also called a prepaid expense.)
Present fairly A condition of the IASB system, equivalent to true and fair view in the UK ASB system.
Price–earnings ratio Market price of a share divided by earnings per share.
Price-sensitive information Information which, if known to the market, would affect the price of a share.
Primary financial statements The balance sheet, profit and loss account, statement of total recognised gains and losses and cash flow statement.
Principal (sum) The agreed amount of a loan, on which interest will be charged during the period of the loan.
Private limited company (Ltd) A company which has limited liability but is not permitted to offer its shares to the public.
Production overhead costs Costs of production that are spread across all output, rather than being identified with specific goods or services.
Profit Calculated as revenue minus expenses.
Profit and loss account Financial statement presenting revenues, expenses, and profit. Also called income statement.
Prospective investor An investor who is considering whether to invest in a company.
Prospectus Financial statements and supporting detailed descriptions published when a company is offering shares for sale to the public.
Provision A liability of uncertain timing or amount.
Provision for doubtful debts An estimate of the risk of not collecting full payment from credit customers, reported as a deduction from trade receivables (debtors) in the balance sheet.
Prudence A degree of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty, such that gains and assets are not overstated and losses and liabilities are not understated.
Public limited company (plc) A company which has limited liability and offers its shares to the public.
Purchase method Method of producing consolidated financial statements (see acquisition method).
Purchases Total of goods and services bought in a period.
Qualified audit opinion An audit opinion to the effect that: the accounts do not show a true and fair view; or the accounts show a true and fair view except for particular matters.
Quality of earnings Opinion of investors on reliability of earnings (profit) as a basis for their forecasts.
Quoted company Defined in section 262 of the Companies Act 1985 as a company that has been included in the official list in accordance with the provisions of Part VI of the Financial Services and Markets Act 2000, or is officially listed in an EEA state, or is admitted to dealing on either the New York Stock Exchange or the exchange known as Nasdaq.
Realised profit, realisation A profit arising from revenue which has been earned by the entity and for which there is a reasonable prospect of cash being collected in the near future.
Recognised An item is recognised when it is included by means of words and amount within the main financial statements of an entity.
Recognition See recognised.
Registrar of Companies An official authorised by the government to maintain a record of all annual reports and other documents issued by a company.
Relevance Qualitative characteristic of influencing the economic decisions of users.
Reliability Qualitative characteristic of being free from material error and bias, representing faithfully.
Replacement cost A measure of current value which estimates the cost of replacing an asset or liability at the date of the balance sheet. Justified by reference to value to the business.
Reserves The claim which owners have on the assets of a company because the company has created new wealth for them over the period since it began.
Residual value The estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated cost of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.
Retained earnings Accumulated past profits, not distributed in dividends, available to finance investment in assets.
Retained profit Profit of the period remaining after dividend has been deducted.
Return The yield or reward from an investment.
Return on capital employed Operating profit before deducting interest and taxation, divided by share capital plus reserves plus long-term loans.
Return on total assets Operating profit before deducting interest and taxation, divided by total assets.
Return on shareholders’ equity Profit for shareholders divided by share capital plus reserves.
Return (in relation to investment) The reward earned for investing money in a business. Return may appear in the form of regular cash payments (dividends) to the investor, or in a growth in the value of the amount invested.
Revaluation reserve The claim which owners have on the assets of the business because the balance sheet records a market value for an asset that is greater than its historical cost.
Revenue Created by a transaction or event arising during the ordinary activities of the business which causes an increase in the ownership interest.
Rights issue A company gives its existing shareholders the right to buy more shares in proportion to those already held.
Risk (in relation to investment) Factors that may cause the profit or cash flows of the business to fluctuate.
Sales See revenue, turnover.
Sales invoice Document sent to customers recording a sale on credit and requesting payment.
Secured loan Loan where the lender has taken a special claim on particular assets or revenues of the company.
Segmental reporting Reporting revenue, profit, cash flow assets , liabilities for each geographical and business segment within a business, identifying segments by the way the organisation is managed.
Share capital Name given to the total amount of cash which the shareholders have contributed to the company.
Share certificate A document providing evidence of share ownership.
Share premium The claim which owners have on the assets of a company because shares have been purchased from the company at a price greater than the nominal value.
Shareholders Owners of a limited liability company.
Shareholders’ funds Name given to total of share capital and reserves in a company balance sheet.
Shares The amount of share capital held by any shareholder is measured in terms of a number of shares in the total capital of the company.
Short-term finance Money lent to a business for a short period of time, usually repayable on demand and also repayable at the choice of the business if surplus to requirements.
Sole trader An individual owning and operating a business alone.
Specific purpose financial statements Documents containing accounting information which is prepared for a particular purpose and is not normally available to a wider audience.
Stakeholders A general term devised to indicate all those who might have a legitimate interest in receiving financial information about a business because they have a ‘stake’ in it.
Statement of changes in equity A financial statement reporting all items causing changes to the ownership interest during the financial period, under the IASB system.
Statement of principles A document issued by the Accounting Standards Board in the United Kingdom setting out key principles to be applied in the process of setting accounting standards.
Statement of recognised income and expense A financial statement reporting realised and unrealised income and expense as part of a statement of changes in equity under the IASB system.
Statement of total recognised gains and losses A financial statement reporting changes in equity under the UK ASB system.
Stepped bond Loan finance that starts with a relatively low rate of interest which then increases in steps.
Stewardship Taking care of resources owned by another person and using those resources to the benefit of that person.
Stock A word with two different meanings. It may be used to describe an inventory of goods held for resale or for use in business. It may also be used to describe shares in the ownership of a company. The meaning will usually be obvious from the way in which the word is used.
Stock exchange (Also called stock market.) An organisation which has the authority to set rules for persons buying and selling shares. The term ‘stock’ is used loosely with a meaning similar to that of ‘shares’.
Stock holding period Average number of days for which inventory (stock) is held before use or sale.
Stock market See stock exchange.
Subsidiary company Company in a group which is controlled by another (the parent company). (See Chapter 7 for full definition.) Sometimes called subsidiary undertaking.
Substance (economic) Information in the financial statements should show the economic or commercial substance of the situation.
Subtotal Totals of similar items grouped together within a financial statement.
Suppliers’ payment period Average number of days credit taken from suppliers.
Tangible fixed assets A fixed asset (also called a non-current asset) which has a physical existence.
Timeliness Qualitative characteristic that potentially conflicts with relevance.
Total assets usage Sales divided by total assets.
Trade creditors Persons who supply goods or services to a business in the normal course of trade and allow a period of credit before payment must be made.
Trade debtors Persons who buy goods or services from a business in the normal course of trade and are allowed a period of credit before payment is due.
Trade payables Amounts due to suppliers (trade creditors), also called accounts payable.
Trade receivables Amounts due from customers (trade debtors), also called accounts receivable.
True and fair view Requirement of UK company law for UK companies not using IASB system.
Turnover The sales of a business or other form of revenue from operations of the business.
UK ASB system The accounting standards and company law applicable to corporate reporting by UK companies that do not report under the IASB system.
Understandability qualitative characteristic of financial statements, understandable by users.
Unlisted (company) Limited liability company whose shares are not listed on any stock exchange.
Unrealised Gains and losses representing changes in values of assets and liabilities that are not realised through sale or use.
Unsecured creditors Those who have no claim against particular assets when a company is wound up, but must take their turn for any share of what remains.
Unsecured loan Loan in respect of which the lender has taken no special claim against any assets.
Value to the business An idea used in deciding on a measure of current value.
Variance The difference between a planned, budgeted or standard cost and the actual cost incurred. An adverse variance arises when the actual cost is greater than the standard cost. A favourable variance arises when the actual cost is less than the standard cost.
Working capital Finance provided to support the short-term assets of the business (stocks and debtors) to the extent that these are not financed by short-term creditors. It is calculated as current assets minus current liabilities.
Working capital cycle Total of stock holding period plus customers collection period minus suppliers payment period.
Work-in-progress Cost of partly completed goods or services, intended for completion and recorded as an asset.
Written down value See net book value.
|Abstract of Title||A schedule listing the documents which set out the history of ownership of a property|
|Adopted Highway||A road maintained by the local authority.|
|Advance||The original amount of the loan.|
|Assent||A formal document required to transfer ownership of property to a person entitled to the property following the death of the owner.|
|Assured Shorthold Tenancy||A special form of tenancy agreement designed to simplify the process of obtaining vacant possession of the property at the end of the agreed tenancy period.|
|Attorney||Someone appointed formally to act on behalf of another either generally or for a specific purpose.|
|Bankruptcy Search||A search of the Land Charges Register to see if any bankruptcy proceedings are pending or established against a person.|
|Base Rate||The basic rate of interest upon which other interest rates are based.|
|Brine Search||A search to establish if a property might be affected as a result of salt workings near the property.|
|Building Regulation Consent||Approval by the local authority on the design, structure and materials used in building work.|
|Buyer||Someone who buys a property.|
|Capped Rate||A mortgage interest rate which is a variable rate but capped at a maximum upper limit usually for a limited period.|
|Cashback||A sum of money usually paid by the lender on completion of a mortgage.|
|Chain||Where a property seller is also buying another property this is a chain of transactions and some chains can have many links.|
|Commons Registration Search||A search at the local authority to check the property is not registered as common land or part of a village green which may therefore mean there are third party rights over the property (e.g. grazing) resulting in the enjoyment of the property being limited|
|Completion||The moment when the buyer becomes the new owner of the sellers house and the seller must habe left the property.|
|Completion Statement||A written calculation of all receipts and payments due in respect of the transaction.|
|Completion Statement||A written when the buyer becomes the new owner of the seller’s house and the seller must have left the property.|
|Contaminated Land||Land affected by contamination which could arise from a past use of a property (e.g oil refinery) or by things stored on the property in the past (e.g petrol station)|
|Contract||The form of the legal agreement prepared in duplicate for signature by the seller and buyer setting out all the legal rights and obligations agreed between the,|
|Conveyance||A document transferring ownership of an unregistered property from one person to another|
|Conveyancing||The legal work needed to buy and sell properties.|
|Deed of Covenant||A document confirming an agreement to pay or do something|
|Deed of Gift||A document transferring the ownership of a property from one person o another without any payment being made for it.|
|Deed of Guarantee||A document used where one person agrees to be responsible for someone else’s debt or mortgage obligations if that person fails to carry out their own obligations.|
|Deed of Postponement or Priority||Where a mortgage agrees to their mortgage ranking after another lender’s mortgage.|
|Deeds||The official documents confirming who owns a property which are in the possession of the owner or mortgage if the property is mortgage.|
|Deposit||The agreed amount to be paid on exchange of contracts usually forfeited if the buyer fails to complete.|
|Disbursements||Payments made on your behalf e.g search fees.|
|Discount Rate||A mortgage interest rate which will rise and fall with the variable rate but which will always be the discounted amour below the variable rate.|
|Endowment Mortgage||A mortgage where you pay the interest on the mortgage only and a premium towards an endowment policy. The policy is then intended to pay off the original amount borrowed at the end of the mortgage term. If you need some extra help to understand this term please seek suitable mortgage advice.|
|Endowment Policy||Assurance providing for the payment of a lump sum on death or maturity.|
|Environmental Search||A search against a property tp check whether there us any record kept to suggest that the property may be affected by contamination or other environmental issues.|
|Equity||Usually means the differentce between the value of property and the amount owed to the mortgagee|
|Exchange of contracts||The formal exchanging of the two parts of the contract when the seller and buyer become legally bound to complete on an agreed date and in the case of the seller, to move out of the property.|
|Fixed Rate Mortgage||A mortgage interest rate where the mortgagee agrees to charge a fixed rate of interest over a given period whether or not the variable rate changes.|
|Fixtures Fittings & Contents Form||A standard form where the seller sets out all those items in the property which they have agreed to leave as part of the sale price and which is attached to and forms part of the contract.|
|Flying/Creeping Freehold||This arises when part of one property is built on top of part of another property and so the upper property owner does not own the building or land underneath the “flying” part. Consequently the lower property is known as the “creeping” part.|
|Freehold||Absolute ownership in land.|
|Freeholder||The person who owns the freehold title.|
|Full Title Guarantee||An assurance by the owner of unfettered ownership.|
|Further Advance||An additional amount lent to the mortgagor under the terms of the original mortgage.|
|Ground Rent||This is paid by a lessee to a lessor where a property is leasehold and is usually expressed as a yearly sum.|
|High Loan to Value Fee||This is sometimes charged by a mortgage where a borrower borrows more than a certain percent of the value of a property to insure the mortgagee only against loss arising if the property is sold by them sue to the borrower’s failure to pay the mortgage.|
|Index Map||A search at Land Registry of the Index Map can be made to establish if a property is registered of unregistered.|
|Interest Only Mortgage||A mortgage whereby interest only is paid to the mortgagee and the capital amount of the original loan is repaid at the end of the mortgage team either by an endowment policy maturing or a pension or other savings plan maturing.|
|Land Charges Search||If a property is unregistered a search at the land charges registry is made to see if a person has any bankruptcy proceedings pending or established or to see if there are any mortgages or interests registered which affect the property.|
|Land Registry||A government organisation maintaining a register of properties and their ownership in England and Wales.|
Abbreviated accounts: the accounts that some smaller and medium-sized companies may prepare and file for Companies House; if your company files abbreviated accounts at Companies House, you must still file full statutory accounts as part of your Company Tax Return
Accounting period: the period of time used to determine your company or organisation’s taxable profit for Corporation Tax; normally matches your company or organisation’s financial year
Accounting reference date: the term used by Companies House to refer to the last day of your company’s financial year; see annual report and accounts
Accounts: see annual report and accounts
Active: an active company or organisation is liable for Corporation Tax; generally your company or organisation is active for Corporation Tax purposes when it is, for example, carrying on a business activity, trade or profession, buying and selling goods with a view to making a profit or surplus, providing services, earning interest, managing investments or receiving any other income; compare dormant
Agent: an accountant, tax adviser or other professional that you appoint to deal with HMRC on your behalf for your tax affairs including Corporation Tax
Amendment: you make an amendment to your Company Tax Return when you make a change to (amend) your return form or supporting documentation that you’ve already filed; HMRC can also make an amendment to your return
Annual Investment Allowance (AIA): a type of capital allowance: for accounting periods that end after 31 March 2008; most companies and organisations can claim an AIA; see capital allowances
Annual report and accounts: also known as statutory accounts, financial accounts or audited accounts – the accounts that limited companies must provide to their members under the Companies Act and file at Companies House; you must also submit your company’s annual report and accounts to HMRC as part of your Company Tax Return; if you choose to file abbreviated accounts at Companies House you must still submit the full statutory accounts to HMRC
Apportion: if your Corporation Tax accounting period doesn’t fall wholly within a single financial year (in other words it starts before and ends after 1 April) and different Corporation Tax rates applied in each, you’ll need to divide or apportion your company or organisation’s chargeable profits between the two financial years on a time basis (in days not months)
Assessment: if HMRC finds that your company or organisation hasn’t paid enough Corporation Tax because, for example, you understated your taxable income or overstated your deductions or reliefs, they can make an assessment of the additional Corporation Tax you must pay
Associated company: a company is associated with another company if one is under the control of the other, or if both are under the control of the same person or persons; control is usually defined by reference to ownership of share capital, or voting power; a company may be an associated company no matter where it is resident for tax purposes
Audited accounts: see annual report and accounts
Authorised person: someone authorised by a company to sign the declaration on a Company Tax Return such as the company secretary, a director, or other officer of the company, an authorised agent, a liquidator or an administrator if one is acting
Balancing charge: may arise when you sell, give away or stop using a capital item in your business; balancing charges increase your taxable profits
Best estimate: an estimated figure you use in your Company Tax Return based on all information available at the time you completed your return
Business activity: see active
Business Asset Roll-Over Relief: when your company or organisation sells or disposes of some types of business asset, such as land and buildings, but intends to buy a new asset to replace it, it may be possible to defer the payment of any tax that would normally be due on any chargeable gain; see chargeable gain
Calculation: see tax calculation
Capital allowances: enable you to deduct (write off) the cost of your company or organisation’s capital assets – such as machinery, computers, equipment or vehicles – against your taxable profits for Corporation Tax; instead of deducting the full cost of the item as an expense from your taxable profits in the year you bought it, you deduct a portion of that cost over a period of years; compare balancing charge
Capital Gains Tax: see chargeable gain
Carry on business: a company or organisation that is active
Charge to tax, the: companies and organisations that are subject to Corporation Tax deadlines and requirements are known to HMRC for Corporation Tax purposes as being within the charge to Corporation Tax, chargeable to tax or in the charge to tax. HMRC also refers to these companies and organisations as active or trading or engaging in business activity; also known as being liable for Corporation Tax
Chargeable gain: if your company or organisation is liable for Corporation Tax, you do not pay Capital Gains Tax separately on your capital gains (in contrast to individuals, self-employed, sole traders or partners in partnerships); instead, you pay tax on your chargeable gains as part of your Corporation Tax profits
Chargeable to tax: see charge to tax, the
Charitable purposes: carrying out the primary purpose of the charity and/or directly serving the beneficiaries of the charity
Close company: a company that is controlled directly or indirectly by five or fewer participators or any number of participators if they are all directors
Close investment-holding company: a company that does not exist wholly or mainly to produce goods or offer services itself, but instead acts as a holding company by owning shares of other companies
Closure notice: the notice HMRC sends you to complete an enquiry into the Corporation Tax affairs of your company or organisation
Club: an unincorporated members’ club such as a sports or social club that may be liable for Corporation Tax; sometimes HMRC uses ‘clubs’ to also refer to societies, voluntary associations and other unincorporated bodies; see community amateur sports club (casc),unincorporated organisation
Community Amateur Sports Club (CASC): a sports club that’s registered with HMRC; some CASCs activities are ‘exempt’ from Corporation Tax
Companies House: the government agency that registers limited companies and receives accounts and other company information delivered under the Companies Acts and related legislation
company: a limited company that is registered in the UK or trades in the UK is liable for Corporation Tax; HMRC also uses company to refer to members’ clubs, associations, societies or other unincorporated bodes that are subject to Corporation Tax deadlines and requirements
Company Tax Return: you account for your company or organisation’s Corporation Tax by delivering a Company Tax Return; a Company Tax Return includes a Company Tax Return form CT600, (or CT600 (Short) if appropriate) and any relevant supplementary pages (CT600A-CT600J), accounts, computations and other supporting documentation as appropriate
Company Tax Return form: the form you submit as part of your Company Tax Return; there are two paper Company Tax Return forms – the CT600 and the CT600 (Short) – and an online form
Computation: the maths which show how entries on your Company Tax Return form have been calculated from the figures in your company accounts – you attach these computations to your return if, for example, you’re claiming marginal rate relief you need to attach a computation showing how you calculated those figures; compare tax calculation
Corporation Tax: a tax on the taxable profits of limited companies and some organisations including charities, clubs, societies, associations, cooperatives and other unincorporated bodies
Corporation Tax Self Assessment: a term used to indicate that it’s up to you (rather than HMRC) to work out how much Corporation Tax your company or organisation needs to pay for each accounting period; you self assess your own Corporation Tax by filing a Company Tax Return
Credit, tax: tax credits reduce the amount of Corporation Tax you pay by deducting an amount (the credit) directly from the amount of Corporation Tax you would have paid; if you don’t have any Corporation Tax to pay, sometimes you can get a cash repayment
CT603: see notice to deliver a company tax return
Declaration: the section at the end of your Company Tax Return form which you or an authorised person must read, sign and date to verify that the information in your return is correct and complete to the best of your knowledge and belief
Deduction: an amount you deduct from your taxable profit for Corporation Tax purposes; HMRC uses deductions and reliefs to refer to various expenses, losses or allowances that you subtract from your profits before you calculate how much Corporation Tax to pay; this is in contrast to credits or other types of relief that are deducted directly from the amount of Corporation Tax payable
Depreciating assets: any fixed plant or machinery, not forming part of a building, or any asset that will have a life of 60 years or less from when it was acquired by your company or organisation
Determination: if you don’t file a Company Tax Return, your company or organisation will be charged a penalty and HMRC will tell you how much Corporation Tax you must pay by making a determination of tax payable and issuing you with a notice to pay
Director’s loan: a director, shareholder or other participator in a close company may loan their company money or borrow money from their company through a directors’ loan account; overdrawn directors’ loan accounts are taxable; interest paid to a director on a director’s loan account in credit is taxable
Discovery assessment: an assessment issued by HMRC when it finds out that your Company Tax Return is wrong but it’s too late to amend it; HMRC makes an assessment to collect the extra Corporation Tax your company should have paid
Discovery determination: a determination made by HMRC when it finds out that your Company Tax Return is wrong but it’s too late to amend it for an amount (such as a loss) that may affect the tax payable for another accounting period
Dormant: a dormant company or organisation is not liable for Corporation Tax; generally your company or organisation is dormant for Corporation Tax purposes when it is not active, that is, not carrying on any business consultancy activity, such as trading
Due date: the deadline to pay your Corporation Tax, normally nine months and one day after the end of your accounting period; also known as normal due date
Election: when your company or organisation has a choice (to elect) to do one thing and not to do something else for Corporation Tax purposes
Enquiry: HMRC uses this term to denote when it is looking into – making an enquiry into – your Corporation Tax affairs; see notice of enquiry
Exempt: organisations or activities that aren’t subject to Corporation Tax requirements
Filing date: the deadline by which your Company Tax Return must be delivered to HMRC; normally 12 months after the end of your accounting period; also known as statutory filing date
Financial accounts: see annual report and accounts
Financial year for Companies Act purposes: your company’s financial year begins and ends with the dates covered by your company’s annual report and accounts as submitted to Companies House; usually but not always matches your Corporation Tax accounting period
Financial year for Corporation Tax purposes: the tax year is called the financial year or fiscal year and runs from 1 April to 31 March
First-Year Allowance: a type of capital allowance: you may be able to claim this allowance in the year in which you incurred the expenditure
Fiscal year: see financial year for corporation tax purposes
Franked Investment Income (FII): arises where a company receives a distribution and is entitled to a tax credit in respect of that distribution; the amount of the FII is equal to the aggregate of the value or amount of a distribution together with the amount of the tax credit
Full rate: see main rate
Group Payment Arrangement: this allows groups of companies to make joint payments of Corporation Tax
Income: see taxable income
Indexation Allowance: allows for the effects of inflation when calculating chargeable gains on companies. You apply it to both the cost of the asset itself and any allowable costs of acquisition
Individual: a person, sole trader, self-employed or a partner in a partnership; individuals are not liable for Corporation Tax
Inline eXtensible Business Reporting Language (iXBRL): a way of embedding and displaying accounting/financial information in an HTML document, the universal language for web browsers. It allows data to be presented in a readable form, either on screen or in printed output; see xbrl
Instalment payments: the instalments (normally four) by which a large company must pay Corporation Tax
Intangible assets: include, subject to some exceptions, goodwill and intellectual property such as patents, trade marks, registered designs, and copyright together with licences to exploit such assets and other intangible assets, such as agricultural and fishing quotas
Large company rate: see main rate
Liable to (or for) Corporation Tax: a company or organisation liable to Corporation Tax is subject to Corporation Tax deadlines and requirements
Limited company: see company
Lower rate: see small profits rate
Lower relevant maximum amount: see marginal relief lower limit
Marginal rate fraction: see standard fraction
Marginal Rate Relief: see marginal relief
Marginal Relief: Marginal Relief is the amount you deduct from the Corporation Tax that you would have paid at the main rate had your company’s taxable profits been over £1.5 million. You get less Marginal Relief if your profits are near to the Marginal Relief upper limit and more if your profits are smaller and closer to the Marginal Relief lower limit – see also standard fraction, ring fence fractionsmall profits rate, main rate
Marginal Relief lower limit: the maximum amount of profits on which your company or organisation is able to pay Corporation Tax at the lower rate; currently £300,000
Marginal Relief upper limit: the maximum amount of profits on which your company or organisation is able to pay Corporation Tax taking into account the effective Marginal Relief; also known as upper profit limit; currently £1.5 million; if your profits are over the Marginal Relief upper limit, you pay Corporation Tax at the main rate
Marginal Small Companies Relief (MSCR): see marginal relief
Members’ club: see clubnominated company: companies in a Group Payment Arrangement nominate one of the members to make the payments on behalf of all the companies within the arrangement; see group payment arrangement
Normal due date: see due date
Notice of enquiry: the letter HMRC sends you to tell you they are making an enquiry into your company or organisation’s Corporation Tax affairs
Notice to deliver a Company Tax Return: the letter HMRC usually sends to your company or organisation soon after the end of your accounting period requiring you to file a Company Tax Return; comes with a payslip; also known as form CT603; can’t be downloaded or ordered online
Notice to file: see notice to deliver a company tax return
Notice to pay: the notice HMRC sends you to tell you how much Corporation Tax to pay
Off-the-shelf company: a company created by a company-formation agent and held as dormant pending onward sale to a new business or to a sole proprietor or partnership wishing to become a limited company; see shell company
Organisation: a charity, club, association, society or other unincorporated body that may be subject to Corporation Tax deadlines and requirements
Participator: a person who has a share or interest in the capital or income of a company such as a director or shareholder; see director’s loan
Payment date: see due date
Permanent establishment: a company that is not resident in the UK but carries on trade in the UK from a fixed place of business (a permanent establishment) is liable for Corporation Tax on that activity
Postponement application: if you’re appealing against a Corporation Tax assessment or amendment, you can ask HMRC for all or part of your payment to be postponed until your appeal is settled by making a postponement application
Profits chargeable to Corporation Tax: see taxable profit
Qualifying purposes: for Community Amateur Sports Clubs (CASCs) the purposes of providing facilities for, and promoting participation in, one or more eligible sports
Quarterly Instalment Payments (QIPs): see instalment payments
Rates, Corporation Tax: there are currently two rates of Corporation Tax, depending on the company or organisation’s taxable profits: the lower rate – also known as the small profits rate, and the upper rate – known as the full rate or main rate; there is also a sliding scale between the lower and upper rates known as Marginal Relief
Relief, tax: an amount you deduct from your taxable profit for Corporation Tax purposes; HMRC uses reliefs and deductions to refer to various expenses, losses or allowances that you subtract from your profits before you calculate how much Corporation Tax to pay; this is in contrast to credits or other types of relief that are deducted directly from the amount of Corporation Tax payable
Research and Development (R&D) Relief: a Corporation Tax relief that may reduce your company or organisation’s tax bill by more than your actual expenditure on allowable R&D costs
Revenue determination: see determination
Ring fence activities: income and gains from extraction activities or oil rights in the UK and the UK Continental Shelf.
Ring fence companies: companies engaged in ring fence activities
Ring fence fraction: the fraction companies with ring-fence profits use to calculate Marginal Relief – see also marginal relief
S419 ICTA 1988: see tax payable under s419 icta 1988
Self Assessment: see corporation tax self assessment
Shell company: a company bought off the shelf with nominee directors standing in front of whoever really benefits
Small companies rate: see small profits rate
Statutory accounts: see annual report and accounts
Statutory filing date: see filing date
Straightforward tax affairs: the term HMRC uses to refer to small companies and unincorporated organisations who are able to use the short Company Tax Return form CT600 (Short)
Substantial Shareholding Exemption: there’s no Corporation Tax to pay on any chargeable gain made when trading companies (or holding companies of trading groups) sell or otherwise dispose of shares, interests in shares and certain assets related to shares in other trading companies. However, you can’t offset losses against gains on the disposal of shareholdings outside of the substantial shareholdings exemption or any other assets
Supplementary forms: see supplementary page(s)
Supplementary page(s): additional form(s) you may need to file as part of your Company Tax Return depending on your company or organisation’s circumstances; there are supplementary pages for directors’ loans, controlled foreign companies, groups and consortia, insurance, charities, tonnage tax, corporate venturing, cross-border royalties, ring fence trades and disclosure of tax avoidance schemes
Tax calculation: the maths you show directly in your Company Tax Return when calculating how much Corporation Tax you need to pay; compare computation
Tax credit: see credit, tax
Tax exempt: see exempt
Tax liability: how much Corporation Tax your company or organisation owes
Tax payable under S419 ICTA 1988: refers to the legislation that covers Corporation Tax on directors’ loans (S419 Income and Corporation Taxes Act 1988)
Tax rates: see rates, corporation tax
Tax relief: see relief, tax
Taxable income: income generated by a company or organisation that is liable to Corporation Tax; see taxable profit
Taxable profit: the profits on which the amount of Corporation Tax your company or organisation pays is calculated; taxable profit includes profits from all types of taxable income such as trading profits and investment profits; also known as profits chargeable to Corporation Tax
Trading: see active
Unincorporated organisation: a business or other body such as a members’ club, society or co-operative that’s not incorporated as a limited company but not sole traders, partnerships, a local authority or a local authority association
Upper profit limit: see marginal relief upper limit
Upper rate: see main rate
Upper relevant maximum amount: see marginal relief upper limit
Within the charge to Corporation Tax: see charge to tax, the
Writing Down Allowance: a type of capital allowance, when your company or organisation buys an asset you can deduct a certain amount from your trading profits in this and future accounting periods until the asset is accounted for (or written down) completely: see capital allowances
XBRL : (eXtensible Business Reporting Language): a standard for electronic business financial reporting; from 1 April 2011, you must pay your Corporation Tax for any accounting period electronically; and from then, for any accounting period ending after 31 March 2010, you must also file your Company Tax Return (including supporting documentation) online: seeixbrl
Accumulation When the income of a fund is saved up and not paid out to any beneficiaries, it is said to be accumulated.
Administrator A man who is appointed by the courts to administer a deceased person’s estate in England, Wales and Northern Ireland; usually where there is no will or they are not named in the will.
Administratrices Plural of administratrix.
Administratrix A woman who is appointed by the courts to administer a deceased person’s estate in England, Wales and Northern Ireland; usually where there is no will or they are not named in the will.
Age 18 to 25 trust From 22 March 2006, an ‘age 18 to 25 trust’ is a discretionary trust set up under the will or intestacy of a deceased parent or step-parent, where the property is held on trust for the benefit of someone aged over 18 and under 25. accumulation and maintenance trusts set up before 22 March 2006 which provide for beneficiaries to become absolutely entitled to the trust fund on or before the age of 25 will become age 18 to 25 trusts if, before 6 April 2008, they rewrite the trust to comply with the new rules. The property in an 18 to 25 trust is subject to age 18 to 25 exit charges when property leaves the trust on or before the beneficiary’s twenty-fifth birthday.
Age 18 to 25 exit charge The inheritance tax charge on an age 18 to 25 trust which occurs whenthe beneficiary becomes absolutely entitled to the property in the trust between their 18th and 25th birthdayssome of the property in the trust is distributed to the beneficiary
orthe beneficiary dies aged over 18.
Aggregate chargeable transfer The total amount on which inheritance tax is charged. This is made up of the deceased’s personal and real estate, any interest in possession trusts in which the deceased was treated as having a beneficial interest , gifts with reservation, the deceased’s share of joint property, all chargeable transfers made by the deceased in the seven years prior to death and the value of any alternatively secured pension from which the deceased was entitled to benefit as the original scheme member.
Agricultural relief Relief from Inheritance Tax which is due on the transfer of agricultural property. The relief applies to the agricultural value of the asset only.
Agricultural property Land or pasture used in the growing of crops or intensive rearing of animals for food consumption. Also can include farmhouses and farm cottages.
Agricultural value The value a property would have if it could only be used as agricultural property. more on agricultural value.
AIM shares Shares which are traded on the Alternative Investment Market.
Alternatively secured pension fund (ASP) A fund (whether sums or assets) held under amoney purchase arrangement that have been ‘designated’ to provide a scheme member (who is aged 75 or over) with an alternatively secured pension.
Annual exemption The amount you can give away each tax year that will be exempt from Inheritance Tax. This is currently £3,000 and applies to one gift or a number of gifts up to that amount. There are other exemptions which can apply.
Annuity A series of fixed payments paid over a fixed number of years or during the lifetime of an individual, or both. An annuity is often used to provide a pension. It can also be an annual payment provided for in a will.
Appeal The personal representatives may appeal against a notice of determination in writing within 30 days of the date of issue of the notice. The appeal will be heard either by the special commissioners or the lands tribunal.
Asset A possession which has value, such as a house, land, cash or securities.
Authorised Unit Trust (AUT) A unit trust scheme authorised by the Financial Services Authority. A UK unit trust must be authorised before it can be offered to the general public in the UK.
Inheritance Tax: Glossary of terms: BBankA bank is defined in s840A Taxes Act 1988 asthe Bank of Englandan institution authorised under the Banking Act 1987a relevant European institutiona relevant international organisation which is designated as a bank for the purposes of that provision by an order made by the Treasury.
Beneficial joint tenancy See joint tenancy
Bereaved minor A person who is aged under 18 and at least one of whose parents or step-parents has died.
Book value A company’s value as it appears on a balance sheet, equal to total assets and intangible assets such as goodwill, minus liabilities. The value of assets as they appear on a balance sheet will be equal to the cost of the assets minus accumulated depreciation. Book value therefore often differs substantially from the open market value.
Business For the purpose of business relief, business includes any business carried on in the exercise of a profession or vocation.
Business property See relevant business property
Business relief Relief from Inheritance Tax which is due on a transfer of relevant business property.
Inheritance Tax: Glossary of terms: Cessate grant A grant of representation which terminates at the end of a specified time span. Application for this is made on the form Cap A5C which is available from the Probate and IHT Helpline on 0845 3020900.
Character appropriate For the purposes of agricultural relief, a farmhouse, cottage or building must be proportionate in size and nature to the requirements of the farming activities conducted on the agricultural land or pasture in question.
Chargeable amount on an age 18 to 25 trust On an age 18 to 25 trust the chargeable amount is the amount by which the value of the trust has decreased as a result of a disposition by the trustees.
Chargeable event on an ASP There are three occasions where a chargeable event arises on an asp.1. the scheme member dies with an ASP2. a relevant dependant of an original scheme member dies or ceases to qualify as a relevant dependant and they had benefits derived from the left over ASP funds of the original scheme memberor, where neither 1 or 2 (above) applies3. when a dependant, of a scheme member dies and that dependant had an ASP derived from the pension lump sum death benefit of the scheme member who died before the age of 75.
Chargeable gift From 22 March 2006, a chargeable gift is, broadly, any gift which is not wholly covered by exemptions and given to the trustees of a relevant property trust or to a company. Gifts from one individual to another or to a disabled person’s trust are not chargeable gifts, but are potentially exempt transfers.
Chargeable transfer A transfer of value made by an individual which is not an exempt transfer.
Chargeable value The chargeable value of an estate on death is the total of the assets less liabilities less exempt gifts and capital reliefs
Charitable trust A trust which is held indefinitely for charitable purposes only.
Charity For inheritance tax purposes a charity is a UK registered charity or other qualifying body. Other qualifying bodies include organisations such as St John’s Ambulance, hospices and orphanages.
Charity exemption A transfer that is made to a charity or other qualifying body is exempt from inheritance tax.
Chattels Personal property such as household and personal goods, furniture, jewellery, antiques and works of art, stamp and coin collections, cars, caravans and boats, electrical equipment, clothes, books and garden equipment.
Civil partner A person who has formed a civil partnership with someone else.
Civil partnership The legal relationship existing between two civil partners who have registered their partnership in accordance with the Civil Partnership Act 2004, which came into force on 5 December 2005.
Clearance certificate The personal representatives can apply for a clearance certificate usingform iht30 once they have supplied the necessary forms and paid all the Inheritance Tax and interest due. Find out more about clearance certificates in the guide: ‘inheritance tax and record keeping’.
Close company A company which is under the control of five or fewer participators, or of participators who are directors.
Commorientes See simultaneous deaths
Conacre The name for a grazing licence in Northern Ireland
Consideration A legal term meaning ‘something given for something done’, i.e., the payment made for goods or services received. For a contract to be valid some consideration must be given.
Control A person has control of a company if they hold shares or securities that can control the majority of the voting powers affecting the company as a whole.
Compensation funds A fund which is set up by a trade or professional organisation to pay compensation to people who have suffered loss or hardship which has been caused by the actions of members of the organisation.
Corporeal moveables The Scottish term for chattels.
Inheritance Tax: Glossary of terms: Deed of Variation See variation
Deemed domicile A legal concept for inheritance tax purposes where a person is treated as if they were domiciled in the UK at the time of a transfer ifthey were domiciled in the UK within three years of the transfer, orthey were resident in the UK in at least 17 of the last 20 years.
Dependant A dependant of a registered pension scheme is defined as a person who at the time of the scheme member’s death wasthe spouse or civil partner of the member
• a child of the member who was under 23
• a child of the member who was over 23 and in the opinion of the scheme administrator was dependent on the scheme member because of physical or mental impairment
• any other person who in the opinion of the scheme administrator
– was financially dependent on the member
– had a financial relationship of mutual dependence with a member, or
– was dependent on the member because of physical or mental impairment.
Determination See notice of determination
Direct payment scheme Scheme by which the inheritance tax that is due can be paid by transferring the funds directly from the deceased’s bank account. More details about this scheme can be found in the iht400 notes – guide to completing your inheritance tax account.
Disabled person For inheritance tax purposes a disabled person is someone who, because of a mental disorder, is not capable of managing their own affairs or administering their own property or someone who is in receipt of attendance allowance or a disability allowance because they are entitled to the care component at the higher or middle rate.
Disabled person’s interest A trust where more than half of the assets in the trust are applied for the benefit of a disabled person. Or, for trusts set up on or after 22 March 2006, a trust set up for their own benefit by a person who is suffering from a condition which can be expected to lead to them becoming disabled.
Discretionary trust A trust under which no individual has a right to an interest in possession. Generally, the trustees have the power to decide who should receive the capital or income from the trust. Discretionary trusts are also relevant property trusts.
Disposition A disposal or transfer of property or cash, including both the creation and the release of any debt or right. The legislation specifically includes certain types of transfer and more information can be found in the inheritance tax manual.
Domicile Generally, a person’s domicile is where they have their fixed and permanent homeand to which, when they are absent, they always have the intention of returning.
Domicile of choice Where a person has left their country of domicile to live in another country with the intention of settling permanently in the new country.
Domicile of dependency Under the age of 16 a child has the same domicile as the person on whom they are legally dependent. This is called a domicile of dependency.
Domicile of origin This is acquired by a child at birth and is usually the domicile of the child’s father at that time. It need not be the country in which the child is born.
Donor A person who makes a gift of some of their assets.
Donee A person who receives a gift.
Double taxation convention (DTC) A treaty which helps prevent a transfer from being taxed by two countries if both countries have the right to tax the same property when a death occurs or a gift is made.
Due date Date on which the Inheritance Tax is due. See the guide: ‘when inheritance tax is due – payment deadlines‘. The IHT manual has details of due dates for the tax on immediately chargeable transfers.
Inheritance Tax: Glossary of terms: Emolument The payment that is made for work that has been done including salary, bonuses and some other forms of benefit in kind.
Employee trust A discretionary trust set up to benefit employees of a particular occupation or firm and the relatives and dependants of those employees. For more information on employee benefit trusts, please see our guide – What are special trusts?
Enduring power of attorney A power of attorney which is not revoked by any subsequent mental incapacity of the person granting the power.
Estate Up to 22 March 2006, for inheritance tax purposes, a person’s estate was made up of:assets in the sole name of the deceased,their share of any jointly owned assets,assets held in a trust in which the deceased had a right to benefitany ‘nominated’ assets, andany assets they have given away, but kept an interest in (see gift with reservation).From 22 March 2006, a person’s estate is made up ofassets in the sole name of the deceased,their share of anyjointly owned assets,assets held in a trust in which the deceased had an immediate post-death interest, a disabled person’s interest, or a transitional serial interestany ‘nominated’ assets, andany assets they have given away, but kept an interest in (see gift with reservation).the value of an alternatively secured pension fund (ASP) from which the deceased benefited as the original scheme member, or as a dependant who received benefits from the left over ASP fund of an original scheme member.In both cases, the total of all these assets is added to the chargeable value of any gifts made within seven years of the death to work out the amount on which tax is charged.
Excepted asset An asset on which business relief is not available because it is not used wholly or mainly for the purposes of a business throughout the two years before a transfer. For more information, see the guide on business relief.
Excluded property The term ‘excluded property’ is a technical term and covers certain types of property which, subject to certain conditions, are outside the charge to IHT. Excluded property includesBritish Government securities in foreign ownershipproperty situated outside the UK, where the person beneficially entitled to the property is not domiciled in the UKreversionary interestssettled property, where the settlor was domiciled outside the UK when the settlement was made
Executor A man who administers a deceased person’s estate in England, Wales and Northern Ireland and is named in the will.
Executor-dative A man who is appointed by the courts in Scotland to administer a deceased person’s estate; usually where there is no will or they are not named in the will.
Executor-nominate A man who administers a deceased person’s estate in Scotland and is named in the will.ExecutricesPlural of executrix.
Executrix A woman who administers a deceased person’s estate in England, Wales and Northern Ireland and is named in the will.
Executrix-dative A woman who is appointed by the courts in Scotland to administer a deceased person’s estate; usually where there is no will or they are not named in the will.
Executrix-nominate A woman who administers a deceased person’s estate in Scotland and is named in the will.
Exempt estate A type of excepted estate where the gross value of the estate does not exceed £1,000,000 and there can be no liability to inheritance tax because spouse or civil partner exemption or charity exemption bring the estate below the inheritance tax threshold. Some restrictions apply to this and further details can be found in our guide: is it an excepted estate
Exempt gifts Gifts that are exempt from inheritance tax. These includegifts to individuals more than seven years before death. See potentially exempt transfersgifts to spouses or civil partnersgifts not exceeding £3,000 in any one tax year. See annual exemptiongifts on consideration of marriage or civil partnershipgifts to UK charitiesgifts for national purposessmall giftsgifts which are normal expenditure out of income
Exempt transfer An exempt transfer is one that is wholly covered by one or more exemptions.
Exemptions Some gifts are exempt from inheritance tax because the gifts are covered by exemptions. See exempt gifts for details of the exemptions from inheritance tax which may apply.
Exit charge Also known as a proportionate charge.
Inheritance Tax: Glossary of terms: Fall in value relief When tax, or additional tax, is payable on a gift because the donor has died and the value of a gift has fallen between the date of the gift and the date of death, then tax is usually charged on the reduced value of the gift.
Financial Services Authority (FSA) The government agency that regulates investment business as required by Financial Services Act 1986.
Foreign domiciliary A type of excepted estate. Where the deceased died after 5 April 2004 and was never domiciled or deemed domiciled in the UK the estate can be treated as an excepted estate provided the UK estate consists only of cash or quoted shares not exceeding £100,000 in total.
Former civil partner A person whose civil partnership has been legally dissolved.
FOTRA Some UK Government securities are issued on ‘Free Of Tax to Residents Abroad’ (FOTRA) terms and are exempt from UK inheritance tax where the beneficial owner of the security was not ordinarily resident in the UK.
FOTRA Gilts ‘Free of Tax to Residents Abroad’ gilts are securities issued by the Treasury with the condition that they, and the interest on them, are exempt from UK taxation so long as they are held beneficially by or on behalf of persons whose ordinary residence is outside the UK. This is excluded property
Inheritance Tax: Glossary of terms: Gift in consideration of marriage or civil partnership A gift made to a person who is about to get married or to form a civil partnership. These gifts are exempt from IHT up to the following amounts:£5,000 made by the person’s parent£2,500 made by the person’s grandparent£1,000 made by anyone else
Gift with reservation See gift with reservation of benefit.
Gift with reservation of benefit A gift which is not fully given away so that the person getting the gift does so with conditions attached or the person making the gift keeps back some benefit for themselves.
Goodwill The value of a business over and above its book value of assets, which represents the goodwill of customers or the skill and expertise of company employees.
Government securities Securities issued by the Treasury quoted on the stock exchange.
Grant The term used to describe whatever type of grant of representation is taken out.
Grant ad colligenda bona A grant of representation which is limited to a particular purpose and allows the administrator power to preserve the deceased’s estate. For example, where part of the deceased’s estate consists of perishable goods.
Grant caeterorum A grant of representation which follows an initial grant in respect of limited property thus giving the administrator power over the remaining assets. Application for this type of grant requires the submission of a form iht400.
Grant of administration de bonis nonGrant of representation ‘concerning goods not administered’. It is used where, following a grant of representation, the personal representativedies without completing the administration of the estate.
Grant of confirmationThe proof of legal authority required by the person who is entrusted with dealing with a deceased person’s estate in Scotland.
Grant of double probate A grant of representation where one executor does not wish to prove the will and the right to join others later is reserved. When the non-proving executor wishes to take up office later, a grant of double probate is made. Application for this is made on the form Cap A5C which is available from the Probate and IHT Helpline on 0845 3020900.
Grant of representation The proof of legal authority required by the person who is entrusted with dealing with a deceased person’s estate.
Grant of letters of administration The proof of legal authority required by the person who is entrusted with dealing with a deceased person’s estate where there is no will, or any will made is invalid.
Grant of letters of administration with will annexed The proof of legal authority required by the person who is entrusted with dealing with a deceased person’s estate where there is a will but there is no executor named, or when the executors are unable or unwilling to apply for the grant.
Grant of probate The proof of legal authority required by the person who is entrusted with dealing with a deceased person’s estate where there is a will.
Grant pendente lite An interim grant of representation which is only effective for a limited time, for example, while the validity of a will is being contested.
Grasskeep Another name for a grazing licence.
Grazing licence A licence granted for a period of less than twelve months which allows the licencee to graze animals or take grass from land for a season. In this situation the owner may still be regarded as occupying the land and so agricultural relief from inheritance tax is due at the higher rate.
Gross value of the estate The total of all the assets that make up the deceased’s estate before any of their debts are taken off.
GWR See gift with reservation of benefit.
Inheritance Tax: Glossary of terms: Her Majesty’s Revenue & Customs The Government department created from the merger of the Inland Revenue and HM Customs & Excise.HMRCSee her majesty’s revenue & customs.
HM Revenue & CustomsSee her majesty’s revenue & customs.
Household goodsSee chattels.
Inheritance Tax: Glossary of terms:
ICT Immediately chargeable transfer
IHT Inheritance Tax
Immediately chargeable transfer (ICT) Before 22 March 2006, there was an immediate claim for inheritance tax on gifts into discretionary trusts or to companies. For gifts made on or after 22 March 2006, an immediately chargeable transfer is one made to the trustees of a relevant property trust or to a company. Additional tax may be payable if the donor dies within seven years of the gift.
Immediate post-death interest (IPDI) The Finance Act 2006 defined an immediate post-death interest (IPDI) as one where a person has an interest in possession in settled property and all the following applythe settlement was effected by will or under an intestacythe beneficiarybecame beneficially entitled to the interest in possession on the death of the testatororintestate.
Immovable property A person’s possessions in the form interests in land and the permanent buildings on the land.
Income drawdown A particular situation where the deceased has reached pension age but has chosen not to buy an annuity that will provide their pension. Instead, they decide to ‘draw’ a certain level of income from the retirement fund with a view to buying an annuity at a later date.
Inheritance Tax A tax on the value of a person’s estate on death and on certain gifts made by an individual during their lifetime.
Inheritance tax threshold The inheritance tax threshold is the amount above which inheritance tax becomes payable. If the estate, including any assets held in trust and gifts made within seven years of death, is less than the threshold, no inheritance tax will be due on it. see the current threshold.
Instalments Inheritance Tax can be paid in ten annual instalments on certain assets, such as houses, business property and unlisted shares and securities. find out more about paying inheritance tax in instalments.
Instalment option property A phrase used in HMRC Inheritance Tax to describe property on which the instalment option may be chosen, such as land and buildings, business property and certain shares and securities.
Interest Interest will be charged on any unpaid inheritance tax from the day the tax is due until the date of payment, no matter what caused the delay in payment. Interest is also charged on instalments. Further information about interest can be found in the guide: ‘interest on inheritance tax – when and how it is charged’.
Interest in possession This is a term in general law. Generally, a person has an interest in possession in property held in trust if they have the immediate right to use or enjoy the property or receive any income arising from it. Up to 22 March 2006, all such trusts were treated for inheritance tax purposes as owned by the person having the interest in possession.An interest in a trust arising on or after 22 March 2006 will be regarded as an interest in possession (and therefore treated for iht purposes as owned by the person having an interest in possession) if it is one of the following:an immediate post-death interestadisabled person’s interesta transitional serial interest
Intestate If a person dies intestate, they died without making a will, or without fully disposing of their property by will. The administration of the estate is then governed by the provisions of the Administration of Estates Act 1925.
Intestacy An estate where the person died intestate.
Inventory form c1 confirmation with inventory is the form used for a Scottish estate on which the personal representative has to provide information such as assets of the estate, including assets situated outside of Scotland.
Issue Children or remoter issue of the deceased.
Inheritance Tax: Glossary of terms: Joint assets See joint property
Joint property Something that is jointly owned by two or more people either as a ‘joint tenancy’ or as ‘tenants in common’. find out more about joint property in our guide to passing on your home to your children.
Joint tenancy A form of joint ownership where all the joint owners have an identical interest in the property. On the death of one owner, their interest passes to the remaining owner(s) bysurvivorship.
Inheritance Tax: Glossary of terms: Lands Tribunal A tribunal with the powers to determine questions relating to land. An appeal against a notice of determination in respect of the valuation of land can be heard at a lands tribunal.
Lessee A person to whom a lease is granted.
Lessor A person who grants a lease.
Life interest A common form of interest in possession in settled property where a person has an interest for the duration of their lifetime.Life tenant A person who holds a life interestinsettled property.
Limited probate Where an executor is appointed in respect of certain assets only, such as literary works.
Loss on sale of land If, within 12 months of a death, listed securities in the estate are disposed of for less than the value returned in the iht400, the personal representatives can make a claim on form iht38 that the total gross proceeds should replace the date of death value.
Loss on sale of shares If, within four years of a death, land or buildings in the estate is sold for less than the value returned in the iht400, the personal representatives can make a claim on iht35 that the gross sale price should be substituted for the date of death value.
Loss to the estate The value of a gift for inheritance tax purposes is the amount of the loss to the estate. It is worked out by looking at the value of the estate before and after the gift was made. The difference between those two figures is the loss to the estate.
Low value estatesA type of excepted estate where there can be no liability to inheritance tax because the total value of the estate, including the deceased’s share of jointly owned assets, any specified transfers and specified exempt transfers, does not exceed the inheritance tax threshold. See our guide inheritance tax thresholds for information on the correct threshold to use.
Inheritance Tax: Glossary of terms: Maintenance funds for historic land & buildings A type of discretionary trust set up for the maintenance of designated lands and buildings. Relief from full discretionary trust charges is available for these funds, but a tax charge may arise if any property ceases to be held on the relevant trusts, or when the trustees make a dispositionwhich reduces the value of the trusts.
Milk quota A producer’s right to sell a fixed number of litres of milk a year without having to pay a penalty.
Money purchase arrangement An arrangement is a money purchase arrangement if, at that time, all the benefits that may be provided to or in respect of the member under the arrangement are cash balance or other money purchase benefits.
Movable property Goods, furniture and other items which can be moved from place to place.
Inheritance Tax: Glossary of terms:
National purposes Exemption from inheritance tax is given for gifts and bequests to certain national institutions such as the National Gallery. A list of qualifying bodies and other information can be found in our booklet iht206a (PDF 105K) on page 4.
Newspaper trusts Trusts set up for newspaper publishing companies or newspaper holding companies. These are treated like employee trusts for inheritance tax purposes.
Nil-rate band The amount of an estate on which there is no inheritance tax to pay. If the value of an estate, including any assets held in trust and gifts made within seven years of death, falls within the nil-rate band there will be no IHT payable on the estate. Where the value of an estate exceeds the nil-rate band, only the amount above the nil-rate band is taxed at 40%.
Nominated asset Certain assets, such as deposits with Friendly societies, National Savings Bank accounts and National Savings Certificates, can be transferred on death direct to chosen beneficiaries by nomination.Nominated property does not pass under the will or intestacy but it does form a part of the estate for inheritance tax purposes.
Nominee A person who holds property on behalf of another.
Non-instalment option property A phrase used in HMRC Inheritance Tax to describe property on which the instalment option may not be chosen, such as bank accounts, household and personal goods and life insurance policies.
Normal expenditure out of income Gifts which are made purely out of income as part of a person’s normal expenditure are exempt from inheritance tax. The claimant must show that after allowing for the gifts the donor was left with sufficient income to maintain their usual standard of living and that there was an established pattern of giving.
Notice of determination A notice of determination may be issued where the personal representatives do not agree the value of the transfer. It is a written notice which states that the outstanding matters have been determined or payment of the outstanding tax has not been made. There is a right of appeal.
Inheritance Tax: Glossary of terms: Open-ended Investment Companies (OEIC) Collective investment vehicles with one price for investors. OEICs are able to issue more shares if demand increases from investors, unlike investment trusts.
Outright gift A gift where the donor gives away full ownership of the gift and does not retain any benefit.
Inheritance Tax: Glossary of terms: Pecuniary legacy A gift of a sum of money under a will.
Permanent home The country where a person intends to live for the remainder of their life. It is the country whose laws decide, for example, whether a Will is valid, or how the estate of a person who has not made a Will is dealt with when they die.
Per stirpes If a property is to be divided ‘per stirpes’ among the children of a deceased person, then each child takes an equal share. If a child has predeceased the deceased that child’s children will take equally between them the share that the predeceased child would have taken.
Personal applicant A person who is applying for a grant of representation without the help of a solicitor or other agent.
Personal Representative A person who administers a deceased person’s estate. If there is a will and the personal representative is named in it they are known as an executor. If there is no will, or they are appointed by the court, they are known as an administrator. More on the responsibilities of a personal representative.
PET See potentially exempt transfer.
Phased retirement Where the deceased has divided their pension entitlement into a series of segments and has agreed a plan on retirement with their pension provider to take so many segments each year.
Political party A gift to a political party qualifies for exemption from inheritance tax if at the last general election preceding the transfer either two members of the party were elected to the House of Commons, or one member of the party was so elected and not less than 150,000 votes were given to candidates who were members of that party.
Potentially exempt transfer Up to 22 March 2006, a potentially exempt transfer (PET) was an outright gift to an individual, to an accumulation and maintenance trust, or to a disabled person’s interest, which becomes an exempt transfer if the donor lives for seven years after the date of the gift. For transfers made on or after 22 March 2006, a PET is an outright gift to an individual, to a disabled person’s interest, or to a bereaved minor’s trust on the coming to an end of an immediate post-death interest which becomes exempt if the donor lives for seven years after the date of the gift.
Power of attorney An authority given by one person to another to act for him in their absence. The person authorised to act is the attorney of the other. See also enduring power of attornery.
Privileged will – A will made by a soldier on active service or a sailor at sea which does not have to comply with the usual formalities to make it valid. It does not have to be in writing, or, if it is in writing, does not have to be witnessed by two witnesses. The soldier or sailor can also be a minor.
Probate Strictly, the exhibiting and proving of a will by the executors. In common usage as a general term describe the process of obtaining a grant of representation.
Proper Liferent A Scottish interest in property.
Property The word ‘property’ for inheritance tax purposes includes all types of asset, cash, stocks and shares etc as well as land and buildings, including all rights and interests of any description that are legally enforceable.
Proportionate charge An inheritance tax charge on a relevant property trust (link to relevant property trust in the glossary) which arises when property in the trust ceases to be relevant property or when the trustees make a disposition which reduces the value of the relevant property. The main examples of property ceasing to be relevant property are when the settlement comes to an end or when some of the property is distributed to beneficiaries.
Inheritance Tax: Glossary of terms:
Quick succession relief See successive charges relief
Quoted Shares Shares in a company which are quoted on a recognised stock exchange, including one situated outside the UK
Inheritance Tax: Glossary of terms:
Related property Related property is property that is in the estate of a spouse or civil partner, or belonging to a charity or one of the political, national or public bodies to which exempt transfers may be made. There are special rules forvaluing related property.
Related settlement When settlor sets up a trust, any other trusts he sets up on the same day are related settlements.
Relevant business property Types of property on which business relief may be available. These include a business an interest in a business, such as a partner unquoted shares which are not listed on a recognised stock exchangeshares or securities which give the transferor control of a businessland, buildings, plant or machinery used wholly or mainly in the business or partnership.
Relevant dependant A relevant dependant of a member of a registered pension scheme is someone who at the date of the scheme member’s death wasa dependant who was the person’s spouse or civil partner or is financially dependent on the member at that time.
Relevant property trust From 22 March 2006, a relevant property trust is any trust in which the beneficiary’s interest is not one of the following:
• an immediate post-death interest
• a transitional serial interest
• a disabled person’s interest
• a trust for a bereaved minor
• an age 18 to 25 trust
Remoter issue Grandchildren, great-grandchildren (and so-on) of the deceased.
Resident For inheritance tax purposes, residence has the same meaning as for income tax purposes. To be regarded as resident in the UK you must normally be physically present in the country at some time in the tax year. You will always be resident if you are here for 183 days or more in the tax year. More information about this can be found in the booklet ir20 (pdf 640k).
Restriction on disposal The value of an asset may be reduced if the right to dispose of it is restricted.
Reversionary Interest The future right to an interest in settled property.
Inheritance Tax: Glossary of terms:
Settled property See settlement.
Settlement A settlement occurs when property is held in trust for successive beneficiaries. The property which a settlor puts into trust is known as the trust fund or ‘settled property’.
Settlor A person who puts property into a trust. For inheritance tax purposes a settlor is the person who makes a settlement or who directly or indirectly provides the assets for a settlement.
Settlor’s cumulative total When settlor sets up a trust, the settlor’s cumulative total is all thechargeable transfers made in the seven years before the setting up of the trust. While the settlor is alive, the cumulative total does not include the amount of any potentially exempt transfers (pets). If the settlor’s cumulative total is later adjusted to include PETs which become chargeable as a result of the settlor’s death, the charges on the trust will be revised, and extra tax may become payable.
Simultaneous deaths For inheritance tax, if two or more people die and it is not known who died first, we assume that they have died at the same moment. This does not alter the legal position for the administration of the estate which is that the elder is presumed to have died first. This is also known as commorientes and further information on this subject can be found in the iht manual
Situated Assets are situated according to general law. Common examples of where assets are situated areland and houses and household goods are situated where the property is locatedbank notes and coins are situated wherever they happen to be at the time of the transferregistered shares and securities are situated where they are registeredbank accounts are situated at the branch where the account is held.
Situs of assets See situated
Small gifts Small gifts which are exempt from inheritance tax of up to £250 in each tax year to any number of different recipients. The exemption cannot be combined with any other exemption such as the annual exemption.
Special Commissioners The Special Commissioners hear and determine appeals concerning decisions of the Inland Revenue relating to all direct taxes including income tax, corporation tax, capital gains tax and inheritance tax
Specific gifts A gift other than a gift of residue Typical specific gifts are pecuniary legacies, gifts of particular assets such as the deceased’s residence, furniture, jewellery and other household and personal goods and effects or shares in companies and business assets.
Specified exempt transfers Gifts made to the deceased’s spouse or civil partnercharities,political parties, housing associations, maintenance funds for historic buildings and employee trusts must be added back to the estate to see if the estate qualifies as an excepted estate.
Specified transfers Gifts of cash, chattels or corporeal moveables, quoted shares or securities, or outright gifts of land or buildings to individuals, not gifts into trust. For an estate to qualify as an excepted estate (excepted estate), specified transfers made within 7 years of death cannot exceed £100,000.
Spouse A person who is legally married to someone else.
Spouse or civil partner exemption Gifts made between spouses or civil partners are exempt from inheritance tax. This exemption is limited to £55,000 if the deceased (or donor) wasdomiciled in the UK and their spouse or civil partner was not domiciled in the UK at the time of the transfer.
Successive charges reliefA relief designed to reduce the burden of IHT where an estate taxable on death reflects the benefit of property received within the previous five years under a transfer on which tax was (or becomes) payable. Calculation of the relief is shown in the article- tell me how to calculate successive charges relief.
Surviving civil partner A person whose civil partnership has ended through the death of their civil partner.
Survivorship Where property is owned jointly under a joint tenancy, on the death of one of the joint tenants, the deceased’s share of the joint property passes automatically to the surviving joint tenant(s). The property cannot be passed to anyone else under a will or intestacy.
Inheritance Tax: Glossary of terms:
Taper relief If the total chargeable value of all the gifts made between three and seven years before a death is more than the threshold at death, then taper relief is due. The relief reduces the amount of tax payable on a gift, not the value of the gift itself. Find out more in the article how do i calculate taper relief.
Ten-yearly charge An inheritance tax charge which arises on a relevant property trust on the tenth anniversary of the setting up of the trust and each subsequent ten-year anniversary.
Tenancy in common See tenants in common.
Tenants in common Joint ownership of property where each joint tenant owns a separate share in the property. On the death of one of the joint owners, their share passes to theirbeneficiaries by their will or intestacy. There is more on joint property in Passing on your home to your children.
Testator A man who has made a will.
Testatrix A woman who has made a will.
Threshold See inheritance tax threshold.
Transfer Inheritance tax is charged on a transfer of value. That transfer can occur either during a person’s lifetime, in the form of a gift, or on a person’s death.
Transferee A person who receives a transfer.
Transferor A person who makes a transfer.
Transfer of value A transfer of value is a disposition made by a person as a result of which the value of his estate has decreased. All lifetime transfers must start with a disposition. Charges arising on death and on settled property where an interest in possession exists are deemed transfers of value
Transitional serial interest (TSI) Where an interest in possession trust arises before 6 April 2008, it will be regarded as a transitional serial interest (TSI) if it arises on or after 22 March 2006, but follows a previous interest in possession in effect immediately before that date. An interest in possession trust may also be regarded as a TSI if it arises on the death of the holder of the previous interest on or after 6 April 2008 and if either the new holder is the spouse or civil partner of the previous holder or the settled property consists of a contract of life insurance.
Trust fund See settlement
Trust for a bereaved minor A trust for a bereaved minor is a trust which is exempt from mainstream inheritance tax charges if it is held eitheron the statutory trusts applying to minor children aged up to 18 on intestacy
oron trusts in similar terms established under the terms of a parent’s will or by the Criminal Injuries Compensation Scheme.
Trusts for disabled people A discretionary trust set up for the benefit of a disabled person . After 9 March 1991 these trust were treated as if the disabled person had an interest in possession in the property held in the trust. Any distributions from the trust to the disabled person are not taxable, but a charge to IHT will arise on their death and the trust fund will form part of their estate
Inheritance Tax: Glossary of terms:
Unilateral Relief Where a transfer is liable to Inheritance Tax and also to a similar tax imposed by another country on assets situated in that country with which the UK does not have a double taxation agreement, relief may be available under unilateral relief provisions.
Unquoted Shares Shares in a company which are not quoted on a recognised stock exchange.
USM market Shares which are traded on the Unlisted Securities Market.
Inheritance Tax: Glossary of terms:
Inheritance Tax: Glossary of terms: Will The legal document by which a person declares their intention as to what should happen to their estate after their death.
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