Terms of Engagement
Paul Lewis demystifies some common financial words and phrases.
Financial news contains many words and phrases that leave people scratching their heads. Even an online search can produce answers that are confusing.
Recent research found the most-searched term was “equity”. You usually find it in the phrase “equity release”, which simply means cashing in some of the value of your home by borrowing money that is secured on it and is repaid after you die. Here, “equity” is just a posh word for your share of your home’s value. It is also used in the plural in “investing in equities”. This just means shares in a company, but advisers use “equities” to sound knowledgeable. A share is a very small part of the value of the firm – perhaps a billionth – but it is yours.
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Another head-scratcher is “illiquid”. Property investments can be very “illiquid”, they say. Which means it is hard to cash them in. Unlike shares or cash, you cannot just sell it today and bank the proceeds. You need to find a willing buyer at a price you think is fair. Illiquid is risky when it comes to investing.
A real puzzler is “GDP” – Gross Domestic Product – which means all the goods and services sold, like the turnover of a business. It is usually expressed as a percentage of the growth in GDP – “the UK economy has grown 0.3% in the last three months”, for instance.
A growing economy is supposed to be a good thing because it means more people work and earn more, and businesses grow so more tax is paid. The new Chancellor, Rachel Reeves, is relying on growth to give her more money to spend. In terms of pounds, UK GDP was £2,273,126,000,000 in 2023 – just over £2.25 trillion.
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Finally, “Stamp Duty”. In England and Northern Ireland, HM Revenue & Customs charges Stamp Duty Land Tax when we buy a home or other property. In Scotland it’s called Land and Buildings Transactions Tax, and in Wales Land Transaction Tax. Devolution means that if you buy a home in the UK, the tax of between 0% and 16% can be eight different amounts depending where the home is, whether you are a first-time buyer, or if it’s a second home. (Confusingly, Stamp Duty is also the term applied to a tax on buying shares.)
QUESTIONS? Send any questions to paul.lewis@radiotimes.com. I cannot answer you personally, but I will reflect them in this column.