Every UK personal tax term you're likely to encounter, plainly explained. Use Ctrl+F to find anything, or browse alphabetically below. Updated as HMRC terminology evolves.
How to use this glossary
This is a reference page, not a front-to-back read. Each entry:
- Plain-language definition
- Why it matters in practice
- Link to a deep-dive guide where relevant
A
Adjusted Net Income (ANI)
HMRC-specific calculation used for Personal Allowance taper, Child Benefit High Income Charge, and pension annual allowance taper. Gross income minus gross pension contributions and Gift Aid (grossed up). Not reduced by income tax or NI.
Additional Rate
The UK's top income tax band: 45% on earnings above £125,140 (2026/27). Paid by roughly 750,000 UK taxpayers — less than 2% of adults.
Allowance
A threshold below which income is taxed at 0% (or reduced rates). The UK has many: Personal Allowance (£12,570), PSA (£1,000/£500/£0), Dividend Allowance (£500), CGT Annual Exempt Amount (£3,000), ISA Allowance (£20,000), and others.
Annual Exempt Amount (AEA)
The Capital Gains Tax equivalent of Personal Allowance. £3,000 for 2026/27 (reduced from £12,300 in 2022/23).
B
Band
A slice of income taxed at a specific rate. UK income tax has four bands: 0% (Personal Allowance), 20% (basic), 40% (higher), 45% (additional). Scotland has six bands.
Basic Rate
20% UK income tax band, covering earnings from £12,571 to £50,270 (2026/27). Most UK taxpayers fall here.
Benefit in Kind (BIK)
Non-cash benefits from employment that count as taxable income. Company cars, private health insurance, gym memberships, cheap loans. Value is assessed in cash terms and taxed at your marginal rate.
C
Capital Gains Tax (CGT)
Tax on profit from selling or disposing of an asset that has increased in value. UK rates: 10% (basic-rate payers) or 20% (higher-rate payers) above the £3,000 annual exempt amount. Higher rates apply to residential property (18%/24%).
Chargeable Event
A moment that triggers tax on investment products like life insurance bonds. Includes partial withdrawals, full surrender, death of the life assured.
Child Benefit
Weekly government payment to parents. Clawed back via the High Income Child Benefit Charge if the higher earner in a household earns more than £80,000.
Class 1 NIC
National Insurance paid by employees on earnings above the NI primary threshold. 8% between £12,570 and £50,270, 2% above.
Class 2 NIC
Flat-rate National Insurance for self-employed. Fully abolished for most self-employed from April 2024.
Class 4 NIC
Self-employed NIC on trading profits. 6% between £12,570 and £50,270, 2% above (2026/27).
D
Dividend
A distribution of company profits to shareholders. Dividends are taxed separately from earned income at 10.75% (basic), 35.75% (higher), 39.35% (additional) above the £500 Dividend Allowance.
Dividend Allowance
The amount of dividend income taxed at 0%. £500 for 2026/27 (reduced from £2,000 in 2022/23).
Domicile
Your permanent home country, for tax purposes. Historically important for non-dom tax status, but substantially reformed from April 2025 — long-term UK residents now generally pay tax on worldwide income regardless of domicile.
E
Earned Income
Income from employment, self-employment or pensions. Subject to income tax AND National Insurance (for workers). See also: unearned income.
Effective Rate
Your total tax divided by your total income. Usually much lower than your marginal rate. A higher-rate taxpayer may have a marginal rate of 40% but an effective rate of 20-25%.
F
Fiscal Drag
The stealth-tax effect of freezing tax thresholds while wages rise with inflation. More earners pulled into higher bands each year without real wage growth. The dominant story in UK personal tax since 2021.
Fiscal Year
Same as tax year for personal tax. 6 April to 5 April the following year in the UK.
G
Gift Aid
Tax relief scheme for charitable donations. Charity claims 25p of basic-rate tax for every £1 donated. Higher/additional-rate taxpayers can claim the difference via self-assessment.
Gross Income
Total income before any deductions. Employment: salary before tax/NI. Self-employment: turnover before expenses. See full gross vs net guide.
H
HMRC
His Majesty's Revenue and Customs. The UK tax authority, responsible for income tax, NI, VAT, corporation tax, inheritance tax, and much else.
Higher Rate
40% income tax band, covering earnings from £50,271 to £125,140 (2026/27 in England/Wales/NI). Approximately 6 million UK taxpayers by 2027/28.
High Income Child Benefit Charge (HICBC)
Progressive clawback of Child Benefit for households where one earner has Adjusted Net Income above £80,000. Full Child Benefit removed at ANI of £100,000.
I
Income Tax
Tax on earned and unearned income. UK main rates: 20%/40%/45% above Personal Allowance.
Individual Savings Account (ISA)
Tax-free savings/investment wrapper. Interest, dividends and capital gains inside an ISA are tax-free. Annual allowance: £20,000 (2026/27).
Inheritance Tax (IHT)
Tax on estates at death. UK rate: 40% on estate value above the nil-rate band (£325,000) plus residence nil-rate band (£175,000) if applicable. Pensions expected to come into IHT scope from April 2027.
L
Lifetime ISA (LISA)
ISA variant for first home purchase or retirement. £4,000/year contribution limit (within overall £20,000 ISA allowance). 25% government bonus on contributions up to age 50.
M
Marginal Rate
The tax rate on your NEXT pound of income. Can be much higher than your effective rate. The UK's highest marginal rate is 60% (Personal Allowance taper between £100k and £125,140), not 45%.
Marriage Allowance
Transfer of up to £1,260 Personal Allowance between spouses/civil partners where one is a basic-rate taxpayer and the other earns less than the Personal Allowance. Saves up to £252/year.
N
National Insurance Contributions (NIC)
Separate tax-like deduction alongside income tax. Funds State Pension, contributory benefits, NHS. Employees pay Class 1 on earnings. Self-employed pay Class 4 on profits.
Net Income
What remains after deductions. Employment: take-home pay. Self-employment: net profit after business expenses. See also adjusted net income.
Nil-Rate Band
The threshold below which Inheritance Tax is 0%. £325,000 for 2026/27 (frozen). Plus residence nil-rate band of £175,000 if leaving main home to direct descendants.
P
PAYE (Pay As You Earn)
The system employers use to deduct income tax and NI from wages before paying employees. Run via HMRC's Real Time Information (RTI) system.
Personal Allowance
The amount of income on which you pay 0% income tax. £12,570 for 2026/27. Tapers above £100,000. See full guide.
Personal Savings Allowance (PSA)
Tax-free savings interest allowance. £1,000 for basic-rate, £500 for higher-rate, £0 for additional-rate taxpayers. See full guide.
R
Rent a Room Scheme
Tax-free threshold (£7,500/year) for renting a room in your own home. No tax on income below this; above, choose between actual profit or rent a room relief.
Residence Nil-Rate Band (RNRB)
Additional IHT threshold (£175,000 in 2026/27) when leaving main residence to direct descendants. Tapers above £2 million estate value.
S
Salary Sacrifice
Arrangement where employee gives up cash pay in exchange for non-cash benefits (pension contributions, cycle-to-work, EVs, childcare). Reduces gross salary, therefore reduces tax and NI.
Scottish Income Tax
Separate income tax rates for Scottish taxpayers on earned income. Six bands from 19% to 48% (2026/27). Savings and dividend income taxed at UK rates regardless of Scottish residence.
Self-Assessment
The process of declaring income to HMRC and calculating tax owed. Required for self-employed, high earners, those with untaxed income. Deadline: 31 January online, 31 October paper.
Stamp Duty Land Tax (SDLT)
Tax on UK property purchases. Progressive bands. First-time buyer relief up to £425,000.
Starting Rate for Savings
0% rate on up to £5,000 of savings interest for low earners (non-savings income below £17,570). See full guide.
State Pension
Weekly government pension. New State Pension full rate for 2026/27: approximately £11,973/year. Requires 35 qualifying years of NI contributions. Pension age rising from 66 to 67 between 2026 and 2028.
T
Tax Code
Code used by employers to determine how much tax to deduct from your pay. "1257L" is the standard code for 2026/27 (Personal Allowance £12,570, normal adjustment).
Tax Year
The 12-month period over which UK personal tax is calculated: 6 April to 5 April. See full guide.
Taxable Income
Income remaining after Personal Allowance and other allowances are deducted. The amount HMRC applies tax rates to. See full guide.
Threshold
The income level at which a new tax rate starts. Key UK thresholds: £12,570 (PA), £50,270 (higher rate), £100,000 (PA taper), £125,140 (additional rate).
Trading Allowance
Tax-free threshold (£1,000/year) for casual trading income. Side hustles earning below this don't need to be declared.
U
Unearned Income
Income from investments, savings, rental property, dividends. Subject to income tax but NOT National Insurance. See also: earned income.
V
Value Added Tax (VAT)
Consumption tax added to most UK goods and services. Standard rate 20%. Reduced rates 5% and 0% for specific items. Registration threshold £90,000 turnover.
Quick links
- UK Tax Guide 2026/27
- UK Tax Year 2026/27
- UK Income Tax Rates
- UK Personal Allowance
- UK Personal Savings Allowance
- Starting Rate for Savings
- Taxable Income Explained
- Income Terminology
- Gross vs Net Income
- UK Tax Changes
- UK Income Tax Calculator
