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Posted on 2022-01-02 by Nick Thomas
The pig-dog blog fizzled out six years ago. This was mostly because I was too
lazy to collect those receipts, and the longer I left it, the more life changes
took me away from the picture I'd already painted. I always felt a nagging urge
to "finish" the series in some way, though - and now I think I can!
This is where I left the previous pig-dog article. There is Ethical Consumer
Magazine for those interested in the topic, but I'll leave it at "can't be done,
cap'n".
Not unless you're rich, anyway.
Ethical Consumer is something of a mixed bag, and is far too credulous on some
topics (biodynamic eggs in the most recent issue!), but is the best resource I
know for the topic. They also show their working, so you can prioritise what
matters for you, and work around any shortcomings in their process or
conclusions. Definitely the poster child for this kind of thing.
In November 2015, I began a new relationship. This was followed in 2016 with a
new job; in 2017 by moving to Shetland; in 2018, a proposal; in 2019, a
wedding; in 2020, a pandemic(!); and in 2021, a baby.
In 2022, we're moving back to Yorkshire. Each of the above could be its own
series; I'll see if I get to them, but don't hold your breath. However, we're
returning in very different financial circumstances to those we left in.
All paid off. Every penny. Including student loan, car PCP, and mortgages.
How, you ask? Simples. Share options. The new job provided me with some, and
they panned out over the next 5 years. I'm now ridiculously wealthy by any
standard.
The UKPersonalFinance reddit has a website with a handy flowchart,
based heavily on the Bogleheads methodology, and the options permitted me to
skip right to the final step!
Mortgages, plural, you ask? Well, I peaked at 3 - the original house in York,
our house in Shetland, and the the new one in Yorkshire. My sister has been
living in the first (rent-free, I hasten to note), and now the mortgage is paid,
I'm transferring it to her legally. The second we bought with a deposit
contributed by my now wife's parents, but it's turned out to be a money pit -
we've spent at least 50% of the original purchase price on repairs, and the saga
continues. We'll be selling it at a significant loss, and I can't wait.
The new house, we bought with a mortgage, with the deposit coming from sold
shares, but were able to pay it off in full a couple of months later by selling
even more shares! We plan to stay there for at least 5 years, as with Shetland,
then re-evaluate. The off-grid life increasingly appeals to us both, and this
house won't do for that, but it's a fine place for the first few years of a
child's life.
As mentioned above, the new company had a share option scheme. Bytemark had
introduced one toward the end of my time there, but the two were very different.
I'd already internally discounted the Bytemark one to £0 because it seemed very
obvious to me that it would never pay out - you had to be at the company right
up until its termination or flotation if you wanted to exercise the shares. I
already had itchy feet at the time, and the best-case scenario was "only" around
the £100,000 mark anyway. GitLab's option scheme was much better - you could
exercise at any time, for a start - but it was really an afterthought when
making the decision to switch.
(As it happens, Bytemark was subsequently bought out by iomart. I switched in
August 2016, and the purchase was Octover 2018, so winnings were in my future,
whichever choice I made. However, with the benefit of hindsight,
switching to GitLab was absolutely the right financial choice to make.)
I'm easily on course to make more than a million pounds after tax from the
GitLab options. The salary is a drop in the ocean by comparison. Naïvely, I can
model this as getting more of my "fair share" of the work I've put into a
company - salary in no way reflects the value added by labour - but the truth
is simpler, and sadder.
I joined early on, and got more share options than people who joined later. The
price of the shares has been doubling or tripling every year, as has the number
of employees, but I get a greater share of the total than those who came later,
since I quite literally own a greater share of the company. It follows that my
wins come at their expense - they work, hundreds of them, to increase the
company's value, and I get a cut of that.
Bleurgh.
Typically, if an employer gifts you a share, that is treated as income and taxed
at acquisition time through PAYE at 19-46% income tax, plus 12-2% national
insurance. With share options, you buy them at a discount, and the difference
between discounted price and market value is taxed as income. Once you own it,
further appreciation is taxed at disposal time through capital gains tax - at a
much lower rate, sometimes as low as 10%.
The Bytemark scheme was very carefully worded to exclude any possibility of
paying income tax rates, instead targeting special CGT treatment, and most of
the provisions I disliked in it came from that choice - it was made to fit the
mould of an Enterprise Management Incentive scheme.
GitLab's options did no such thing, so my notional tax rate on the gain has
been 48%. In addition to my million, the tax authorities get themselves a
million as well. The precise number is difficult to figure out - the tax code
pays a *lot* of attention to people making this kind of money. In particular,
the personal allowance reduces to 0 and the pension allowance reduces to 4,000,
although you can now use up allowance from previous years instead. Various other
things suddenly become tax-deductible too, and gift aid starts to make sense,
among other things.
Still, the majority of what ukgov and scotgov do is good stuff, so this is fine.
When I joined GitLab, I had the option to "early exercise" my shares. That would
have cost about £7,000, and - through shenanigans - led to my winnings being
taxed entirely through CGT, at 10-20%, instead of the 48% rate I got. I even had
the money at the time - by coincidence, my car's PCP was up, and I could either
pay off the loan portion, or early exercise the shares. I chose the former, and
even with hindsight, can't being myself to regret it. I still have the car, it
works great.
It does sting a little that other people were able to get the lower rate,
though. If anything, there could be less of that.
How does one convert a windfall into an income? Through investment! This is
more bleurgh-inducing skimming off of the work of others, as with the share
options themselves; the alternative is to see inflation erode the value of the
cash. I could talk about more-ethical vs less-ethical investments, but
fundamentally, they all work on this premise. Not ideal.
Now I'm actually a capitalist pig-dog, my Ethical Consumer magazine has
suggestions I can follow without pain, so I'll be looking into that.
Got to raise a child! I have parental leave until March, at least.
As ever, I can hope I'll have more time/enthusiasm for writing in this new year.
Time will tell.
Questions? Comments? Criticisms? Contact the author by email: gemini@ur.gs
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