Financial terms R - Z

It's the final leg in our tour around the financial phrases that matter and confuse.

From (whisper it) Recession to Zombie, you'll find all those back-of-the-alphabet words here.

And if you don't, just drop us a note and we'll add more.

Recession
If there is a decline in GDP for two quarters in succession, then it is officially a recession. A severe recession is a depression.

Redemption Penalty
This is an interest penalty levied by mortgage lenders on borrowers who pay back mortgages early. It is typically included on mortgages that offer some form of interest rate discount as a means of stopping borrowers leaving as soon as the discount period has run out. Increasingly redemption penalties only apply during the discount period of a mortgage.

Repayment Mortgage
This is a mortgage that requires the borrower to repay interest and a slice of the money borrowed at regular intervals. As long as the homeowner meets every payment, the loan will be fully repaid at the end of the mortgage term.

Rights Issue
A rights issue takes place when a company invites existing shareholders to purchase additional discounted shares in the company. The right to buy more shares is related to the amount of stock already owned. A one in six rights issue will entitle the investor to buy one new discounted share for every six shares currently held. If the investor doesn't want the new shares, they can sell the rights. For capital gains tax purposes, any shares bought at a rights issue are deemed to have been bought at the same time as the original shares.

Roll-over Relief
A tax relief that individuals can claim when profits from one investment are reinvested into another. It tends to apply to new and smaller companies, including AIM-listed companies.

Running Yield
Used to describe income currently being generated by an investment fund.

Scrip Dividend
Instead of receiving dividends in the form of cash, investors can also receive them in the form of more shares. Instead of a cash dividend this is known as a scrip dividend.

Self Invested Personal Pensions (Sipps)
A personal pension where the person investing for their retirement retains control of the investment decisions.

Securities and Exchange Commission (SEC)
Set up to protect investors against fraudulent dealings in the stock market.

Selling Short
A way of making money when the market is falling. Investors borrow a security from a trader with an agreement to return it at a later date. They then sell that stock in the market and wait for the share price to fall. As the date they have to return the stock to the trader approaches they buy it again (at a lower price, they hope!) and complete the deal by returning it to the broker. Selling short can force share prices down, allowing traders to buy the shares back at a huge profit. To prevent fraud, the SEC allows short selling to take place only when shares are trading either at an uptick or zero plus tick.

Self-Assessment
Launched in 1997, this was the government's plan to cut down the cost of calculating tax by making us responsible for our own tax returns. People whose only source of income is from employment and savings don't usually have to fill out a self-assessment form. The forms are issued in April and have to be back, along with tax due, by January.

Serps
The State Earnings Related Pension Scheme (SERPS) was introduced by the government in April 1978. It allowed employees (but not self-employed people) the chance to top up their state pension with additional contributions based on their salary. The more you earned, the higher your pension. People could contract out of SERPS and receive a rebate on their National Insurance contributions to invest in a personal pension plan or an occupational pension. The scheme was replaced in April 2002 with the State Second Pension. Any SERPS entitlement already built up is protected, both for those who have already retired and those who have not yet fully reached state pension age.

Spread
The difference between the bid (purchase) and offer (sale) price of any asset is known as the spread.

Stakeholder Pension
These were introduced in April 2001, and are promoted as low-cost flexible pensions. Since October 2001, all employers who don't offer a pension scheme and who have five or more staff must offer one to their employees. There is no obligation for people to contribute to one. Stakeholder pensions have a maximum annual management charge of 1% and the annual contribution limit is £3,600.

Stamp Duty
Stamp duty is a form of tax levied on the transfer of assets. It affects the buying and selling of shares, property and businesses. All share sales incur 0.5% stamp duty. Homes valued at more than £60,000 attract 1% stamp duty. Those worth over £250,000 but not more than £500,000 attract 3%. And homes worth more than £500,000 are charged at 4%.

State Second Pension (S2P)
This replaced SERPS in April 2002. It works on similar lines but provides a more generous additional pension for low and moderate earners. Also, for the first time, it covers certain carers and people with a long-term illness or disability, whose working lives have been interrupted or shortened. They are able to build up an additional state pension for periods when they cannot work.

Taper Relief
A tax relief available to people who have to pay Capital Gains Tax. It is designed to encourage us to hold shares for longer. Taper relief starts at 5% after three years, rising to 40% after 10 or more years.

Tax Band
The tax man breaks income tax into three distinct bands: lower, basic and higher. That proportion of income falling within a specific band is taxed at that band's rate.

Tax Year
The twelve months from April to April over which the government budget, our tax and many company accounts are calculated.

TechMark 100
This is the specialist FTSE technology market, which includes everything from FTSE 100 companies down to newly formed tech stock. The London Stock Exchange normally requires companies to have had three years trading history, but to be included in the FTSE Techmark, the company just has to show it is committed to technological innovation.

Tessa (Tax Exempt Special Savings Account)
A tax-free savings scheme set up by the government to encourage longer term saving. Tessas were replaced in April 1999 by Isas.

Thin Market
The opposite of a liquid market, this is where shares are difficult to sell and volatility is high. Even very small fluctuations in supply or demand can have a big influence on the market price.

Triple Witching Hour
The final hour before the expiry of equity, index options and index futures contracts.

Underperform
When an investment fails to keep pace with its benchmark.

Underweight

An investment term describing a share portfolio that, when compared against a benchmark, has a disproportionately small percentage of money invested in a single sector. If for example 1% of the shares you own are issued by banks, you would be underweight banks when compared to the FTSE All-Share.

Unit Trusts
A means of spreading the risk of investing. Instead of buying shares directly, your money goes into a fund with a lot of other people's money. That cash pot is then invested in a wide range of shares. This should be able to give you a more diversified portfolio than you would otherwise be able to obtain.

Uptick
Either a stock market transaction or a quote where the price is higher than the previous one for the same share (a downtick is where the transaction or quote is lower than the previous one for the same share).

Valuation
The process of assigning a value to a property. Lenders will demand that a property you plan to buy has a valuation by a registered surveyor before they agree a mortgage.

Variable Rate Mortgage
A mortgage whose interest rate moves in line with changes in the Bank of England Base Rate. The mortgages are set at a premium to the Bank of England rate.

Venture Capitalist
A person who invests money into risky but potentially very profitable businesses.

Warrants
Certificates which allow the holder to buy a specified amount of stock at a set price sometime in the future.

Working Lunch
The best user-friendly personal finance programme around!

Will
A legally enforceable document which directs the disposal of a deceased person's property. If someone dies intestate (without making a will) the property will be distributed by probate according to the laws of the country in which the person resided.

Yield
The annual income from an investment calculated as a percentage of its market price. For shares, the yield is worked out by dividing the annual dividends by the purchase price. For bonds, it is the coupon rate divided by the market price.

Zero Plus Tick
Where a share price is the same but still greater than the previously quoted different share price.

Zombie
An insolvent company which continues to operate as it awaits takeover or closure.

ZZZZZZZZ
Hopefully not what you'll be doing after reading all this!