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Sean and Claudia attend an initial meeting with one of Bloomsbury’s Certified Financial Planners. At this meeting the planner explores Sean and Claudia’s goals and values, particularly towards money.

They then both complete a psychometric risk-profiling questionnaire, which Bloomsbury analyses to understand their combined attitude to and aversion of risk. This allows the planner to understand Sean and Claudia’s capacity for investment risk and thus the likely return that they might reasonably expect to achieve from a portfolio with such risk exposure.

Bloomsbury collates their personal data to calculate the actual return that they need to achieve on their long-term capital, given a number of agreed assumptions. The required return is well within the expected return that their capacity to risk will allow so there would be some flexibility and margin for error in any agreed plan.

Bloomsbury makes further observations as follows:

• It is possible for Sean and Claudia to achieve financial independence, as they define it, with just one year’s earnings from Sean’s new job.
• They are holding excessive amounts of capital in short term cash given their risk capacity, expected future earnings and the long period that they will need to live off their capital.
• It does not make sense for Sean or Claudia to continue to holding the shares in their current or former employers as there is no additional expected return associated with the increased risk of holding one security compared with the market as a whole. They are also exposed to the specific risks of those businesses through their jobs.
• Neither Sean nor Claudia have much invested in approved pensions, thus affording them scope to shelter up to £1.5m each under the new pension rules rising to £1.8m each from 2010/11. If they carefully structure contributions, they could obtain tax relief at 40% on contributions but ensure that the resulting fund only produces a taxable income (from the 75% which may not be withdrawn as a tax-free lump sum) that would be subject to only basic rate income tax.
• The shares which Sean owns in his current employer would be subject to business asset taper relief on any gains arising from the date the shares were awarded to him or vested following exercise of an option. This means that if Sean disposed of the shares before he finishes employment, his capital gains tax rate will be 10%, assuming that he has held them for two years. The other shares would be subject to higher rates of tax as they would not be eligible for business asset taper reilef.
• The shares which Claudia owns in her former employers are not UK-sited assets and as she is non-UK domiciled, she may sell these without incurring UK capital gains tax. If the funds and any other capital which has not originated from the UK (such as the cash held in Jersey) remains offshore in Claudia’s name, then no liability will arise for UK capital gains tax on any gains arising from subsequent investment. It may be necessary to check the tax implications arising from Claudia’s Austrian domicile.
• The real return being achieved on the cash held on deposit is zero. This is on the basis of inflation being 2.8% and gross interest earned of 4.7%. If left on deposit for the long term there will be no real growth in the value of this capital.
• The pension plans are either invested in cash or actively managed funds which do not reflect either their capacity for risk or need to protect their capital against inflation over the very long term.
• Sean’s signing on bonus in his new employment will generate a tax liability of £1.6m, payable in the following January. If the bonus were deferred until the following month so that it fell into the following tax year, the tax liability would not be payable until January of the year after next, thus providing an extra year of deferral. The interest which would be generated on this capital at 5% gross would amount to £80,000 (or £48,000 net of 40% tax) so it is well worth doing.
• It appears that Claudia’s employer operates a share purchase scheme which would allow her to obtain matching shares from her employer for every share that she buys through the scheme over a three-year period. There are also certain tax breaks on some of the shares purchased through this arrangement.
• It would be possible to use derivatives to mitigate the risk of a sharp fall in the value of the shares from current and/or former employers while the holdings are being realised, to enable proceeds to be diversified.
• The investment portfolio, including any additional capital to be added, could be amalgamated into a single nominee service to simplify administration and reporting.
• The tax liability on exercise of share options and receipt of future bonus payments could be mitigated by the use of a film partnership, carbon trust or shares qualifying under the Enterprise Investment Scheme (EIS).