Tax Planning Glossary

Key facts

Tax planning has its own vocabulary — from AIA to taper relief.
Most terms are defined in UK legislation or HMRC guidance; this glossary links to official sources.
Use Ctrl + F (or Cmd + F on Mac) to search for a specific term.
Understanding these terms helps you make informed decisions about your finances.

A – C

Term	Definition
Adjusted net income	Total taxable income minus gross pension contributions and Gift Aid donations. Used to determine loss of Personal Allowance (above £100,000) and the tapered pension annual allowance.^[1]
AIA (Annual Investment Allowance)	A 100% first-year capital allowance on qualifying plant and machinery, permanently set at £1,000,000.^[1]
Annual allowance (pensions)	The maximum amount that can be contributed to pensions in a tax year with tax relief — £60,000 for 2026/27 (or 100% of earnings if lower).^[3]
Annual exemption (CGT)	The amount of capital gains you can make tax-free each year — £3,000 per person for 2026/27.^[2]
BADR (Business Asset Disposal Relief)	A CGT relief that taxes qualifying business disposals at 18% (from 6 April 2026) on the first £1,000,000 of lifetime gains. Formerly called Entrepreneurs’ Relief.^[2]
Bed and ISA	Selling an investment and immediately repurchasing it within an ISA wrapper, crystallising any gain (using the CGT exemption) and sheltering future growth from tax.
Carry forward (pensions)	The ability to use unused pension annual allowance from the previous 3 tax years, allowing contributions well above £60,000 in a single year.^[3]
Chargeable gain	The taxable profit on the disposal of an asset after deducting the cost, allowable expenses, and available reliefs.^[2]

D – I

Term	Definition
Dividend allowance	The first £500 of dividend income is tax-free (2026/27). This allowance uses up part of your basic or higher rate band rather than being an additional exemption.^[1]
Drawdown (pension)	Flexi-access drawdown lets you keep your pension invested and take flexible withdrawals. Each withdrawal is 75% taxable and 25% tax-free.
EIS (Enterprise Investment Scheme)	A scheme offering 30% Income Tax relief and CGT exemption on investments in qualifying small companies. Minimum holding period is 3 years.
Full expensing	A permanent 100% first-year capital allowance for companies on qualifying new main-rate plant and machinery, with no monetary cap.
Gift Aid	A scheme that lets charities reclaim basic-rate tax on your donation. Higher-rate and additional-rate taxpayers can claim further relief through Self Assessment, and donations reduce adjusted net income.^[1]
IHT (Inheritance Tax)	Tax charged at 40% on the value of a deceased person’s estate above the nil-rate band (£325,000). Various exemptions and reliefs can reduce or eliminate the charge.
ISA (Individual Savings Account)	A tax-free savings and investment wrapper. The annual allowance is £20,000 across all ISA types (Cash, Stocks & Shares, Innovative Finance, Lifetime).^[1]

M – P

Term	Definition
Marginal rate	The rate of tax on the next pound of income. Key marginal rates include 20% (basic), 40% (higher), 45% (additional), and the effective 60% rate between £100,000 and £125,140.^[1]
Marriage Allowance	A transfer of £1,260 of Personal Allowance from a non-taxpaying spouse to a basic-rate taxpaying spouse, saving up to £252 per year.
MPAA (Money Purchase Annual Allowance)	A reduced pension annual allowance of £10,000 that applies once you flexibly access taxable pension benefits (e.g. drawdown).^[3]
Nil-rate band	The IHT threshold below which no tax is charged — £325,000 per person, frozen until at least April 2030.
Payment on account	Advance payments towards your Self Assessment tax bill. Two payments of 50% of the previous year’s liability, due 31 January and 31 July.
PET (Potentially Exempt Transfer)	A gift to an individual that becomes fully exempt from IHT if the donor survives 7 years. Taper relief applies if the donor dies between 3 and 7 years.
Personal Allowance	The amount of income you can earn tax-free each year — £12,570 for 2026/27. Reduced by £1 for every £2 of income above £100,000.^[1]

R – Z

Term	Definition
RNRB (Residence Nil-Rate Band)	An additional £175,000 IHT allowance available when a home is passed to direct descendants on death. Tapered away for estates over £2 million.
Salary sacrifice	An arrangement where you give up salary in exchange for an employer pension contribution or other benefit, saving both employee and employer NI.
SEIS (Seed Enterprise Investment Scheme)	A scheme offering 50% Income Tax relief on investments in very early-stage companies (up to £200,000 per year). Minimum 3-year holding.
Self Assessment	The system used to report income, gains, and claim reliefs. Required for the self-employed, landlords, and those with complex tax affairs.^[1]
Taper relief (IHT)	A sliding scale that reduces the IHT rate on potentially exempt transfers (PETs) made between 3 and 7 years before death, from 40% down to 8%.
Tapered annual allowance	A reduction of the pension annual allowance for high earners. Triggered when adjusted income exceeds £260,000 and threshold income exceeds £200,000; reduces by £1 for every £2 above £260,000, to a minimum of £10,000.^[3]
Tax avoidance	The legal use of reliefs, allowances, and structures to minimise tax. Distinguished from tax evasion (illegal non-payment) and aggressive avoidance (exploiting loopholes contrary to legislative intent).
UFPLS (Uncrystallised Funds Pension Lump Sum)	A method of withdrawing from a pension where each payment is 25% tax-free and 75% taxable, without formally entering drawdown.^[3]

Tip: This glossary covers the most commonly encountered tax planning terms. For full legal definitions, refer to the relevant HMRC manuals or GOV.UK tax guidance.

Frequently Asked Questions

What is the difference between tax avoidance and tax evasion?

Tax avoidance is the legal use of reliefs, allowances, and structures to minimise your tax bill within the rules (e.g. using your ISA allowance or making pension contributions). Tax evasion is the illegal concealment of income or assets to reduce tax. The line between aggressive avoidance and evasion can be blurred, but genuine tax planning using reliefs as Parliament intended is perfectly legitimate.

What does marginal rate mean?

Your marginal rate is the rate of tax you pay on the next pound of income. For example, if you earn £40,000, your marginal rate is 20% (basic rate). Earning £1 more takes you to 20% on that extra pound. Understanding your marginal rate is essential for evaluating whether a tax planning strategy is worthwhile.

What is adjusted net income?

Adjusted net income is your total taxable income minus certain deductions including pension contributions (gross amount), Gift Aid donations (grossed up), and trading losses. It is used to determine whether you lose your Personal Allowance (income over £100,000) and whether the tapered annual pension allowance applies.

What is a chargeable gain?

A chargeable gain is the taxable profit you make when you dispose of an asset. It is calculated as the sale proceeds minus the original cost, minus allowable costs (legal fees, improvements), minus any available reliefs. The annual CGT exemption (£3,000 in 2026/27) can be deducted from your total chargeable gains.

Sources

Income Tax rates and personal allowances — GOV.UK
Capital Gains Tax — GOV.UK
Tax on your private pension contributions — GOV.UK