Financial Guide
Financial Guide
Absolute owner
This is the sole owner of a piece of property, such as a building, vehicle or piece of equipment.
Abstract of title
This is a document which summarises all the title deeds to a property such as a house. It is drawn
up for the seller when a property is being sold.
Accounting date
Organisations prepare their annual accounts covering a period of 12 months. The last day of the
period is called the accounting date.
Accrual rate
This is the rate by which a pension from an earningsrelated occupational pension scheme
builds up from one year to another. The rate is shown as a fraction or a percentage of the
member's final yearly salary.
Accrue
If something is accruing, it is building up day by day. If an organisation owes money for goods and
services but has not received a bill up to the date it prepares its accounts, it will estimate what it
owes. It will then include the debt in its accounts. This estimated liability is called an accrual.
Accrued income security
This is a security (investment) which pays interest at regular intervals. When it is sold, interest may
have built up and this interest will be paid to the new owner. Interest built up like this is called
accrued interest.
Accumulation date
This is the date when income will be credited to a unit trust which reinvests its income (an
accumulation unit), instead of paying the income out to the investors.
Accumulation unit
The type of unit trust which reinvests the income it earns, instead of paying it out immediately to
the investors, is called an accumulation unit.
Actuary
Call
A company makes a call when it asks buyers of its new shares to pay some or all of the share
price. When this happens the shares are being called up.
Calledup share capital
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Facility
This is the agreed amount that a bank will allow a customer to borrow up to.
Final dividend
Once a company has drawn up its annual accounts the directors can work out and declare, or
recommend to the shareholders, the amount of the final dividend.
Finance lease
Under this type of lease the organisation leasing the goods is treated as if it owns the goods. It
gains the profits that would come with ownership but it also suffers the losses.
Financial statement
This is a statement which includes the annual accounts, directors' report and so on.
Financial year
This is the year covered by a set of annual financial statements.
Fiscal
This word is used to describe finances controlled by the Government.
Fixed asset
A fixed asset is one which is intended to be used for several years. Examples are buildings,
machinery and vehicles.
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Gift
A gift is a transfer of goods or property which is free of charge.
Giltedged securities
These are firstclass securities such as government stocks or local authority stocks.
Gross domestic product
This is the value of goods and services produced by an economy over a particular time period.
Gross interest
This is interest which has not had any income tax taken out of it.
Gross profit
Gross profit is the difference between the selling price of goods and what they cost to buy.
Ground rent
A ground rent is a rent created by a longterm lease of land.
Guarantee
A guarantee is sometimes needed before a bank will lend money to a customer. Another person
(the guarantor) pledges to the bank, in writing, that if the customer does not repay the debt then the
guarantor will.
Guaranteed minimum pension
This is the lowest level of pension which must be paid to a pensioner, as a condition of contracting
out of SERPS.
Headline rate
This term refers to information which is easy to publish but which may be oversimplified and, as a
result, possibly inaccurate.
Hire purchase
This is a form of credit which allows the purchaser to have possession of the goods shown in the
hire purchase agreement. Ownership passes to the purchaser when they have paid all the
instalments and any fee.
Holding company
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Incapacity benefit
Incapacity benefit is paid to people who are too ill to work.
Income and expenditure account
This account records an organisation's income and spending and shows the surplus or shortfall.
Income drawdown
Under this system, people with personal pensions can take money from their personal pension
fund instead of using the fund to buy an annuity.
Income tax
You pay this tax according to how much income you have under various categories.
Income unit
This is a unit trust which pays out the income it earns to the investors, instead of reinvesting it.
Incorporated
If a company is formed which has its own identity separate from the identities of its members, it is
incorporated.
Incorporation
This means forming a company. Some companies have limited liability. In other words, the
members of the company are not personally liable for debts which the company runs up, as long as
the company is run properly.
Indemnity
If someone promises to compensate someone else for loss or damage, it is called an indemnity.
Independent financial adviser (IFA)
This is a qualified person or firm that can give people independent advice on life insurance and
pensions and is not tied to a particular company.
Indexation
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Joint lives
Some life insurance policies cover two people's lives and pay out on the first death.
Joint lives last survivor
This sort of life insurance is on two people's lives and pays out on the second death.
LAPR
This stands for life assurance premium relief. Before 14 March 1984 there was tax relief on life
insurance premiums paid by policyholders for policies which qualified for tax relief. Policies which
started before 14 March 1984 still qualified for tax relief on the premiums paid since 14 March
1984.
Lapse
If a policy becomes void because conditions have not been kept to (such as failing to pay
premiums), it has lapsed.
Legacy
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Mandate
A bank's customer writes instructions on the mandate for the bank to follow when operating the
customer's account.
Market capitalisation
If you multiply the number of ordinary shares a company has issued by their market price, you get
the market capitalisation value of the company.
Mature/maturity
If an investment policy comes to the end of its life, it has reached maturity.
Maxi ISA
A maxi ISA includes investments in stocks and shares and may also allow investments in cash and
life assurance. An individual can invest up to 7000 in 2000/2001 in a maxi ISA and up to 5000
in the following years.
Median
In statistics the median is the point where half the items in a series are on one side and half on the
other side. For example, a series of numbers might be 1, 3, 5, 7, 11. Five is at the median point.
Median is not the same as average.
Member
The shareholders of a company are its members.
Memorandum and articles of association
The memorandum gives details of a company's name, objects (purposes) and share capital. It
also sets out the limits of the shareholders' liability if the company has to be wound up.
The articles set out the members' rights and the directors' powers.
Merchant bank
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Qualifying policy
This is a policy which can pay its proceeds, free of tax, if the conditions have been met.
Quartile
In statistics the quartile point is the spot where one quarter of the items in a series is on one side
and three quarters are on the other side. For example, if a series of numbers was 1, 3, #, 4, 5, 7,
10, 20 and 30, the quartile point (#) would be between 3 and 4.
Quorum
A quorum is the lowest number of qualifying people needed for a meeting to be valid.
Rate of risk
If an investment carries more risk it is expected to deliver better returns than a lowerrisk
investment.
Real property
This is land and rights over land (such as an easement).
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Schedule A
Schedule A rules were used to work out income tax on certain rents and other income from land.
Schedule D
Selfemployed people's income tax is worked out using the tax rules in Schedule D.
Schedule E
Employees' and directors' income tax is worked out using the rules in Schedule E.
Scrip dividend
Sometimes companies will offer to pay dividends in shares instead of cash if shareholders want
this.
Scrip issue
If a company offers free shares to its shareholders in proportion to their existing shareholdings, it is
called a scrip issue (or a bonus issue).
Security
This is something of value which is pledged to a bank by a borrower. If the borrower fails to repay
the debt, the bank can sell the security and repay the debt out of the proceeds of the sale.
Securities
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Tangible assets
If an asset can be physically touched, it is a tangible asset.
Tax allowance
Taxpayers are given tax allowances to reduce the amount of tax they have to pay. The allowances
are taken off their income before the tax is worked out.
Tax avoidance
Reducing tax bills by using legal means is called tax avoidance.
Tax code
The Inland Revenue work out the allowances for each taxpayer paying PAYE. The total allowances
are converted into a code number which is used with tax tables to work out how much tax should
be taken from the income.
Tax credit
When companies pay dividends they send each shareholder a dividend warrant. The warrant
shows the amount of the dividend and also a figure for a tax credit. For basicrate tax payers the
tax credit covers the income tax due on the dividend.
Tax evasion
Breaking the law to reduce tax bills (such as by concealing income) is called tax evasion.
Tax month
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create a trust;
change a trust; or
control a trust.
Trust corporation
A company which acts as a trustee and holds the trust's assets is called a trust corporation.
Turnover
A business's turnover is the total value of its sales over a particular period.
Uncleared cheque
This is a cheque which has been paid into an account, but the payment for it has not yet been
collected from the bank the cheque which will pay the cheque.
Underwriting
When the public is invited to subscribe for (ask for) shares in a company the directors may ask an
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Valuation point
This is the date and time when the fund manager revalues the investments in a fund, such as a
unit trust.
Value added tax (VAT)
Most traders in the UK are registered for VAT. This means that registered traders have to charge
their customers value added tax on any goods and services they supply which are not exempt.
The VAT collected (less VAT they have been charged) is later paid to H M Customs and Excise.
Waiver of premium
If a member of a scheme with this benefit becomes seriously ill or disabled and cannot pay their
premiums, the insurance company will pay the premium for them. This is called waiver of
premium.
Warrant
A warrant is a certificate which gives the person holding it the right to buy shares at a given price.
Wholelife assurance
This is life assurance cover which lasts the lifetime of the person whose life is assured.
Will
A will is a legal document which people use to bequeath (leave as a gift) money and property
when they die.
Winding up
Winding up a company is done by paying the company's creditors, and then distributing any
money left (if any) among the members.
Withprofits policy
A policyholder with this type of life insurance policy shares in the surpluses of the insurance
company's life insurance and pensions business.
Zerorated
This means:
that the rate of interest is 0%; or
that the VAT rate is 0%. (But it could be raised from this level, if the Government
wished to, without fresh legislation being needed.)
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