This glossary covers the terminology you are most likely to encounter when working with a financial adviser on pensions, retirement, inheritance tax and estate planning. Where a term has changed its meaning or significance as a result of the Finance Act 2026, that is noted.
Annual allowance
The maximum amount that can be contributed to a pension in a single tax year while qualifying for tax relief. The standard annual allowance is currently £60,000. High earners may have a tapered annual allowance. Unused allowance from the previous three tax years can be carried forward — see carry forward below.
Further reading: carry forward pension contributions explained
APFS — Advanced Diploma in Financial Planning
One of the highest qualifications available to financial advisers in the UK, awarded by the Chartered Insurance Institute (CII). Holders who meet additional experience requirements can be awarded the title of Chartered Financial Planner. Peter Rose APFS at Aetas Wealth holds this designation.
Business Relief (BR)
A relief from inheritance tax available on qualifying business assets and certain investments, including shares in qualifying AIM-listed companies held for at least two years. Assets qualifying for 100% Business Relief are completely exempt from inheritance tax while remaining in the estate. Previously known as Business Property Relief (BPR).
Further reading: AIM portfolios and Business Relief
Carry forward
A rule that allows unused pension annual allowance from the previous three tax years to be used in the current tax year. This enables higher pension contributions in years of high earnings — particularly valuable for business owners who want to fund their pension significantly before an exit. The individual must have been a member of a registered pension scheme in the years being carried forward from.
Further reading: carry forward pension contributions
Cash flow modelling
A financial planning technique that projects a client’s income, expenditure, assets and liabilities year by year across their expected lifetime. It shows whether a financial plan is sustainable and how different decisions compound over time. Aetas Wealth uses cash flow modelling as a standard tool in every client relationship.
Further reading: cash flow planning service
Defined benefit pension
A pension that pays a guaranteed income in retirement based on salary and years of service. Also known as a final salary pension. Defined benefit pensions are increasingly rare in the private sector but common in public sector employment. They are treated differently to defined contribution pensions under the Finance Act 2026 IHT changes.
Further reading: defined benefit pensions and the April 2027 IHT changes
Defined contribution pension
A pension arrangement in which contributions are paid in by the employer, employee or both, and invested to build a pot. The income in retirement depends on the pot’s value and how benefits are taken. Most modern workplace pensions are defined contribution. Under the Finance Act 2026, unspent defined contribution pension funds will be subject to inheritance tax from April 2027.
Drawdown sequencing
The strategy of deciding which assets to draw from in retirement — and in what order — to minimise tax, maximise income and manage estate position. With the Finance Act 2026 pension IHT changes, drawing from pension versus ISA versus investment portfolio each carries different tax implications for both lifetime income and the estate. Sequencing decisions made before April 2027 can have a material impact on outcomes.
Further reading: drawing your pension differently after 2027
Expression of wishes
A non-binding letter to a pension scheme administrator indicating who the pension holder wishes to receive death benefits. Because pension death benefits are typically paid at the administrator’s discretion, an expression of wishes guides but does not legally bind the decision. It should be reviewed and updated regularly — particularly following the Finance Act 2026 changes.
Finance Act 2026 — pension IHT changes
Legislation that brings unspent defined contribution pension funds within the scope of inheritance tax from 6 April 2027. Previously, pension funds sat entirely outside the estate for IHT purposes. Under the new rules, pension funds remaining at death will be subject to the standard 40% inheritance tax rate. This is the most significant change to pension and estate planning in a generation.
Further reading: pensions and IHT from April 2027 — the full briefing
Flexi-access drawdown
A pension arrangement that allows the pension holder to take flexible income directly from their pension fund while keeping the fund invested. There is no prescribed limit on withdrawals. The fund remains exposed to investment risk. Under the Finance Act 2026, unspent drawdown funds will be subject to inheritance tax from April 2027.
Independent financial advice
Financial advice provided by an adviser who considers products and solutions from across the whole market, rather than from a restricted panel. This contrasts with restricted advice, where the adviser can only recommend from a defined range. Aetas Wealth provides independent financial advice.
Lasting Power of Attorney (LPA)
A legal document that allows a person to appoint one or more people to make decisions on their behalf if they lose mental capacity. There are two types: property and financial affairs, and health and welfare. An LPA must be set up while the donor has capacity — it cannot be arranged after capacity is lost.
Further reading: a guide to Lasting Power of Attorney
Nil-rate band
The threshold below which no inheritance tax is charged on a person’s estate. Currently £325,000 per person, frozen until April 2028. Any unused nil-rate band can be transferred from a deceased spouse or civil partner, giving a combined threshold of up to £650,000. See also: residence nil-rate band.
Pension commencement lump sum (PCLS)
The tax-free cash lump sum that can be taken when a pension is crystallised — typically up to 25% of the pension fund, subject to an overall cap. Also known as tax-free cash. The timing of taking PCLS in relation to the Finance Act 2026 changes has become an important planning consideration.
Further reading: pension tax-free lump sum planning
Pension Schemes Act 2026
UK legislation that creates the administrative framework for the Finance Act 2026 pension inheritance tax changes. It requires pension scheme administrators to become liable for calculating and remitting IHT on pension death benefits before they are paid to beneficiaries, effectively bringing pension funds into the standard estate tax regime from April 2027.
Potentially exempt transfer (PET)
A gift made during a person’s lifetime that is fully exempt from inheritance tax if the donor survives for seven years after making it. If the donor dies within seven years, taper relief may reduce the tax payable. PETs are one of the primary tools in inheritance tax planning.
Residence nil-rate band (RNRB)
An additional inheritance tax allowance of up to £175,000 per person, available when a main residence is left to direct descendants. Combined with the standard nil-rate band, a married couple can potentially pass up to £1 million free of inheritance tax — subject to tapering for estates above £2 million. The RNRB is frozen until April 2028.
Spousal exemption
The rule that assets passing between spouses or civil partners on death are exempt from inheritance tax, regardless of value. Pensions passing to a surviving spouse also benefit from the spousal exemption after April 2027 — however, the pension then sits within the surviving spouse’s estate on their death, making second-death estate planning particularly important.
Further reading: pension IHT and the spousal exemption after April 2027
Uncrystallised pension funds
Pension savings that have not yet been accessed or put into payment. No tax-free cash has been taken and no income is being drawn. Uncrystallised funds are subject to the Finance Act 2026 IHT changes from April 2027 in the same way as funds in drawdown.
Definitions are for guidance and general information only. Tax rules change and the application of any rule depends on individual circumstances. Nothing on this page constitutes personal financial advice. Aetas Wealth is a trading style of Insight Financial Associates Limited, authorised and regulated by the Financial Conduct Authority (FRN 458421). The FCA does not regulate Wills, Trusts or Tax advice.