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The Entrepreneur
The analysis

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John attends an initial meeting with one of Bloomsbury's Certified Financial Planners. At this meeting the planner explores John's goals and values, particularly towards money.

John and his wife then each complete a psychometric risk-profiling questionnaire, which Bloomsbury analyses to understand their combined attitude to risk. This allows the planner to understand the maximum risk that John and his wife can tolerate and thus the likely return they might reasonably expect consistent with that.

Bloomsbury collates John's personal data to calculate the actual return that he needs to achieve on his long-term capital, given a number of agreed assumptions. The required return is below the expected return that his risk profile will allow, so it appears that he can achieve his goals comfortably. This means that John can probably afford to take a lower risk with his investment strategy, fund a higher annual lifestyle expenditure, gift capital from capital/income or a combination of all of these. For the first time John feels that he understands the 'big picture'.

Bloomsbury makes further observations about John's situation as follows:

• The existing investment portfolios have over 70% allocated to equities, which is higher than John needs to meet his goals and is in excess of the figure with which his risk profiling indicates he is likely to be comfortable. The revised allocation on £4m would need to be 50% bonds and 50% equities;
• The total annual expense ratio on John's managed portfolios, i.e. the aggregate effect of all costs such as dealing, stamp duty and annual management costs, is in the region of 3.80%, which means that a large part of the excess return he could expect for having exposure to equities (the equity risk premium) is being eaten up in costs;
• John's pension plan is very close to the new pension's lifetime limit of £1.5m. If his fund is worth more than this when he takes benefits he will incur a tax of 55% of the excess, if this is taken as a lump sum.
• The capital gains tax liability arising from the sale of John's last business could be deferred indefinitely by reinvesting the £4m gain into qualifying business assets, including shares which qualify under the enterprise investment scheme or which are listed on AIM;
• The inheritance tax liability is currently in excess of £5.4m. This could eventually be reduced to £3.9m if the proceeds of the business are reinvested in EIS and/or AIM shares;
• John's quoted investment portfolios, including any assets to be held in any future trusts, could be amalgamated into one nominee service to simplify administration and reporting and reduce costs;
• John could gift the property development to a UK registered charity (if they were prepared to accept it); the latent capital gain would then be avoided and the asset would fall out of his estate immediately;
• As John and his wife are currently both in good health, they could arrange a whole of life insurance policy (in trust for their beneficiaries) to pay out any residual inheritance tax liability, the premiums for which would count as being part of normal expenditure for IHT purposes, and thus reduce the value of their estate.