Financial planning jargon: 10 words and phrases explained

Many of us have used industry-specific terminology in our professional lives. Words that make perfect sense to us, but might sound like a foreign language to those outside the environment in which we work.

However, when it comes to our finances, it’s absolutely crucial we have a firm understanding of the vocabulary that comes with managing our wealth and estates by asking the question: ‘What does this actually mean for me?’.

At Wills & Trusts, we always put people first. Whether our clients are looking at taking out a mortgage, buying a car on finance, making investments, or simply looking to make sure their current account is working as hard for them as possible – we promote full transparency and ensure clients are able to make sound, informed, clear decisions.

Here, we break down the jargon barriers to explain ten words and phrases frequently used in Finance that we are commonly asked about.


1. APR (Annual percentage rate)

APR is the annual rate of interest that is charged to borrowers and paid to investors.

Usefully, APR provides consumers with a bottom-line number that can be compared with rates from alternative lenders – offering a good yardstick of value.

Wills & Trusts tip: Our Accountancy service can provide an overview of APR as well as a complete personal accountancy health check


2. Bonds

A bond typically does what it says on the tin – it’s a fixed agreement of a loan made by an investor to a borrower which essentially ‘bonds’ them together. In return for the loan, the investor usually receives interest payments until the load is repaid at the agreed date.

Owners of bonds are usually debtholders, or creditors, of the issuer.

Wills & Trusts tip: Why not get in touch with our dedicated Investments arm to see how we can help you reach your goals – however big or small


3. Capital gain

A capital gain is essentially the realisation of a profit from an asset which has appreciated in value, thus providing a profit.

For example, if you bought a property for £250,000, its value increased, and you sold for £300,000, you have achieved a ‘capital gain’ through realising a profit. Depending on the type of asset you sold (property or investments, for example) any gain would need to be reported, and a possible tax charge paid, within 30 days of selling the asset.

Wills & Trusts tip: Our Investments team can evaluate your assets and give advice and guidance on assets you may be looking to acquire or dispose of to help build your wealth


4. Inheritance Tax

In simple terms, this relates to a tax that may be charged when an estate is passed down from someone who has passed away.  Depending on a number of factors – which can be explained by our expert team – this inheritance could be taxable at as much as 40%, though there are allowances available – called Nil Rate Bands – that can reduce the amount of tax to be paid.

Wills & Trusts tip: We specialise in inheritance tax planning, and ensuring that your legacy is protected for future generations. Why not get in touch with our Estate Planning team to help ensure your long-term succession plan is enacted exactly how you wish and that your estate does not pay too much inheritance tax


5. Discretionary Trust

A Discretionary Trust is something that can be used to provide a legacy for future generations, rather than simply passing an inheritance or a gift directly to the beneficiary of said fund. This can provide many benefits to an estate and create a legacy that passes through many generations and could save future tax.

In order to safeguard the assets, the trust is managed by appointed trustees who decide when the beneficiaries receive their money and how they receive that inheritance – I.e., in one lump sum on a specific date or in instalments.

Wills & Trusts tip: There are many types of Trust that can be put in place. If you are interested in creating a longer lasting legacy, or have any concerns about who may inherit and how your estate could be used in future, speak with one of our Financial Advisors who can recommend suitable arrangements for you


6. Equity

Equity relates to what an individual owns in real terms when it comes to an asset – the fair and true ownership of that asset.

For example, if you owned a £250,000 house and had £100,000 remaining to pay on a mortgage, the equity in that house for the owner would amount to £150,000 – the total paid, less the amount outstanding.

Equity also comes in the form of a type of investment. If you invest in ‘equities’, this involves owning a number of shares in a business directly, or via a wider investment fund. Equity investing means you benefit from the rises (and falls) in the value of a company or the companies you hold.

Wills & Trusts tip: If you don’t have a financial plan in place, why not speak with one of our expert Advisors who can help you form a plan to achieve financial independence


7. Liquidity

While most of us have assets to varying degrees, liquidity relates to how readily available those assets can be made into money.

For example, a £250,000 house is an asset. How easily sellable it is denotes how ‘liquid’ that asset is.

If the house hasn’t sold for a number of years and there is no guarantee it will, that asset still exists but is illiquid – whereas a house that is popular on the market offers more confidence that these assets can be readily realised in terms of converting to cash.

This is why it is always prudent to hold ‘emergency cash’ which is accessible for when things go wrong, or you have unexpected expenses.

Wills & Trusts tip: Managing cashflow and investments can come with many ebbs and flows, especially when significant assets are involved. Our Financial Planning department is with you every step of the way to ensure you have the right liquidity when needed


8. Probate

Probate is the legal, administrative process of formally organising and distributing a deceased individual’s estate. This process usually starts with the completion of forms to declare what a deceased held to the government (and potentially settling an inheritance tax bill), before the wishes in the form of the Will can be followed and assets passed on.

Probate is essentially the legal document that enables this process to be enacted and reach its conclusion, usually implemented by the executor of the Will and often alongside reputable legal support.

Probate is often not as straightforward as it seems, and involves gathering all information, declaring tax, submitting tax returns and more.

Wills & Trusts tip: at W&T we have our own in house legal team that can help you every step of the way when it comes to probate and estates


9. Risk tolerance

Risk tolerance relates to what any given investor is prepared to lose/speculate when evaluating an investment decision and/or opportunity.

For example, someone with a low risk tolerance may opt for investments which offer slow, marginal gains, whereas someone with an aptitude for high risk may be willing to speculate on more volatile opportunities which offer higher risk but potentially greater (and often quicker) reward.

Wills & Trusts tip: For us, offering our skills and expertise in investments is a passion. From bespoke portfolio management, strategy for growth and protection – our Investments team can tailor their advice to your exacting goals and requirements


10. Higher rate pension tax relief

One of the benefits of placing money into a pension, is the government giving you back some of the tax paid. The basic rate of tax relief automatically claimed by when putting money into pensions is 20%. However, if you are a higher-rate taxpayer, you are entitled to claim back a further 20% through completing a self-assessment tax return, while additional-rate taxpayers can claim back 25%.

Wills & Trusts tip: We have a department dedicated to pensions as well as our own in-house Accountant who can assist with your tax return and tax planning. From planning for your future, proactive management to protection and security – we ensure your wealth is working as hard as possible for you and your family


At Wills & Trusts Wealth Management we are all about building futures and cementing legacies.

Every day we help our valued clients cut through jargon and complex financial processes to enable them to secure and enhance their short, mid and long-term financial futures.

Get in touch with our friendly, knowledgeable team, all experts in their fields, to learn what we can do for your money and your financial legacy.

James Jugg

July 8, 2021