Debt Glossary

 A

Abandonment
The voluntary relinquishment of ownership by failure to use the property, coupled with intent to abandon.

Add on Interest
Add on interest is a method of charging interest. Interest is computed on the total amount borrowed and added on to the principal. Each payment is then deducted from this total amount. Interest on real estate loans is usually figured based on the balance owing after each payment is made.

Amortization
Amortization is payments of debt in equal instalments of principal and interest, rather than interest only payments.

Annual Percentage Rate (APR)
The yearly interest percentage of a loan, as expressed by the actual rate of interest paid. For example: 6% add-on interest would be much more than 6% simple interest, even though both would say 6%. The A.P.R. is disclosed as a requirement of federal truth in lending statutes and should include all finance charges.

Arrears
A payment made after it is due is in arrears. Interest is said to be paid in arrears since it is paid to the date of payment rather than in advance, as is rent.

Arrestment
means that money or goods held by a third party are 'frozen'. The most common example is arrestment of funds in your bank account. The third party (e.g a bank) may agree to hand the property (funds) over to a creditor.

Asset
An asset is property that belongs to an individual. Including; real property (land or buildings) and personal property (e.g cash, stocks and shares, or vehicles).

Attachment
Means that goods held by the person in debt, e.g a car, are 'frozen'. Anything that has been frozen ('attached') can be sold. The money raised is then handed over to the person who is owed the money.

Average life
The length of time that will pass before one-half of a debt obligation has been retired.

B

Balance
The amount of money in an account, equal to the net of credits and debits at that point in time for that account is a balance.

Bankruptcy
A form of debt relief, there are two kinds of bankruptcy:

Personal bankruptcy
An individual, sole trader or partnership is formally declared bankrupt by the court (i.e. they cannot pay their debts) and that the debts and assets of a person should transfer to an appointed trustee.

Company bankruptcy
companies can also fail and if this happens, the company is said to be insolvent. It may be made subject to liquidation, receivership or an administration order issued by the courts

Beneficial Loan
A loan made by an employer to an employee on which interest is either not charged or is less than the official rate. The difference between the interest charged and the official rate is taxable.

Beneficiary
The Person who is entitled to receive funds of property under the terms and provisions of a will, trust, insurance policy or security instrument. In connection with a mortgage loan the beneficiary is the lender.

Benefits
Benefits are paid to you by the state and include income support, child benefit, job seeker's allowance, disability benefit, housing benefit, and council tax benefit.

Binding
For example, an agreement, which is binding cannot be legally avoided or stopped.

Budget
A list of all your income and expenditure is a budget.

Budget deficit
A deficit is the gap between spending and revenue and thus the amount that may need to be borrowed.

Building Society
'Mutual' non-profit-making institutions set up to lend money to their members for house purchase. Building societies are 'mutual;' because they are owned by their members, and their members are entitled to their profits and benefits.

C

Cap rate
The discount rate used to determine the present value of a stream of future earnings. Typically this will be an appropriate risk-free return plus a premium to reflect the risk of that specific investment.

Cash
Is currency and coins on hand, bank balances, and negotiable money orders and checks.

Ceiling
The maximum interest rate permitted by state law for a given loan. A ceiling is a common feature of floating rate notes. An upper limit on the exchange rate of a country's currency imposed by some regulatory authorities (the government or regulators will step in and ensure that the exchange rate does not exceed the ceiling).

CEO Chief Executive Officer
Is the executive who is responsible for a company's operations, usually the President or the Chairman of the Board.

Citizens advice bureau
An office represented in most towns in the UK, where the public can obtain free advice on an extensive range of civil matters including social security, consumer matters such as loans and rental arrears, employment, housing matters such as mortgage and rent arrears, legal matters such as legal aid, family matters, taxation and many other subjects.

Classified Property Tax
Property tax which varies in rate depending on the use of the property Credit is an agreement in which a borrower receives something of value now and agrees to repay the lender later.

Creditor
A creditor is an individual or a company that is owed money by another person.

Currency
Any form of money that is in public circulation

D

DAS administrator
The Accountant in Bankruptcy is the DAS administrator. They are responsible for maintaining the DAS Register which contains details of debt payment programs (DPPs), and for the approval of money advisers, payments distributors and debt payment programs (DPPs).

DAS approved money adviser
A DAS approved money adviser is a general money adviser who has received further training (and been approved by the DAS administrator) to act on behalf of the debtor to negotiate a debt payment program (DPP) under DAS.

Death Benefit
The payment made to a beneficiary from an annuity or policy when the policyholder dies.

Debt
Means any money that is owed or due to someone else.

Debt Capital
Debt Capital is the capital raised through the issuance of bonds.

Debt consolidation
Debt consolidation is the replacement of multiple loans with a single loan, often with a lower monthly payment and a longer repayment period. It can also be called a consolidation loan.

Debt-equity swap
Debt equity swap is a transaction in which existing bonds (debt) are exchanged for newly issued stock (equity). For example, an individual can in essence cancel a portion of their debt and transfer the equivalent balance to equity. A debt-equity swap can help an individual that is in financial trouble by cancelling some of their outstanding debt.

Debt management
A form of dealing with debt where the debtor can pay their debts (including interest and penalty charges) in full - they just need a bit more time. The debtor will keep control of their assets and most importantly they will keep their home.

Debt payment program (DPP)
An agreement under the Debt Arrangement Scheme (DAS) that allows you to pay off your debts over an extended period of time. The program can be for any amount of money or for any reasonable length of time.

Debt relief
The last resort for a debtor when dealing with debt where the debtor cannot pay their debts - bankruptcy. The debtor will lose control of their assets, possibly including their home and their credit rating will be greatly affected.

Debtor
A debtor is an individual or sole trader who owes money to another person or company (creditor).

Deduction
An expense subtracted from adjusted gross income when calculating taxable income, such as for state and local taxes paid, charitable gifts, and certain types of interest payments.

Default Notice
This is a letter reminding a debtor that they haven't paid their debt. This must be issued by a creditor in respect of debts covered by the Consumer Credit Act 1974 before any further action is taken.

Demand
The lender's statement of the amount due to pay of a loan. Diligence We all rely on people keeping their promises. If a promise is not kept the courts may order someone to pay what they are due.
There are a number of ways that people can be made to pay after a court order has been made. The most common forms of court enforcement, or diligence, are arrestment , earnings arrestment and attachment. There are other less common ways to enforce court orders. They include inhibition and adjudication, and your lawyer or adviser can tell you more about them if needed.

Diligence stopper
A court order which stops the operation of existing diligence and prevents future diligence.

Direct debit
An instruction you give to your bank or building society to make regular payments from your account to a specific company. Unlike a standing order you agree that the creditor can vary this amount each month.

Disclaimer
A statement made to free oneself from responsibility.

Discounted loan
A loan on which the interest and financing charges are deducted from the face amount when the loan is issued.

E

Earnings
Revenues minus expenses and taxes. Also called income.

Earnings arrestment
If you are working, the money you owe to a creditor can be taken from your wages/salary directly from your employer by an earnings arrestment.

Endowment
A permanent fund bestowed upon an individual or institution, such as a university, museum, hospital, or foundation, to be used for a specific purpose.

Entitlement
Benefits guaranteed to an individual, such as dividends for shareholders or government aid for those who qualify.

Equity
The value of a person's interest in real property after all liens and charges have been deducted.

F

Fee
A charge for services rendered

Final Salary
The basis of determining a person's pension entitlement in a final salary scheme and which normally refers to an occupational pension

Finance
Finance deals with matters related to money and the markets.

Flexible Mortgage account
A combined mortgage and current account. Any savings each month earn the mortgage rate, which is a relatively high and tax-free rate of return.

Frozen account
A bank account whose funds may not be withdrawn until a lien is satisfied or an ownership dispute is resolved.

Funds
A pool of money normally set apart for a purpose, for example, a pension fund to provide pensions.

G

Gold Card
A plastic payment card which normally allows the holder higher spending limits over the standard card. Also loan facilities are sometimes available. People who hold such a card are often required to be earning a minimum salary level. Gold cards are usually either charge cards or credit cards.

Grace period
The period, normally 30 days, during which an insurance policy remains in force even though the premium has not been paid.

Grant
Funding for a non-profit organization, usually for a specific project. Grantee one to whom a grant is made.

Gross Income
The scheduled (total) income, either actual or estimated, of a person before deductions. This for example could be a person's salary plus bonuses, plus benefits in kind (e.g. company car and medical insurance) plus income from shares etc.

Growing Equity Mortgage (GEM)
A fixed rate, graduated payment loan allowing low beginning payments and a shorter term because of higher payments as the loan progress. Based on the theory of increasing income by the buyer and, therefore ability to make higher future payments.

Guarantee
A commitment made by a person to be answerable for the debts or liabilities of another.

H

Hidden asset
Asset not immediately apparent from a balance sheet. High equity A mortgage which is low in comparison to the amount deposited in cash by the purchaser.

Hire purchase (HP)
The pre-agreed purchase of an asset where the asset e.g. computer is in your possession as long as repayments are kept to. Once enough payments are made, the asset becomes your property.

Holder
A person in possession of a negotiable instrument such as a bill of exchange or promissory note. That person may be the payee or the endorsee.
Or a person who has made an opening purchase of an option and thus has acquired the rights to them.

I

Incapacity benefit
A state benefit payable after the expiry of state sickness benefit if a person is still unfit to work. This replaces the former invalidity benefit and as such carries a reduced level of benefit.

Income
Money received by an individual as a salary, or from investments. Cash deposits and bonds will provide income in the form of interest. This income is subject to income tax. Income from property Income received from property letting is subject to income tax. The amount taxable is the amount receivable in the tax year. If an owner, occupier or tenant rents out a room he may receive up to a certain annual income without incurring a tax liability.

Income tax
In most countries income tax is progressive on successive slices of income, so that the more you earn the higher the incremental rates of tax you pay.
In the UK, everyone is allowed to make a certain amount of income before any tax is payable. Known as the 'personal allowance', the amount increases with age, and for the year 2005-2006 the figures are:

1. Under 65: £4,895
2. 65-74: £7,090
3. 75 and over: £7,220

If your income in a tax year is below these thresholds, you are not liable for income tax. In some circumstances, where tax has been deducted at source, you will be able to reclaim tax already paid.
For earnings above your personal allowance, your income tax liability will go up in bands and vary according to whether the income is from employment, share dividends or interest. The lowest rate is 10% and the highest is 40%.Inflation The overall general upward price movement of goods and services in an economy. Over time, as the cost of goods and services increase, the value of the pound is going to fall because a person won't be able to purchase as much with that pound as he/she previously could.

Inland Revenue
The government department responsible to the Treasury for the collection of direct taxes which include income tax, capital gains tax and inheritance tax etc.

Insolvent
Unable to meet debt obligations.

Instalment
The regular periodic payment that a borrower agrees to make to a lender.

Insured Mortgage
A mortgage insured against loss to the mortgagee in the event of default and a failure of the mortgaged property to satisfy the balance owing plus costs of foreclosure.

Interest
The fee charged by a lender to a borrower for the use of borrowed money, usually expressed as an annual percentage of the principal; the rate is dependent upon the time value of money, the credit risk of the borrower, and the inflation rate. Here, interest per year divided by principal amount, expressed as a percentage. also called interest rate.

Interest Cap
The maximum interest rate increase of an Adjustable Mortgage Loan. For example: a 120% loan with a 5% interest rate cap would have maximum interest for the life of the loan which would not exceed 17%.

Interest Rate
The percentage rate at which interest is charged on a loan or paid on savings etc.

J

Joint
Pertaining to multiple parties on the same side of an agreement or transaction.

Joint account
Typically a bank or brokerage account in the names of two (or more) people. Arrangements can be made such that either individual or all signatures are required when drawing checks/cheques.

Joint liability
The legal liability of two or more people for claims against or debts incurred by them jointly. If three people have joint liability and are indebted to another party, they may only be sued as a group and not individually.

L

Late charge
A charge imposed by a lender to a borrower when the borrower fails to make payment on the due date.

Laundry (money)
The manipulation of money obtained in a wrongful manner, for example theft, so as to seem to have originated from a lawful source. An example is to pay the unlawful money into an overseas bank and subsequently transfer back to the country of origin.

Lease
A contract in which the legal owner of property or other asset agrees to another person using that property or asset in return for a regular specified payment (known as rent) over a set term. In addition to buildings, other items such as cars and computers are often leased in order to avoid capital costs in the running of a business.

Legacy
Another term for bequest, that is, the making of a gift by will. In the main there are three main types of legacy.

1. Pecuniary legacy: A gift of a fixed sum of money left for example to an individual or a charity.
2. Specific legacy: A gift of a specific item (such as a set of books) left for example to a friend.
3. Residuary legacy: A gift consisting of the residue of an estate after all other conditions of the will have been met, or part of such residue.

Lender  
A person or company that offers to lend money to a borrower for a given period of time. The borrower is obliged to repay the loan either by instalments or single payment together with specified interest.

Liability
The debts of a person or company

Liability Insurance
Insurance against legal liability to pay compensation and court costs where the insured has been found negligent in respect of injuries sustained by another person or damage to his/her property.

Life assurance
An insurance policy which, in return for the payment of regular premiums, pays a lump sum on the death of the insured. In the case of policies limited to investments which have a cash value, in addition to life cover, a savings element provides benefits which are payable before death. In the UK endowment assurance provides life cover or a maturity value after a specified term, whichever is the sooner.

Liquid Assets
Cash plus assets which can readily be converted into cash.

Liquidated Damages
A definite amount of damages, set forth in a contract, to be paid by the party breaching the contract. A pre-determined estimate of actual damages from a breach.

Loan
An advance of money from a lender to a borrower over a period of time. The borrower is obliged to repay the loan either at intervals during or at the end of the loan period together with interest.

Loan Account
An account, opened for a customer by a bank, following the granting of a loan. The amount of the loan is credited to the customer's current account and similarly debited to the loan account. An arrangement is subsequently made for the customer to repay the loan, usually over a stated period of time, with interest additionally being paid on the outstanding amount.

Loan Policy
A title insurance policy insuring a mortgagee, or beneficiary under a deed of trust, against loss caused by invalid title in the borrower, or loss caused by invalid title in the borrower, or loss of priority of the mortgage or deed of trust.

Loan ratio
The ratio, expressed as a percentage, of the amount of a loan to the value or selling price of real property. Usually, the higher the percentage, the greater the interest charged. Maximum percentages for banks, savings and loans, or government insured loans, is set by statute.

Loan Sharking
Charging an illegally high interest rate on a loan.

Lower earnings limit
The level of income at which employees start to pay Class 1 National Insurance contributions.

Limited (LTD)
'Ltd' after a company name indicates that the company is privately owned with 'limited liability' status. This means that the directors of the company are not liable for the company's debts if it goes bust. Nearly all newly-formed companies in the UK are incorporated as Ltd companies. If the number of shareholders in the company grows to 50 or more, the company changes to a 'plc' - public limited company, though this does not mean that their shares are publicly tradeable. Only companies that formally list their shares on the Stock Exchange are fully tradeable.

Lump Sum
A sum of money paid in a single instalment.

M

Maximizing income
Increasing the amount of income you earn.

Money adviser
Someone who is trained to offer advice both on debt and on increasing your income. A money adviser can help you work out what your options are and, where needed, negotiate affordable payments and set up repayment plans with your creditors.

Money Broker
A type of agent who arranges short term loans between banks (which are seeking to lend money) and borrowers such as institutions. The money broker is not involved in the process of lending/borrowing but merely acts as an intermediary earning a commission.

Mortgage
A loan in which the borrower (the mortgagor) offers a property and land as security to the lender (the mortgagee) until the loan is repaid. Repayments of the loan are usually made on a monthly basis over a long period of time, typically 25 years. In the UK, the most common forms of mortgage are the repayment mortgage and the interest only mortgage.

Mortgage Broker
A person or company engaged in the arrangement of mortgages for buyers. The broker is usually paid a commission by the lender.

Mortgage Protection
Term assurance to cover the repayment of a mortgage in the event of the death of the mortgagor during the period of the loan. In the case of a repayment mortgage the capital sum outstanding is gradually reduced over the term of the loan (albeit slowly during the initial years when the majority of the repayments are paying the interest) so that decreasing term assurance would be incorporated in the policy. For an endowment mortgage where the sum assured and the death benefit are at least equal to the amount of the loan throughout the term of the loan, level term assurance would be apt.

N

National Debt
The total debt accumulated by a government through the issue of government bonds, Treasury bills and Treasury notes. The government has to pay interest on its borrowings, and this obligation is one of the major budget items for many governments.

National Insurance
A form of taxation, payable by employees, employers and the self employed, which is notionally to fund state benefits including pensions, sickness, unemployment and maternity. It is part of the state's social security system and ultimately controlled by the Department of Social Security.

Negative equity
A situation where the purchaser of a property has taken out a mortgage and some time after the purchase, the value of the property falls below the mortgage amount.

Negotiable
The ability to be sold or transferred to another party as a form of payment. Something which is negotiable is transferable by endorsement and delivery. A negotiable instrument could be a check made out to you, because you could endorse it for payment to you or transfer it to someone else as payment to them.

Net/after deductions
An amount of money e.g. income you take home after income tax, national insurance contributions, payments towards a pension scheme or any other deductions have been deducted, usually by your employer when you get paid.

Net assets
Total assets minus total liabilities of an individual or company.

Net Income
Net profit attributable to ordinary shareholders after the deduction of all other charges.

Nominee
The person, bank or brokerage in whose name securities are transferred.

Notarization
The certification by a Notary Public that a person signing a document has been properly identified. Notarization does not certify the content of a document, only validity of signature.

Notary Public
A person authorized to notarize certain documents.

O

Obligation bond
Mortgage bond whose face value exceeds the value of the underlying property, and for which a personal obligation is created to compensate the lender for any costs that may exceed the value of the mortgage.

Ombudsman
Ombudsmen do not have any formal power to reverse decisions but they have substantial moral authority over companies or national or local government agencies.
Within financial services, there are different Ombudsmen for banking, building societies, insurance, pensions, and investments.
If you have a complaint about your treatment by a financial services company, the first thing you should do is make the complaint directly to the compliance officer or senior management of the company. If the outcome is unsatisfactory, you can then take it to the Ombudsman who will investigate and consider all the facts of the case, and make a recommendation. The company will not always follow the Ombudsman's recommendation, but usually will.

Open end mortgage
A mortgage permitting the mortgagor to borrow additional money under the same mortgage, with certain conditions, usually as to the assets of the mortgage.

Ownership
Rights to the use, enjoyment, and alienation of property, to the exclusion of others. Concerning real property, absolute rights are rare, being restricted by zoning laws, restrictions, liens, etc.

Open interest
The net amount of outstanding open positions, either long or short, in a given futures or options contract.

P

Pass book
A book of recorded transactions in a savings account, issued by banks and building societies in the UK in which a customer's deposits, withdrawals and interest are entered. The book is retained by the customer to give an indication of the running balance.

Partial Release
Partial Release is a mortgage provision allowing some of the pledged collateral to be released if certain requirements are met.

PAYE (Pay as your earn)
People who earn income from employment or who receive a pension are liable for income tax under the PAYE system.
Taxable pay(gross salary less pension contributions less allowances) is used by the employer to calculate a person's income tax (according to his/her notice of coding) which is passed to the Inland Revenue usually monthly or weekly. This ensures that employees pay their income tax on a regular basis.

Payment Cap
A Payment Cap is the maximum amount for a payment under an Adjustable Mortgage Loan, regardless of the increase in the interest rate. If the payment is less than the interest alone, negative amortization is created.

Pension Mortgage
A personal mortgage is a type of personal pension plan which utilises the tax free lump sum entitlement from the pension fund at retirement age to repay a mortgage whilst the remainder is used to provide a pension. Throughout the mortgage term the borrower pays interest to the lender such as a building society or bank whilst additionally making payments into the pension scheme. Tax relief is allowable on both the interest payments to the lender and on the contributions to the pension scheme which makes this type of plan attractive.

Personal allowance
Tax allowances are concessions by the Inland Revenue which can be used to reduce a person's Taxable Income. The main allowance for UK taxpayers is the 'personal allowance'; which is an amount of income that is tax free. In the tax year 2005-2006 the personal allowances are:

1. Under 65: £4,895
2. 65-74: £7,090
3. 75+: £7,220

The personal allowances for elderly people are reduced if their total income exceeds £19,500, and the amount of the reduction if £1 for every £2 of the excess. So someone aged 68 with a Total Income of £19,800 would get a personal allowance of £7,090 less £300 = £6,790.

Personal Equity plan
A plan where people over the age of 18 could formerly invest in the shares of UK and other EEC companies via an approved plan manager or through qualifying unit trusts and investment trusts and receive both income and capital gains free of tax.

Personal Income
Personal income is a person's total income which includes salary, transfer payments, dividend and interest income.

Personal Loan
Loans available from banks and other financial institutions to private individuals for personal use such as the purchase of a motor vehicle, holiday or similar item are personal loans. Repayment periods vary from one year to five years. No collateral is asked for or given for the loan.

Personal possessions
The personal possessions of a deceased person which pass to the beneficiary or beneficiaries of the residue of estate unless otherwise stated in the will.

Postal Account
In the UK, a personal account is a building society account in which all transactions are conducted via post. In some cases a pass book is used to record deposits and withdrawals although societies are increasingly acknowledging each of their customer's transactions with a single statement sheet which depicts the amount deposited or withdrawn and the resulting account balance

Pound cost average
In the UK, the regular investing of fixed amounts over regular periods, typically monthly, in order to accumulate holdings in securities such as shares, unit trusts and investment trusts.
When for example a unit trust price or investment trust price has fallen more units or shares can be purchased for that month. Similarly when the price rises then fewer units or shares can be purchased.
Over a period of a few years, the average price paid will be lower than the average share price for that period since more shares are bought at the lower price and fewer at the higher price.

Power of attorney
A document which authorises a person to act on behalf of another is a power of attorney.

Privatization
The sale of government-owned equity in nationalised industries or other commercial enterprises to private investors is the act of privatization.

Property Tax
Local tax assessed on property owned, such as real estate or automobiles.

Public Sector Net Cash Requirement
Formerly known as Public Sector Borrowing Requirement (PSBR), PSNCR is the difference between the expenditure of the public sector and its income.
Where there is a deficit it is financed by borrowing - principally via the sale of government gilt edged stocks (gilts).
Public sector net borrowing also measures the difference between the expenditure and income of the public sector but differs from the net cash requirement in that it is measured on an accruals basis whereas the net cash requirement is mainly a cash measure.

Q

Quick assets
Cash and other assets which can or will be converted into cash fairly soon, such as accounts receivable and marketable securities; or equivalently, current assets minus inventory.

R

Real Asset
An asset that is valuable because of its utility, such as real estate or physical equipment.

Receiver
A person appointed by a court to finalize the affairs of a company and to utilise assets to pay its creditors

Re mortgage
To re mortgage is arranging alternative finance for the purchase of a property which is already mortgaged.

Repayment Mortgages
A mortgage where throughout the term, regular payments are made to partly repay interest on the capital and to partly repay the capital itself (the amount of the loan).
Initially the largest proportion of the repayments will be used to pay interest since the capital amount outstanding is at its highest value. Therefore over the initial years the capital will not reduce very much. However as the years proceed more and more of the monthly repayments will be applied to reducing the capital until towards the end of the term the large proportion will be paying off capital and a small proportion paying interest.

Revenue Account
An investment trust term referring to analysis of investment income.

Reverse Mortgage
An arrangement in which a homeowner borrows against the equity in his/her home and receives regular monthly tax-free payments from the lender.

Roll over mortgage
Mortgage for which the unpaid balance is refinanced every few years at then-current rates is a roll over mortgage. This is good for the borrower and bad for the lender if interest rates are falling, and bad for the borrower and good for the lender if interest rates are rising.

S

Salary
Wages received on a regular basis, usually weekly or monthly. Sometimes the term is used to include other benefits, including insurance and a retirement plan.

Savings account
An account with a bank or financial institution which pays interest on balances held, usually once or twice per year, the amount of interest paid usually depends on to the amount of money in the account and the 'base rate' of the Bank of England. There is often a notice period required for withdrawals and in most cases the longer the notice period, the higher the interest rate.

Second Mortgage
A second mortgage is taking out a mortgage on a property which is already mortgaged. This can be used to raise capital if the property has significantly increased in value and would involve finance companies rather than banks or building societies. Since the first mortgagee (lender) usually holds the deeds of the property, the second mortgagee will carry a higher risk and thus charges a considerably higher rate of interest.

Secured Bond
A bond which is secured by the guarantee of assets or collateral is a secured bond.

Secured loan
A loan which is backed up by assets belonging to the borrower (normally property) in order to decrease the risk taken on by the lender. Mortgages and some personal loans are secured loans. If you don't maintain your repayments, your property can be at risk of repossession.

Self assessment
From April 1996 all taxpayers in the UK are obliged by law to maintain records of their income and all types and capital gains so as to enable annual tax returns to be completed. This is known as Self Assessment. In April each year the Inland Revenue sends out almost nine million self assessment forms to taxpayers.

Sequestration
The Scottish legal term for personal bankruptcy is sequestration. This is where an individual, sole trader or partnership is formally declared bankrupt by the court (ie they cannot pay their debts) and that the debts and assets of a person should transfer to an appointed trustee.

Sole trader
An individual proprietor of the simplest form of business, e.g. a shop owned and run by a single person.

Standing order
An instruction you give to your bank or building society to make regular payments from your account to a specific company. This is a fixed amount unlike a direct debit which can vary.

Surplus income
This means the amount of money which you have left over when you subtract necessary expenditure from your income.

T

Tax credits
Tax you receive back in certain circumstances, e.g. pension credit, child tax credit and working tax credit.

Tax Codes
Under the PAYE system of taxing income, tax codes are allocated annually to employees. These codes enable the employer to deduct tax at the correct rate from salaries or wages on a monthly (or weekly) basis for remittance to the Inland Revenue. Most codes show a number followed by a letter. The number refers to the amount of salary payable free of tax (for example if a person's code is 45OH, the tax free allowance will be between £4,500 and £4,509 that is, the first three numbers of the net allowances form the number of the code).
The letter denotes that various personal and other allowances are included.

Taxable earnings
The amount of an individual's annual income on which tax is payable defined as: Taxable earnings = Income - Reliefs - Allowances

Third Party
A third party is the person who claims against an insured person when loss or damage to property or injury has occurred as a result of the insured person's negligence.

Trustee
A trustee is the person who claims against an insured person when loss or damage to property or injury has occurred as a result of the insured person's negligence.

Trust deed
A form of debt relief where you're unable to pay your debts but have money tied up in assets, such as a house. Creditors can agree that you give everything you own to a trustee (usually an accountant) and sign a trust deed, which is legally binding. The trustee offers to pay your creditors as much as possible of what you owe them from the value of your assets. If it is a protected trust deed then the trust deed is a diligence stopper.

Trustee in bankruptcy
One appointed by a bankruptcy court, and in whom the property of the bankrupt vests. The trustee holds the property in trust, not for the bankrupt, but for the creditors.

Trustor
The borrower under a deed of trust is a trustor.

Trustee
Usually an accountant (a qualified insolvency practitioner), a trustee acts for the creditors by managing the trust deed when a debtor agrees to sign over their assets into a trust deed or when they are declared bankrupt.

U

Unsecured creditor
A creditor who does not hold security (such as a mortgage) for money owed.

Unsecured Loan
An unsecured loan is a loan where the lender has no entitlement to any of the borrower's assets in the event of the borrower failing to make the loan repayments. Such a loan normally carries a higher interest rate than a secured loan.

V

Value
The worth or desirability of something expressed as an amount of money.

Variable interest rate
Interest rates offered by banks and financial institutions on loans or deposits which are liable to change according to circumstances. For example a movement in the interest rate set by the government would usually be an influence.

W

Wrap around mortgage
A second or junior mortgage with a face value of both the amount it secures and the balance due under the first mortgage. The mortgagee under the wrap-around collects a payment based on its face value and then pays the first mortgagee. It is most effective when the first has a lower interest rate than the second, since the mortgagee under the wrap-around gains the difference between the interest rates, or the mortgagor under the wrap-around may obtain a lower rate then if refinancing.