Tech Professionals in UK - What You Need to Learn About Personal Finance for your FIRE planning?
A Journey Through the Trenches for Fellow Tech Brothers and Sisters
This post has been brewing on my mind for so long now. As someone who spends their days working with neural networks and optimization algorithms, I've realized that managing personal finances isn't too different from training a model - it's all about optimization, understanding the parameters, and making data-driven decisions. But the whole tax and investment landscape complicates it just so much. I have wasted countless hours going through various posts and resources and coming back empty-handed. But fear not, I won’t let those hours just go to waste like that. Here's what I've learned navigating the UK financial landscape as a tech professional.
Alright, let’s get into the trenches and try to create an algorithm that you could use given the current market conditions.
How would you even think about investments? I suggest going to the whiteboard and coming up with all the expenses that you do monthly. This would include your rent (or mortgage payments), council tax, utilities, food bill, and YOLO expenses.
Once you get done, you come up with a figure and that is the amount you could invest. Before even thinking of investing I would ask you to create a corpus equal to 6 months of expenses and put that in a Fixed deposit where it could be immediately available. Now let’s talk about the various investment options in the order I believe you should invest in them and why. I will try to provide tips on how you can make the most of these investment vehicles and am open to any advice as well that you would provide me. Nobody is a professional here.
A. Investment Saving Accounts(ISAs):
This is the most important saving instrument you would find in the UK. And my advice would be to make sure to fully invest 20K GBP (which is the yearly allowance) in a tax year in this account. Now while there exists a variety of ISAs. You only need to know about one- Stock and Shares ISA. And there are many ISA providers as well. Here also you need to know about just one—Trading212. In my view, if you are not using your whole ISA allowance you are effectively throwing away free money. I was watching somewhere that only 5% of adults in the UK currently hold a Stock and Shares ISA account. What a waste.
But what are these ISAs and why are they so important?
So, the main benefit of ISAs is that any capital gains or dividends within an ISA are completely tax-free. And this effect compounds with time. Add to that accessibility to your money this instrument is hard to beat honestly anywhere in the world.
The above might feel cryptic with some new terms. Let’s understand this with an example. Consider two scenarios over 20 years with a 12% annual return:
£20k invested annually in a regular account(GIA), paying capital gains tax of 24% at the end when we redeem our investments. Potential Payout
£20k invested annually in an ISA
That’s a huge difference in payouts—Almost 291K GBP. Where did it go? The taxman took 24% of your total capital gains when you sold your shares but they cannot touch your ISA account. To put into perspective you put in a total of 400K GBP in those 20 years, and you end up giving such a big chunk of it to the tax man. Though the above illustration might look simplistic, the benefits of using ISAs are huge. I know I am not talking about the 3K GBP Allowance on CGT, but honestly, as the size of your corpus increases and you stay invested for long, this limit is just a “nice to have” and would not change anything substantial in the above example.
Here is an illustration of how much an ISA can be worth more than a GIA, given the different rates of interest you can get from the stock markets. To put things into perspective between 1990-2023 NASDAQ composite has had returns averaging around ~15-16%
And, here are some example scenarios with actual values.
Tip: Invest as a family. Don’t let the ISA allowance of your partner go to waste. If they don’t have enough money in their account (either due to them not working, or them making less), gift them money to use up their ISA allowance. If you have kids, you can invest 9k GBP in their Junior ISA(JISA) as well. This will again be tax-free with the only problem being that the child will get access at 18 years of age automatically to that corpus. As long as you instill good money habits in your kids, you and the kids should be fine.
Where to invest in an ISA? — That is such a tough question. It depends on a lot of factors. How much of an active investor are you? How much financial knowledge did you possess? But my simple answer for all retail investors is that the best way is to go with an Index fund.
As Warren Buffett said:
"By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals. Paradoxically, when 'dumb' money acknowledges its limitations, it becomes smarter than the 'smart' money."
And, here are the Index funds, I am investing in so you can copy me if you want as well:
Ishares NASDAQ 100 (around 75% of my portfolio): This is a fund that tracks the performance of NASDAQ 100, which holds the 100 largest non-financial companies listed on the NASDAQ stock exchange like Microsoft, Apple, Nvidia, Amazon, Meta, Google, and so on.
Berkshire Hathaway (around 18% of my portfolio): Berkshire Hathaway (BRK.A/BRK.B) is not technically an index fund, but rather a conglomerate holding company run by Warren Buffett. It includes Major wholly-owned businesses like Duracell, GEICO, etc., and Large stock portfolio holdings like Apple, Coca-Cola, etc.
My idea with these investments is to have:
High-growth tech exposure through NASDAQ 100
Value-oriented, diversified exposure through Berkshire. This fund is very stable and I see it like an actively managed S&P 500 fund.
A mix of passive (NASDAQ 100) and active (Berkshire) management styles
So, if you haven’t already—stop reading this post, open a T212 account, and put 20k into it this year. The tax year is from April 6th April 2024 to 5th April 2025, so make sure you do that before 5th April to make use of the whole allowance.
B. SIPP(Self-Invested Personal Pension)
I am pretty sure that you would be paying some money into a pension. Almost all tech companies do this so I assume yours would be too. First things first. Do you know about the “Employer Matching” plan that is there in your company? What does that mean? Employer matching is when your employer agrees to contribute money to your pension based on how much you contribute. Think of it as your employer saying "If you save some of your salary for retirement, we'll add some extra money too."
At Meta, if I remember correctly, it was structured as:
So, it made sense to contribute 9% of my salary so that Meta would also contribute 9% to my pension plan. So, if your company has something like the above make sure you optimize to get the highest employer contribution possible.
Even if you do just the above, it is the battle half won as long as pensions go. But let’s get a little deeper into pensions as there is so much to talk about them.
So now, do you know what are SIPPs?
Most probably not.
So, if you are investing in pensions, you would have a pension provider like AVIVA, L&G, Fidelity, etc. Given that you might have or if you have had multiple jobs in the UK, you might have various pension pots at these providers as well. For instance, since I changed my jobs from Meta to Roku, I have had some Meta pension lying at Fidelity while my current pension contributions are being invested in an L&G workplace pension.
Now, let’s look at my Fidelity account and the returns I have had:
That’s a dismal rate of return. At least for me. For some perspective, in the same period, NASDAQ 100 had given a 20% return. Even the S&P 500 gave around 15-16% returns. I went inside my fidelity account and checked and the reason was I was invested in a very conservative strategy. But how would I know? These are the names of various funds in Fidelity for you. How could you even tell which ones are conservative and which ones are not? You have to go into investment fact sheets for these funds to understand what they invest in. Honestly, who has got the time?
We see exactly something similar going on with Legal and General fund products.
So, the thing is I would like to manage my Pension myself. I would like to invest that in other products where I can choose to be risky, moderate, or highly conservative. At least I should know where my money is and how I have designed my portfolio and retirement savings. And here is where SIPPs come into the picture.
A SIPP is like a "do-it-yourself" pension account where you have complete control over your investments, unlike workplace pensions where your investment options might be limited. You can effectively invest in Stocks and shares, Investment funds, ETFs (Exchange Traded Funds), Bonds, etc. You can get all your pensions in this one account to consolidate them as well.
Now, the best SIPP provider would be different for different folks, for me I have found Freetrade to provide a reasonably good product with very less fees overall. It is paid at 9 GBP per month, so it might make sense only if your pension pot is sufficiently large to make sense making payments of 108 GBP a year just to manage your pensions on your own. But at certain numbers, 108 GBP is like daily fluctuations in your SIPP portfolio. Also since I am transferring my Pensions as part of an offer on Freetrade, I am effectively getting shares worth 300 GBP free, making Freetrade effectively free to me for the next 3 years. There are a few benefits of Freetrade over other providers based on my limited research — Maximum assortment of investment options of all the providers, almost 0 trading fees, and option for partial transfers from other pensions. PS: You don’t want to do a full pension transfer of your current workplace pension account, as that would close your workplace pension account and there might be problems with pension payouts from your employer, hence partial payouts.
Currently, I am investing in:
MSCI India Acc: Tracks large and mid-cap Indian companies and thus gives exposure to India's growing economy
NASDAQ 100 Acc: Tracks 100 largest non-financial companies on NASDAQ
NASDAQ Next Gen 100 Acc: Tracks the next 100 largest non-financial NASDAQ companies after the NASDAQ 100
This is a very growth-focused strategy with higher growth potential but also higher risk.
So, till now we talked about how we can move and consolidate our pensions in SIPPs. Now let’s touch upon whether you should put more money into SIPPs rather than just your usual workplace contributions.
Here's when to consider additional SIPP contributions:
Tax Optimization Scenarios: If your income is between £100,000 - £125,140, you would lose £1 of the personal allowance for every £2 earned and hence the effective tax rate becomes 60%. SIPP contributions can help bring you below £100,000 and hence reclaim your allowance of £12,500.
High-Income Considerations: For Additional Rate Taxpayers (Or even Higher rate taxpayers) - SIPP contributions get 40-45% tax relief based on your bands. So a £10,000 contribution effectively costs £5,500 for a 45% taxpayer and £6,000 for a 40% taxpayer. Think of it as just paying in £5,500 for a £10,000 pension contribution.
But there is a huge Caveat: Anything you put in your pension is not accessible till the age of 57. So if you need access to funds before 57, SIPP may not be the best way to go.
How does it work? Let’s do some maths.
So, whenever I go to invest some money into SIPP, I can see this screen.
Why is the government giving me 250 GBP when I put 1000 GBP?
When you put £1,000 into your pension from your “POST-TAX INCOME”, the government adds £250 as basic rate tax relief. This makes your total pension contribution £1,250. The £250 is calculated as 20% of the total pension contribution (£1,250). This happens because pensions are meant to be contributed from pre-tax income, so the government is effectively returning the basic rate tax you paid on that money.
Higher-rate taxpayers can claim additional relief through their self-assessment tax return. In the "Tax reliefs" section, find "Payments to registered pension schemes where your pension provider will claim basic rate tax relief”. Enter the GROSS amount of your pension contributions Example: If you paid £1,000 and the provider claimed £250 basic rate relief Enter: £1,250 (the total gross contribution).
For 40% taxpayer example:
- You contributed: £1,000
- Basic relief already received: £250 (20% of £1,250)
- Additional relief via Self Assessment: £250 (extra 20%)
- Total relief: £500 (40% of £1,250)How much can you put in Pensions?
Every year you get a pension allowance. This year it is 60k GBP. This includes: - Your contributions + Employer contributions + Tax relief from government. Also, based on carry forward rules, you can use unused allowance from the previous 3 tax years. This might be useful if you have access to cash at hand, you are looking to invest it in a pension and your allowance for the current year is finished. If you have excess cash at hand, it makes sense to exhaust these allowances first and then go to other avenues of investment.
Let me explain with an example. Let’s assume A who is using up their whole Pension allowance of 60K GBP yearly and let’s assume B who is just investing in a General Investing account. Both of them fall into the 45% bracket. Honestly how else can someone use their whole Pension allowance? Here is the illustration for both for the next 20 years assuming an average growth rate of 12%. I am investing 33000 in GIA as if you put 33000 in your pension account you effectively get 60K in your pension account due to tax reliefs— 55% of 60K is 33K.
That is you would get 4.8M in your pension fund and 2.0 M GBP in your GIA. That’s a HUGE 139% benefit. Even if you just withdraw everything at once from your pension fund, you could get 2.66M (4.8M*0.55) in hand. There is a 25% tax-free withdrawal(Maxed at 268,275 GBP) also but you don’t need that to show you the power of compounding with more money.
But anyway below is an illustration with these calculations to show you the exact numbers. So, you would make a total of close to 2.8M, which is around a 40% benefit on GIA if you are so rash as to get your whole pension at once. (Also, note that you don’t need to pay National Insurance on pension withdrawals. This is again a pretty good relief)
What you would probably do is to get your pension in smaller chunks to reduce the tax burden even further. For example, using the 20% Limits and 40% limits across years and trying to minimize cases where you pay 45% taxes. Here is a strategy that leads your money to last for 25 years while you withdraw upwards of 270kGBP withdrawals each year increasing 7% YOY. The exact way it might turn out for you might be different. I am thinking of getting 10% returns being a little conservative. You should in principle be even more conservative than this.
In the above example:
Tax-Free Lump Sum: £268,275
Initial Annual Net Income(After Tax) : £167,325
Final Annual Withdrawal (Year 25): £1,465,406
Final Annual Net Income(After Tax) : £824,798
Pot Duration: 25 years. So given you are at 57 years of age, I am assuming an expectancy of 57+25 = 82 Years. If you want more you could decrease the amounts you pull out every year to make the pension last more.
One strategy would be to get income and put it into ISA so you get accessible tax-free money. Remember ISA >> SIPP always(For most cases).
IHT Benefit on Pensions
One more thing→No Inheritance tax(IHT) on Pensions as well. So if you did say die at let’s say in the 10th year of the illustration above, your beneficiary can take the whole amount of ~6M GBP as a lumpsum investment without paying any IHT. This particularly makes pension benefits cascade down generations in the UK after the limits on Maximum Pensions have been removed. Think everyone utilizes just what they need and lets time work on the accumulated money which is essentially CGT-free and IHT-free.
Death Before 75:
Scenario: £6M SIPP
Benefits passed to beneficiaries: £6M (tax-free)
IHT saving: £2,400,000 (40% of £6M)
Beneficiaries receive: Full £6M tax-free
Death After 75:
Scenario: £6M SIPP
Benefits passed to beneficiaries: £6M
IHT saving: £2,400,000 (40% of £6M)
Beneficiaries pay: Income tax at their marginal rate based on what they withdraw
Considerations for SIPP
Use RSU proceeds(If you have any vested in your account) for pension contributions.
Keep the beneficiary details updated. You can split your pensions between different beneficiaries as well with different percentages if you like.
Review investment strategy yearly at least. I do that quarterly since I like to do that.
Tip: When investing as a household, it's crucial to strategically allocate pension contributions to maximize tax benefits. For couples with different tax brackets, you should prioritize contributions to the higher-earning spouse's pension first. For example, if a wife is in a higher tax bracket (40% or 45%) and the husband is a basic rate taxpayer (20%), it's more tax-efficient to fully utilize the wife's pension allowance before contributing to the husband's pension.
This strategy works because pension contributions receive tax relief at your highest marginal rate – meaning a higher-rate taxpayer gets 40p in tax relief for every £1 contributed, while a basic-rate taxpayer only gets 20p. By following this approach, the same total household pension contribution can result in significantly more tax relief, effectively giving you more money towards your retirement savings. Only after maximizing the higher-rate taxpayer's pension allowance should you then start contributing to the basic-rate taxpayer's pension.
C. Gold
Gold is an integral part of an Indian household but as far as Gold as an investment option is concerned, I have a sort of love-hate relationship with it. So many people misunderstand gold as an investment without realizing how the game is set for you to lose money on gold. Gold is not an investment, it is a hedge. Think of it as buying insurance - you don't expect to make money from your home insurance, but you're glad to have it when things go wrong. Similarly, gold serves as insurance against severe market crashes, currency devaluation, geopolitical crises, and high inflation periods. That's why I suggest limiting gold to just 5-10% of your portfolio.
Tip: If you're buying gold for cultural reasons (weddings, festivals, luxury), that's fine - just don't confuse it with investment. Keep your cultural gold separate from your investment strategy.
Why Gold?
Gold serves as an inflation hedge and portfolio diversifier. During market uncertainties (like tech stock corrections), gold often moves inversely to equity markets. Think of it as adding a negative correlation to your portfolio — similar to how we use regularization in ML to reduce variance. With the current market being at an all-time high, and fear of recession looming, it makes sense to put out a hedge and thus I am buying at least some Gold.
Where To Buy?
Currently, I am investing in Britannia/Sovereign Coins: Produced by Royal Mint, these are CGT-exempt in the UK. This means any appreciation in gold value is tax-free, similar to ISAs. Sovereigns are particularly liquid in the UK market.
Storage and Buying Options: I use chards.co.uk to buy these coins and keep them in vault storage with them. Here's why:
Full insurance coverage and Independent audits.
Security in vaults is better than in my home at least.
Reasonable fees compared to home storage insurance → Safe Deposit Boxes are expensive and inaccessible to me right now. Though at a certain point, they might make sense for folks based on their investment portfolios.
Easy to sell when needed → You don’t need to send them your gold coins through the mail. I know I would be living in tension, going mad, tracking that post if I ever sent that mail out.
Now as always, let's try understanding with an example. Let’s say you were investing £10,000 with a 50% gain over 5 years. Let’s say the economy is somewhat balanced and you got the same rate of return for both gold and your GIA investment(This is a pretty sketchy assumption but we do need a hedge and this is the best we can do):
Gold Investment:
Initial Investment: £10,000
Premium paid (2% on Gold Coins): Initial investment gets you £9,804 worth of gold (10000/1.02)
Value after 50% gain: £14,706 (9804 * 1.5)
Selling spread (4%): -£588 (14706 * 0.04) → Generally sellers don’t give you the spot price. They give somewhat less than the spot price and that is called spread.
Final Value: £14,118
Net Gain: £4,118 (41.2%)
GIA Investment:
Initial Investment: £10,000
Value after 50% gain: £15,000
CGT on gain (24%): -£1,200 ((15000 - 10000) * 0.24) → 24% capital gain rate.
Final Value: £13,800
Net Gain: £3,800 (38%)
Despite higher transaction costs, gold still outperforms marginally by 3.2% in this scenario due to CGT exemption. (Note: This might be offset a little by storage costs as well which is 0.5% YOY). We are playing with very tight margins when we talk about gold and hence my love-hate relationship with it. So many things have to fall in place for this investment to work out.
Tip: When buying physical gold, only buy recognized/CGT-free and VAT-exempt coins. That is the only way I think anyone can profit from Gold, to be honest. Both Britannia/Sovereign fulfill this for me. The slight premium you pay as well as the spread when you sell is worth it for the CGT exemption and better liquidity.
Issues with Gold:
Market Price Volatility: Gold prices can be highly volatile, sometimes moving 10-15% in a month.
High Transaction Costs: The buying premium (~2%) and selling spread (~4%) mean you need significant price appreciation just to break even. Traditional investments like index funds often have much lower costs.
No Income Generation: Unlike stocks (dividends) or property (rent), gold doesn't produce any income. Your returns depend entirely on price appreciation.
Storage Complexity: Professional vault storage adds ongoing costs. Home storage brings security risks and insurance complications.
Limited Growth: Historically, gold has underperformed the stock market over long periods. While it's a good hedge, it shouldn't be your primary growth investment.
Tip: Given these issues, consider limiting gold to 5-10% of your portfolio as a hedge rather than a core holding. This gives you the diversification benefits while minimizing the impact of its drawbacks.
D. GIA
After maximizing ISA, and SIPP, and establishing a gold position, consider using a GIA strategically:
Optimal GIA Position
Target around £30,000 in your GIA
At 12% annual returns, this generates ~£3,600 in gains
You can realize £3,000 in gains tax-free annually (using CGT allowance)
Reinvest proceeds to maintain the £30,000 position
Capital Recycling Strategy
When gains exceed £3,000:
Sell up to CGT allowance limit (£3,000)
Move excess funds in this priority order:
ISA (if allowance remaining)
SIPP (if beneficial for tax position)
Gold (maintain max 10% portfolio allocation)
Reinvest in GIA to maintain £30,000 target
Tip: Keep detailed records of purchase and sale dates for CGT calculations. Consider using a spreadsheet to track your annual gain realization against the allowance.
If you still have money left, consider buying a subscription to my Substack. But yes, for those folks who are in this position, you should keep the excess money in GIA and pay CGT. In this case, I would advise investing for as long as possible and paying CGT at the end of the line rather than every year(after using your CGT allowance of course) as paying CGT at the end of the line is more efficient as the entire sum compounds over time. In the illustration below you can see if you put 30k every year and pay CGT every year vs paying CGT at the end. Please note I am assuming that you have already used up your capital gain tax-free allowances. Always use your tax-free capital gain allowances if you use a GIA account.
I am currently using both T212 and Robinhood for my GIA. Both of these platforms are well-designed with near-zero trading fees for stocks and ETFs while being protected. I particularly value having a GIA account as it offers flexibility to trade stocks that might not be available in ISA or SIPP portfolios due to various regulations. For example, I was not able to find TSMC for ISAs in T212. There are particular benefits to both of them so keeping them both makes sense for me. Robinhood UK offers very low currency conversion rates and options trading capabilities, while ETF trading is only available in T212.
Tip: If you're investing in GIA after maximizing other tax-efficient options, optimize CGT allowances across your household. You can gift money to your partner to invest in their own GIA account, effectively doubling your annual CGT allowance from £3,000 to £6,000. For example, if you earn £150,000 and your partner £40,000, you could gift them £30,000 to invest in their GIA account. This allows both of you to realize £3,000 in gains each tax year completely tax-free. Always think of tax optimization at the household level rather than individually.
E. RSUs & Stock Options
This is another part of the puzzle that most folks don’t understand. If you are a tech professional, you might be getting a lot of equity in a company through Stock options and RSUs. For these RSUs, I have a very simple plan—Sell at vesting. This will result in 0 capital gains and you could take that money and invest in the options we discussed above. If you want you can buy shares of your company in those accounts but I would advise against having more than 20% of your net worth in any one company.
A Note on Taxes, Society, and Tech
In this post, I have told you about measures to optimize your tax position but honestly paying tax serves a lot of purposes in our society. The UK's public services - from the NHS to schools, roads to research funding - all depend on tax revenue. These are the same services that have helped create the tech ecosystem where many of us earn our living. While it's prudent to use legitimate tax-efficient investment vehicles like ISAs and pensions (which exist to encourage long-term saving), we should view taxes not as a burden to completely avoid, but as our contribution to maintaining and improving the society we benefit from.
That said, tech professionals often face unique tax circumstances that can result in higher effective tax rates and disproportionate taxes compared to others. Understanding and appropriately using available tax-efficient options helps ensure that you're managing your finances responsibly while still contributing your fair share to society. With the government reducing avenues for tax saving like reducing Capital gains tax allowance from 12k GBP to 6k and now finally to 3k, it makes sense to educate ourselves with alternatives, hence this post.
Conclusion
I could keep on continuing this post but if there are two things you take from this post it is: Use your ISA allowance and take benefit of the Employer Matching scheme if available.
Like how different ML frameworks serve different purposes, money holds unique meanings for each person. For some tech professionals, it's about achieving FIRE (Financial Independence, retiring early), while others see it as fuel for their next startup. Some view it through the lens of impact investing, wanting their capital to drive positive change in tech and society.
Your relationship with money might be shaped by your background, career stage, or life goals. A junior developer in London might focus on building an emergency fund and just start on the first steps of investing and saving, while a senior architect might be more concerned with tax-efficient investing and pension optimization.
Just as we wouldn't use the same model architecture for every ML problem, there's no one-size-fits-all approach to personal finance. The key is understanding your own "utility function" - what role you want money to play in your life.
For me, my utility function is somewhere in the middle—A place where I have a comfortable relationship with money—that is I don’t want to retire early, but I also don’t want to work for money.
Finally, I will end with some disclaimers:
Disclaimer 1: I am not a finance professional and all the advice that I give here comes from my own investing experience.
Disclaimer 2: I have tried to be as generic as possible, but there might be a few things that won’t make sense for everyone given the level of income and the stage of career they are at.
Disclaimer 3: Some of the things I say may not come to pass in the short term. But honestly, this is the strategy I think will work in the long term.
Let me know how you found this post and any tips from you that I can take and use. I am sure there are many of you more efficient at this than myself.