Primary Threshold
The earnings level above which employees start paying National Insurance. Currently £12,570 per year (£242 per week), aligned with the Personal Allowance.
31 Terms
UK Tax Glossary
Tax jargon explained in plain English. Find clear definitions for all the terms you'll encounter in UK taxation.
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A
Additional Rate
The highest rate of income tax in the UK, currently 45%, applied to income over £125,140. This threshold was reduced from £150,000 in April 2023.
Annual Allowance (Pension)
The maximum amount you can contribute to pensions in a tax year while receiving tax relief. Currently £60,000 for most people, with unused allowance from the previous 3 years available to carry forward.
B
Basic Rate
The standard rate of income tax, currently 20%, applied to taxable income between £12,571 and £50,270. This is the rate most UK taxpayers pay on the majority of their income.
C
Capital Gains Tax (CGT)
A tax on the profit (gain) when you sell or dispose of an asset that has increased in value. The annual exempt amount is £3,000 for 2024/25. Rates are 18%/24% for residential property and 10%/20% for other assets.
Class 1 National Insurance
National Insurance contributions paid by employees and employers. Employees pay 8% on earnings between £12,570 and £50,270, plus 2% above that. Employers pay 13.8% on earnings above £9,100.
Class 2 National Insurance
A flat-rate National Insurance contribution for self-employed people. From April 2024, Class 2 NICs are no longer required to be paid, though voluntary payments can still be made.
Class 4 National Insurance
National Insurance paid by self-employed people on their profits. Charged at 6% on profits between £12,570 and £50,270, plus 2% above that threshold.
Corporation Tax
Tax paid by limited companies on their profits. The main rate is 25% for companies with profits over £250,000. A small profits rate of 19% applies to companies with profits under £50,000.
D
Dividend Allowance
The amount of dividend income you can receive tax-free each year. Reduced to £500 for 2024/25 (from £1,000 in 2023/24 and £2,000 previously).
Dividend Tax
Tax on dividend income above the dividend allowance. Rates are 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate). Lower than income tax rates on the same amount.
H
Higher Rate
The second-highest rate of income tax, currently 40%, applied to taxable income between £50,271 and £125,140.
HMRC
Her Majesty's Revenue and Customs - the UK government department responsible for collecting taxes, paying some forms of state support, and administering other regulatory regimes.
I
Income Tax
A tax on most types of income including employment income, self-employment profits, rental income, and pension income. The UK uses a progressive system with rates of 0%, 20%, 40%, and 45%.
Inheritance Tax (IHT)
A tax on the estate (property, money, and possessions) of someone who has died. Charged at 40% on estates above £325,000 (the nil-rate band), with additional relief for main residences left to direct descendants.
IR35
Tax legislation designed to combat tax avoidance by workers supplying services through an intermediary (usually a personal service company). If IR35 applies, the worker is taxed as if they were an employee.
ISA (Individual Savings Account)
A tax-efficient savings account where you pay no tax on interest, dividends, or capital gains. The annual allowance is £20,000 across all ISA types (Cash, Stocks & Shares, Innovative Finance, Lifetime).
M
Marginal Relief
A mechanism that gradually increases corporation tax from 19% to 25% for companies with profits between £50,000 and £250,000, avoiding a sudden jump in tax rates.
N
National Insurance (NI)
A tax on earnings and self-employment profits that funds state benefits including the State Pension and NHS. Different classes apply to employees (Class 1), self-employed (Class 2 & 4), and voluntary contributors.
P
PAYE (Pay As You Earn)
The system employers use to deduct income tax and National Insurance from employees' wages before paying them. Most employees have no tax return to complete as tax is handled through PAYE.
Personal Allowance
The amount of income you can earn tax-free each year. Currently £12,570 for most people. Reduced by £1 for every £2 of income above £100,000, reaching zero at £125,140.
S
Salary Sacrifice
An arrangement where you give up part of your salary in exchange for a non-cash benefit (often pension contributions). Can reduce tax and NI as your taxable salary is lower.
Self Assessment
The system for reporting income and calculating tax owed when tax isn't collected automatically through PAYE. Required for self-employed people, company directors, and those with complex tax affairs.
Stamp Duty Land Tax (SDLT)
Tax paid when buying property or land in England and Northern Ireland. Rates range from 0% to 12% depending on property value, with additional surcharges for second homes and non-UK residents.
State Pension
A regular payment from the government that you can claim when you reach State Pension age (currently 66, rising to 67). The full new State Pension is £221.20 per week (2024/25).
Student Loan Repayment
Repayments on student loans deducted from salary when earning above the threshold. Plan 2 threshold is £27,295. Repayment rate is 9% of income above the threshold.
T
Tax Band
A range of income taxed at a particular rate. UK income tax has four bands: Personal Allowance (0%), Basic (20%), Higher (40%), and Additional (45%).
Tax Code
A code used by employers to calculate how much tax to deduct from your pay. Usually starts with a number (your Personal Allowance divided by 10) followed by a letter. 1257L is the most common code.
Tax Relief
A reduction in the amount of tax you pay, either by reducing your taxable income (like pension contributions) or directly reducing your tax bill (like certain allowances).
U
Upper Earnings Limit (UEL)
The earnings level above which the National Insurance rate drops from 8% to 2%. Currently £50,270 per year, aligned with the Higher Rate threshold for income tax.
V
VAT (Value Added Tax)
A tax on goods and services. The standard rate is 20%, with reduced rates of 5% and 0% for certain items. Businesses must register for VAT if turnover exceeds £90,000.
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