Glossary of UK retirement tax and pension terms

Total taxable income minus certain reliefs, such as the gross amount of pension contributions paid by relief at source and Gift Aid donations. It decides whether the personal allowance is reduced.

Read the full guide: What is the 60% tax trap? The £100k tax trap explained

The most that can be paid into pensions in a tax year, by you and your employer together, with tax relief. It is £60,000 for 2026/27 and can be lower for people with high incomes or who have already drawn pension income flexibly.

Read the full guide: Pension drawdown, tax-free cash and the State Pension

An income, usually for life, bought from an insurer with some or all of a defined contribution pension pot. The amount and how it changes over time are set by the terms agreed when it is bought.

Read the full guide: Pension drawdown, tax-free cash and the State Pension

Tax on the profit when you sell or give away an asset that has risen in value, such as shares outside an ISA or a rental property. Each person has an annual exempt amount before any tax is due.

Read the full guide: UK tax rates and allowances 2026/27 used by the planner

A pension that pays an income set by a formula, usually based on salary and years of service, rather than by the size of a pot. The scheme, not the member, carries the investment risk.

Read the full guide: Pension drawdown, tax-free cash and the State Pension

A pension built from contributions that are invested. The income it can provide depends on how much is paid in, how the investments perform and what charges are taken.

Read the full guide: Pension drawdown, tax-free cash and the State Pension

The amount of dividend income each person can receive in a tax year without paying tax on it. It is £500 for 2026/27. Dividends above it are taxed at dividend rates.

Read the full guide: UK tax rates and allowances 2026/27 used by the planner

An investment account with no special tax treatment. Dividends and interest count as income, and gains on sale can be liable to capital gains tax.

Read the full guide: How pension and investment fees add up over time

A tax-free wrapper for savings or investments. Interest, dividends and gains inside an ISA are not taxed. The annual subscription limit is £20,000 for 2026/27.

Read the full guide: UK tax rates and allowances 2026/27 used by the planner

Tax on the value of an estate above the available nil-rate bands when someone dies. The standard rate is 40% on the amount over the bands. Transfers between spouses and civil partners are generally exempt.

Read the full guide: Couples and inheritance tax: what changes after a first death

The most tax-free cash a person can normally take from pensions over their lifetime. It is £268,275 for most people. Tax-free cash is usually 25% of a pension, up to this limit.

Read the full guide: What is the Lump Sum Allowance? The £268,275 cap on tax-free cash

A way for married couples and civil partners to transfer part of one partner's personal allowance, £1,260 in 2026/27, to the other when the receiving partner pays tax at the basic rate (in Scotland, the starter, basic or intermediate rate). It is not available to cohabiting couples.

Read the full guide: Couples and inheritance tax: what changes after a first death

A lower annual limit on pension contributions that applies once a person has taken taxable income flexibly from a defined contribution pension. It is £10,000 for 2026/27.

Read the full guide: Pension drawdown, tax-free cash and the State Pension

A UK charge on earnings and self-employed profits that builds entitlement to benefits such as the State Pension. Employees pay Class 1 and the self-employed pay Class 4, in both cases until State Pension age.

Read the full guide: UK tax rates and allowances 2026/27 used by the planner

The part of an estate that is free of inheritance tax. It is £325,000 per person. The residence nil-rate band can add to it when a home passes to direct descendants.

Read the full guide: Couples and inheritance tax: what changes after a first death

The earliest age at which most people can take money from a pension without an unauthorised payments tax charge. It is 55, rising to 57 on and after 6 April 2028, except for people with a protected pension age and members of some public service schemes.

Read the full guide: When can I retire? Retiring at 55 vs 67, year by year

Money paid from a pension after the member dies, such as a lump sum, a survivor's pension or a drawdown fund for a beneficiary. Income tax on them usually depends on whether the member died before 75, and from 6 April 2027 most unused pension funds and death benefits count towards the estate for inheritance tax.

Read the full guide: What happens to a pension when a partner dies?

The amount of income each person can receive in a tax year before paying income tax. It is £12,570 for 2026/27 and is reduced by £1 for every £2 of adjusted net income above £100,000.

Read the full guide: UK tax rates and allowances 2026/27 used by the planner

The amount of savings interest each person can receive tax-free on top of their personal allowance. It is £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers and nil for additional-rate taxpayers.

Read the full guide: UK tax rates and allowances 2026/27 used by the planner

Years in which a person has paid or been credited with enough National Insurance to count towards the State Pension. 35 are needed for the full new State Pension and at least 10 for any of it.

Read the full guide: Pension drawdown, tax-free cash and the State Pension

A way of paying into a pension where contributions come from pay that has already been taxed and the pension provider adds basic-rate tax relief. A net payment of £80 becomes a £100 contribution.

Read the full guide: Pension drawdown, tax-free cash and the State Pension

An extra inheritance tax allowance, worth up to £175,000 per person, when a home is left to direct descendants. It is reduced for estates worth more than £2 million.

Read the full guide: Couples and inheritance tax: what changes after a first death

An arrangement where an employee gives up part of their pay in return for an employer pension contribution. Income tax and National Insurance are worked out on the lower pay, although an announced cap applies from April 2029.

Read the full guide: Pension drawdown, tax-free cash and the State Pension

The rule that stops residential landlords deducting mortgage interest from rental profit. Instead they get a tax reduction at the basic rate on their finance costs.

Read the full guide: UK tax rates and allowances 2026/27 used by the planner

The age at which a person can start to receive the State Pension. It is set by date of birth and the timetable currently in law, and is 66 for people born before 6 April 1960.

Read the full guide: Pension drawdown, tax-free cash and the State Pension

The UK tax year runs from 6 April to 5 April. It is named after the year it starts, so 2026/27 begins on 6 April 2026.

Read the full guide: Cashflow modelling: how the retirement planner works

A lump sum, normally up to 25% of a pension, that can be taken without income tax. The total over a lifetime is limited by the Lump Sum Allowance.

Read the full guide: Pension drawdown, tax-free cash and the State Pension

An amount expressed in the prices of the current tax year, so that figures from different years can be compared without inflation changing their meaning.

Read the full guide: Cashflow modelling: how the retirement planner works