Topic 2 KEY DEFINITIONS

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Annual exempt amount
The annual tax-free allowance for capital gains tax.
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Annuity
A financial product that pays a regular guaranteed income, in return for a lump sum paid to the product provider. It is used by people when they retire.
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Assets
Things that a person or a business owns. For a person their assets might include property, jewellery or financial products such as company shares.
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Bonds
See corporate bonds, government bonds and savings bonds below.
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Capital gains tax
A tax payable on the gain (profit) made when you sell or give away an asset, for example property or shares. Each person is allowed to make a certain level of profit before being taxed on it
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Capital growth
An increase in the market value of an investment, over and above the amount the investor paid for it or paid into it.
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Capital sum
The total amount borrowed or saved / invested, before the addition of interest. For instance it can refer to the amount borrowed with a mortgage loan, or the amount paid into an investment product.
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Cash ISA (individual savings account)
An account that pays interest tax-free on cash savings up to a certain level.
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Children’s Bond
An investment bond taken out by a parent, legal guardian or (great) grandparent for a child under the age of 16. Investing between £25 and £3,000, the investor is guaranteed interest at a fixed rate for five years, after which the Bond matures. A nom
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Collective investments
Investment products such as unit trusts or open-ended investment companies (OEICs) that let many retail investors pool their money together.
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Commodity
Goods that share the same characteristics wherever they are produced and whoever produces them – unlike a manufactured product, where different manufacturers can add specific features. Examples include raw materials such as iron ore, gold and silver,
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Corporate bond
A product that companies can use to borrow money over periods of five years or more. The company offers a number of bonds for sale; buyers can then sell the bonds on to other investors if they wish. A key difference between bonds and shares is that b
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Corporation tax
A tax levied on the taxable profits of limited companies and some other organisations.
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Credit union
A mutual organisation (that is, owned by its members) that provides a range of financial products to members, eg savings accounts and personal loans. Members of a credit union must share a common bond, eg all work for the same employer or all work in
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Deposit
A sum of money placed by a customer with a provider such as a bank, building society or credit union.
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Diversification
Spreading investments across a range of different products, funds or types of asset so as to reduce the potential impact of any doing particularly badly.
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Dividend
A payment of profits from a company to its shareholders, often at twice-yearly intervals, either as cash or (depending on the plan) as further shares or reacquisition of shares.
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Endowment policy
An insurance product that pays out a lump sum after a specified term or if the insured person dies before the end of the term. Endowment policies are often used as a way of saving over the long term.
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Final salary scheme
A type of occupational pension that pays an income related to the amount of the last salary an individual earned before retirement.
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Friendly society
A mutual organisation that offers its members a wide range of financial products.
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FTSE 100
The Financial Times Stock Exchange Index, known as the ‘footsie’. It is an index of the share price of the 100 companies with the highest ‘market capitalisation’ (total value of issued shares) listed on the London Stock Exchange.
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Gilt
A bond issued by the UK government – it is a way for the government to borrow money. Most gilts are issued with a redemption date, that is the date at which the government agrees to buy them back. Between their issue and the redemption date the gilts
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Government bond
A bond issued by a national government – it is a way for the government to borrow money. Gilts (see above) are bonds issued by the UK government.
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Hedge fund
An organisation that takes in funds from investors such as pension companies, insurance companies and very wealthy individuals and invests those funds to try to get a high return. Investment in such funds is seen as a high risk.
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HMRC
Her Majesty’s Revenue and Customs – the organisation that collects taxes on behalf of the government.
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Income tax
Tax paid on earnings from employment, self-employment and interest on savings.
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Index-linked
Rising in line with inflation.
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Individual savings account (ISA)
An account that pays interest tax-free on savings up to a certain level. There are two types of ISA: cash ISAs and stocks and shares ISAs. Junior ISAs are available for people under 18.
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Investment trust
A type of collective investment, which operates as a public limited company. Investors buy shares in the investment trust, and the trust then uses the money from the share issue to trade in the stocks and shares of other companies.
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Money purchase scheme
A type of pension where the employee pays into the plan over their working life. The scheme is invested and provides the employee with the resulting lump sum on retirement. The amount they receive depends on how the scheme has performed. Also known a
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National Employment Savings Trust (NEST)
A pension scheme run by a public organisation, which aims to ensure that the majority of workers are enrolled in an occupational pension.
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National Insurance contributions
Money deducted from the pay of people who are employed or self-employed and used by the government to fund state pensions and other benefits.
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NS&I
National Savings & Investments, a provider that is backed by the Treasury (the government department that manages the UK’s finances).
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Open-ended investment company fund (OEIC)
A pooled collective investment vehicle, which is a cross between a unit trust and an investment trust. The number of shares issued can vary and be created or liquidated according to the number of buyers and sellers in the market. The OEIC expands as
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Pension
An income that people receive after retiring from work. In the UK people receive a pension from the state; some people also receive pension payments from schemes run by their former employers or arrangements that they have made for themselves.
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Personal pension plan
Long-term money-purchase products provided by banks, insurance companies and other providers to help customers to build up a pot of money they can use to buy an income when they retire. There is tax relief on the payments made into the plan.
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Portfolio
The combination of long-term savings and investment products chosen by any particular investor.
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Return
The amount of money gained or lost on an investment relative to the amount invested. Also known as the rate of return (ROR) or return on investment (ROI).
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Savings bonds
A savings product held for a fixed period eg two years. The holder can only make a limited number of withdrawals, or none at all, during that period without incurring a penalty.
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Shares
Investments that represent part-ownership of a company.
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Stock exchange
A formal marketplace for the trading of shares and other investments.
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Tax relief
An amount deducted from annual income (for example a pension contribution) to reduce the amount on which an individual must pay tax.
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Tax return
A tax form completed annually by people in certain situations (eg self-employed people or employed people who receive money in addition to their salary). It sets out details of income and expenditure and allows the taxpayer or HMRC to calculate the a
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Term assurance
An insurance plan that runs for a fixed period of time and pays out a lump sum if the insured person dies during the term.
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Unit trust
A type of collective investment, the most common form in the UK.
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Volatility
When the value of an investment varies often and widely.
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Other cards in this set

Card 2

Front

A financial product that pays a regular guaranteed income, in return for a lump sum paid to the product provider. It is used by people when they retire.

Back

Annuity

Card 3

Front

Things that a person or a business owns. For a person their assets might include property, jewellery or financial products such as company shares.

Back

Preview of the back of card 3

Card 4

Front

See corporate bonds, government bonds and savings bonds below.

Back

Preview of the back of card 4

Card 5

Front

A tax payable on the gain (profit) made when you sell or give away an asset, for example property or shares. Each person is allowed to make a certain level of profit before being taxed on it

Back

Preview of the back of card 5
View more cards

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