Understanding Tax Jargon: A Simple Guide

You don’t need to know every financial term to feel confident, but understanding the most commonly used ones is a great start. Here are some key terms and what they mean:

An Individual Savings Account (ISA) is a tax-efficient way to save or invest. The interest and dividends generated from an ISA are free of income tax and any gains made upon disposal are free of Capital Gains Tax (see below for a helpful explanation of what this is). There are several types of ISAs, including:

• Cash ISAs: Ideal for saving money with easy access.
• Stocks and Shares ISAs: For investing in the stock market.
• Lifetime ISAs (LISAs): Designed for first-time homebuyers or retirement savings.
• Junior ISAs (JISAs): For saving on behalf of children.

You can currently contribute up to £20,000 annually into one ISA or across different ISAs, however Junior ISAs have a £9,000 limit. Lifetime ISAs have a maximum annual allowance of £4,000.

Key Autumn Budget 2025 updates impacting future years:

• Cash ISA limit will fall to £12,000 for adults under 65 from April 2027, though the overall ISA limit remains £20,000. Adults aged 65+ keep the full £20,000 cash ISA allowance.
• The government will consult on a new simplified ISA to replace the Lifetime ISA. 

These changes mean that while your overall allowance stays the same, a larger proportion may need to be invested rather than held in cash from 2027.

CGT stands for Capital Gains Tax, a tax you pay on the profits you make when you sell an asset or investment that has increased in value. You’re taxed on the gain, not the sale price. In the 2025/26 tax year, most individuals have a £3,000 of tax-free allowance—known as your annual exempt amount. Gains above this amount are taxable, with the rate depending on your tax bracket and the type of asset. The rules for CGT can be intricate, with various exemptions and rates. This is where professional advice can make a big difference, helping you navigate how and when CGT and CGT exemptions apply.

Inheritance tax (IHT) is a tax on the value of your estate when you pass away, although this can also occur when gifting monies during your lifetime. 

Estates valued below £325,000 (the nil-rate band) are exempt, while the remainder is taxed at up to 40%. An additional threshold of £175,000, the Residence Nil-Rate Band (RNRB), may apply if you leave your home to direct descendants, but this is reduced for estates over £2 million. 

IHT can be reduced through exemptions, such as leaving assets to your spouse or civil partner, or through thoughtful planning like lifetime gifting or creating trusts. Understanding these options, and starting the conversation early, can help reduce the tax burden on your loved ones.

Key Autumn Budget 2025 updates:

• NRB and RNRB are frozen until April 2031, increasing exposure through fiscal drag as asset values rise. To find out more about fiscal drag, watch our short explainer video.  
• From April 2027, unused pension funds and death benefits will become liable to IHT, with personal representatives able to instruct pension administrators to withhold up to 50% of funds to cover potential liabilities.

These measures mean early estate planning is more important than ever.

The Pensions Annual Allowance is the maximum amount that can be contributed to your pension each year, currently set at £60,000. Contributions include those from you, your employer, third parties, and the government (via tax relief). Unused allowances from the previous three tax years can sometimes be carried forward. Exceeding the annual allowance may result in significant additional tax charges.

Key Autumn Budget 2025 updates:

• No changes were made to the annual allowance, tapered allowance, or Money Purchase Annual Allowance.
• Salary sacrifice will be capped from April 2029, with only the first £2,000 a year exempt from National Insurance, reducing the attractiveness of large salary sacrifice arrangements.

Pensions tax relief is a government incentive to boost your pension contributions. For basic rate taxpayers, a contribution of £80 becomes £100 thanks to 20% tax relief. For higher rate (40%) and additional rate (45%) taxpayers the relief is even greater, making pension contributions a highly efficient way to save for retirement.

The Lifetime Allowance, which capped the amount you could save into pensions before facing extra tax charges, was abolished in April 2024. While there’s no limit to total savings now, the maximum tax-free lump sum you can withdraw (usually 25% of your pension) remains capped.

We aim to transform the way financial advice is delivered by making it simple, accessible, and affordable for everyone. The financial world can often seem overwhelming with its complex terms, but understanding the basics is the first step to taking control of your money.

We believe in making financial advice straightforward and jargon-free. Our advisers are committed to explaining things clearly, so you always feel informed and confident. Financial rules and regulations are constantly evolving, so having a professional who communicates in an easy-to-understand manner can boost your confidence. This approach will help in creating a financial plan aligned with your goals.

Fees and charges apply at SPW.

This article is for information purposes only. It is not intended as investment advice.

Tax treatment depends on individual circumstances of each client and may be subject to change in the future, also in this article we refer to the tax rate and thresholds sent for England and Northern Ireland, these may differ for the devolved nations of Scotland and Wales.

Schroders Personal Wealth does not provide personal tax advisory and tax compliance, however we can introduce you to a relevant specialist.  Schroders Personal Wealth might receive a referral fee from some of the partners we introduce to you.