Brighton Business School

Undergraduate Programmes

Level Five Examination

May/June 2023

FA566 Personal Financial Planning

Instructions to candidates:

Time allowed:
You will have 3 hours (longer if you have a Learning Support Plan in Place) to complete the
paper.
Rubric: You are required to answer THREE questions in total
Section A: Case Study: You MUST answer this question but are required to address only
FIVE out of the EIGHT areas. (50 marks)
Section B: You are required to answer any TWO out of THREE questions from this section
(50 marks)
Submission:
Please do not include your name on your answer booklet/s, as papers will be marked
anonymously. You must however include your student number on the work submitted.
Nature of Examination:
Unseen Questions/Seen Case Study
Weighting
This paper accounts for 100% of the marks available for this module.
Attached: Tax Rates and Allowances (See Appendix A at the end of this paper)

Section A: Case Study (50 marks). This section is compulsory.

Your task is to provide a report to Janet and John, addressing any FIVE of the
following questions (5 x 10 marks = 50 marks):

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Note: Where relevant, spelling out any tax implications applying to Janet’s or John’s
situation, or to the advice given to them, will enhance the quality of your answers.
___________________________________________________________________

1) Based on a critical evaluation of the information provided to you, identify (with reasons) Janet’s
likely behavioural investment type. Then, based on this type, suggest an investment strategy
that might appeal to her. You should also identify any two emotional biases you may have to
overcome.

2) Based on a critical evaluation of the information provided to you, identify (with reasons) John’s
likely behavioural investment type. Based on any relevant emotional biases that John might
have, and the particular characteristics of this investment type, explain why it might be difficult to
get John to agree to an investment strategy. How might you overcome this problem?

3) As a Personal Finance professional, identify and critically evaluate any five significant areas of
concern that you have, in respect of Janet and John’s financial affairs.

4) Critically evaluate John’s planned investment in the buy-to-let market. Explain to John why,
at this point, it might be advisable for him and Janet to buy their own home instead.

5) Based on John’s statements in this regard, and on their general circumstances, critically
evaluate Janet and John’s failure to contribute to a pension fund of any kind. Also set out, with
reasons, the advice you would give them in respect of pensions. (Any opportunity for tax savings
should be included in your argument).

6) Despite considering himself to be a clever businessman who can identify successful ventures,
John does not seem to understand the basics of investing; factors such as risk, return, and asset
allocation and selection.

Briefly explain these terms, and critically assess the wisdom of his current investment in his
friend’s business and his plan of focusing on the buy-to-let (BTL) market (you do not need to
discuss the strengths and weaknesses of these two investments; just the basis on which
John can decide if they are wise investments).

7) Janet and John do not have a financial budget, or a good understanding of their current
spending. Critically assess these shortcomings and explain how they contribute to Janet and
John’s inability to implement an investment strategy at present. You should draw up a schedule
of the couple’s monthly income and expenditure to aid your discussion.

8) Bearing in mind everything that you know about Janet, explain the concept of Ethical Investing to
her and critically assess the possibility that it might be an attractive option for her, as a way of
addressing the concerns she has about equity investing.

(50 marks)

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CASE STUDY

The information contained in this case study has been provided by Janet Jones and John Clifton.
They have employed you, an independent Personal Financial Planning consultant, to advise them
on certain aspects of their personal finances.

Janet and John

Janet and John are in their late forties. They have been together for 25 years and have two children,
18-year-old Olivia and 20-year-old Brett. They have never felt it necessary to marry or enter into a
civil partnership agreement. Janet has a Bachelor of Arts degree, having majored in History,
whereas John completed a trade as an electrician and now runs a profitable electrical contracting
business. As a result, they have an above-average household income (see later).

The children

Both Olivia and Brett are students at the University of Liverpool. Olivia is studying English Literature
and plans to become a teacher, whereas Brett is completing a paid placement year as part of an
Electrical Engineering degree. John is keen for Brett to join the family business after graduation, but
Brett would prefer to stay on at university and complete a Masters degree. He enjoys the academic
environment and is seriously considering a PhD after the Masters.

Janet

Janet works for John on a three-day-per-week basis, carrying out administrative and secretarial
duties. She is also active in the local community, working as an unpaid volunteer for a foodbank
and an environmental charity. She is also a regular participant in climate change protests and
believes that humankind is destroying the planet. John pays Janet a salary of £900 per month, her
only income apart from the interest she earns on her savings (see later). Janet reinvests her
savings interest and uses her monthly salary to cover clothing, petrol, road tax, car insurance, and
other personal expenses. She also donates generously to charity.

John

John is a self-employed Electrical Contractor. His business is well-established, and in the year to 5
April 2023 his profits were just above his target of £120,000. After Income Tax and National
Insurance deductions, this leaves him with an annual income of £74,400. John is highly ambitious
and is the first in his family to have started his own business and made ‘serious money’, as he puts
it. He has ambitious plans for the business and plans to double his income within the next five
years.

Property

The Clifton family rent a lovely home in the affluent Woolton area of Liverpool. The rental is £1,800
per month. It is a four-bedroomed home, with the smaller fourth bedroom serving as a study for
John. Janet would be quite happy to live in a more modest home, and even more so, to buy their
own home. John disagrees, pointing out that they couldn’t buy a home like the one they live in for
just £1,800 per month. And while he agrees that property is a good investment, he intends to invest
in this market in a different way.

John is a great admirer of the ex-Liverpool footballer Robbie Fowler, who has made a good deal of
money in the buy-to-rent market. John is planning to enter this market in the nearby future, and as
a result doesn’t see why they need to own their own home.

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Insurance

John currently has a life insurance policy costing £100 per month, which will pay out £150,000 in the
event of him dying. Both he and Janet are in good health.

Parents

John is an only child, but Janet has a younger married sister who lives in Liverpool. Janet’s parents
died a few years ago in a road accident, leaving their children a cash inheritance of £170,000 each.
John’s parents have both retired and live in the same modest home in Liverpool in which John grew
up. The home is fully paid for and has a market value of £180,000.

Debt

John prides himself on giving his children the opportunities he never had. As a result, he is funding
their university studies so that they will not be burdened with student debt once they graduate.
Each year he borrows £20,000 as a personal loan, to cover their tuition fees and books. The loan
has an APR of 7% per year, and John repays each year’s loan over 12 months, in equal monthly
payments of £1,730.

Janet is concerned that John spoils the children, who both still live at home. They do not pay rent or
contribute to any of the household expenses. Janet’s parents were not wealthy, and from an early
age she and her sister were expected to work part-time for their pocket money. They had also
worked throughout their university studies, a discipline that had made them more resilient and had
taught them the value of money.

As she said to you: “Our parents gave us a lot of love, but there wasn’t much money to go around.
But I’m grateful for that; it taught us the value of saving, and of thinking twice before spending. Brett
and Olivia were supposed to get part-time work while at Uni, to cover their spending needs. But
they seldom do this, and I suspect John is giving them some money on the side, especially Olivia.”

Janet and John each have a credit card, which they pay off in full each month.

Savings

John and Janet have a joint bank account with Lloyds bank for their day-to-day spending. The
couple don’t have a budget as such, although Janet randomly checks their monthly balance to
ensure that their expenditure doesn’t exceed their income. As a result, in the past there have
usually been a couple of hundred pounds in the account at month end. However, the account
moved into a small overdraft a few months ago, and since then Janet has noticed that the overdraft
is creeping steadily upwards at about £100 per month.

Janet has deposited her inheritance in two separate savings accounts; £85,000 with Lloyds and
£85,000 with Nationwide. She has a third savings account with HSBC bank, where she deposits
each year’s interest from her other two accounts. At present she has £6,800 in her HSBC account.
All three are easy-access accounts; the first two pay interest annually at a rate of 3%, while the
HSBC account pays 2% per annum. (These rates have only been available since January of 2023;
before then they were much lower).

Janet could earn up to 4.5% interest per annum, payable monthly, if she were prepared to deposit
her savings for periods of over 120 days. However, she says she is not materialistic and prefers to
have access to the money if necessary. Since opening the three savings accounts, she has not
made a single withdrawal from any of them. Both Olivia and Brett have savings accounts with
Nationwide Building Society, but there is seldom any money in them.

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“John thinks I’m going to let him invest my money in his buy-to-let venture,” Janet told you.
“Between you and me, he can forget about that – that money is staying where it is. In fact, it’s my
children’s future inheritance – it’s hard to get onto the property ladder these days, and my money
will allow them to do that. I’m not risking their inheritance on any risky property scheme.

“John has said I should invest some money in the stock market, but I’m not going there either.
Apart from the risk involved, I hate to think I’m helping to prop up a system that is making the rich
richer and the poor, poorer.”

Investments

Six years ago, John invested his entire savings of £25,000 into a friend’s new company, for a 25%
share of the business. The company has grown substantially since then, and although his friend
has repeatedly offered to buy back John’s shares, John has refused to sell. They are now worth
£100,000, and the company continues to thrive.

“I’ve got a natural flair for business,” John told you when you first met him. “I know how to make
money, and I know a good business when I see one. I’ll sell those shares in a few years for
£150,000 and put the money into buy-to-let. That’s where I’m going to make my fortune – if Robbie
Fowler could do it, I certainly can. In fact, I know I’ll make more money than any ex-footballer
could.”

Pensions

Neither Janet nor John contributes to a pension scheme, with Janet having opted out of John’s
employee pension scheme. “I don’t see the need to pay into a pension fund,” John said. “My buy-
to-let properties will be paid off after twenty years, which will be around the time I’m ready to retire.
And then they’ll generate enough income for us to retire in comfort. Not to mention that Brett will
take over the business at that point. I’ll sell it to him on very favourable terms, and he can pay me
off monthly out of the profits. That will generate a fair amount of extra cash.

“And don’t forget, I pay a lot of National Insurance each year, which means I should get a pretty
decent State pension.”

Other information

Apart from life insurance, monthly home rent and personal loan repayments, John has a number of
other expenses. He is a member of a local upmarket golf club, something he regards as an
essential part of his business networking activities. Membership fees are £150 per month, and
apart from these, John spends on average an extra £260 per month on green fees, drinks, meals
etc.

The family is also very health conscious – a family membership at a local David Lloyd club for the
four of them costs £240 per month, even though Brett and Olivia could each make use of the
university gym for £20 per month. Individual membership at David Lloyd costs £75 per month.

Food and grocery costs are also high at £480 per month, as the family eats only organic foods.
Janet and Olivia are also vegans, and their pre-prepared main meal each day is bought from an
expensive online food supplier. John also loves eating out and sees weekly outings to various local
restaurants as a way of making sure that they can spend quality time with their children. On
average, this costs £300 per month.

John’s pride and joy is his expensive German luxury car, which cost him £28,000 just a few months
ago. At 5% APR over 48 months, repayments are £645 per month. Petrol for private use, pet food,

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Home and car insurance, John’s clothing expenses, and other sundry living expenses amount to
about £580 per month, on average.

Wills

Janet has made a will, but John has not yet arranged his. As he said: “I’m well insured, and Janet
could find a good job if anything happened to me. And any assets I own would go to her anyway. I
appreciate I should get around to it, but it’s not a priority right now.”

Financial Advisor’s Note to Self

Based on John’s comment about not being able to buy their rented home at the current monthly
rental, checked potential mortgage they could get for £1,800 per month. With a decent deposit, they
could qualify for a £300,000 mortgage at 4% APR. This rate would be fixed for five years, and
mortgage repayments would be £1,818 per month.

______________________________________________________________________

Please turn over for Section B……

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Section B: You must answer any two of the following three questions. Each question
counts 25 marks. (2 x 25 marks = 50 marks).

Important note: Where relevant, spelling out any tax implications applying to an individual’s
situation, or to the advice given to them, will enhance the quality of your answers.
_________________________________________________________________________

Question 1
Justin, a friend of yours from university, dropped out of his studies in his second year to pursue a
career in music. A talented guitarist, he is a session musician at a small London recording studio. It
is not a permanent position but does provide a reliable monthly income.
Although his family home is in South London, he is currently living in central London where he
shares a flat with two friends (a lawyer and an accountant). Apart from his work as a session
musician, he also works part-time in a local pub. He has been encouraged by the fact that a
number of promising musicians who have recorded songs and albums at the studio, have promised
him a slot in their backing band if and when they become successful.
Justin’s parents have been irresponsible in terms of their personal financial management, which has
led to stress in their lives at times. Justin would like to avoid this in his own life, and knowing that
you are studying personal finance, has asked you for some financial planning advice.
You get Justin to give you a detailed list of his current income and expenditure (see below). Justin
has just been given the opportunity to stand in for the lead guitarist in an up-and-coming band,
‘Blistered Fingers.’ The lead guitarist of the Fingers recently broke his wrist in a motorbike accident,
and Justin went through a number of auditions before being chosen as his stand-in. He has been
told there is no chance of this becoming a permanent position, but even so Justin sees this as his
big break. The band is about to go on a countrywide tour for three months, followed by a series of
concerts in Germany, where the band has a large following.
All in all, he will be away for four months. Rehearsals for the tour start soon, and the band will go
on the road in three months’ time. Justin will not be able to work at the recording studio over the
next three months, but during this time the band has agreed to pay him the £1,600 per month that,
on average, he currently earns.
While touring with the band Justin will earn £2,500 per month and will have all of his
accommodation and meals paid for, as well as all travelling costs. He will be responsible for all
other expenses, however.
Justin is a great guy, but he is not well organised. He often oversleeps, leading to expensive taxi
journeys instead of walking or taking public transport, and he can also be impulsive when it comes
to spending. He is allowed a free meal at the pub, but often neglects to have it, preferring to go out
and eat with friends.

P.T.O. for Justin’s monthly income and expenditure statement, and the ‘Required’ section of
this question…..

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Justin’s Monthly Income and Expenditure (£s)
Income

Recording studio fees 1600

Pub wages 400
Expenditure
Rent and share of bills 700
Food, Toiletries etc. 400
Clothing 200
Mobile 30
Transport 350
Entertainment 320

Required:
Based on a critical assessment of the facts provided to you, and allowing for any reasonable
(stated) assumptions:
(a) What advice would you give Justin in terms of his current situation and the next three months?
(12 marks)
(b) What advice would you give him in respect of the four months that he will be on the road,
touring with the band?
(7 marks)
(c) What longer-term advice would you give him, assuming that he will be able to make a living as
a professional musician, without perhaps reaching the levels of fame and stardom?
(6 marks)

Total: (25 marks)

_______________________________________________________________________________

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Question 2:
Ali has recently graduated with a film and media degree. After working as a runner and
assistant-cameraman on a number of films, he has been offered a job as a freelance
cameraman at Pinewood studios in Slough. He recently moved from a rented room in London
to Slough, where he is renting a flat. The offer of a cameraman job is on condition that he can
provide his own, top-of-the-range Steadicam camera.
He has looked at various options and has decided on a top-of-the-range model, costing £6,000.
Ali currently has £500 credit card debt on two credit cards, but no other debts. He has savings of
£2,000, on which he earns interest of 2.5% per year. These savings are Ali’s emergency fund,
to meet the cost of any unexpected events. He has been advised that his credit rating is
comparatively low and that this will affect the interest rate he will be charged compared with
other borrowers.
Ali has identified various options available to him, to finance the purchase of the Steadicam:
(a) The supplier from whom he is buying the camera can provide finance. Ali would be required to
repay £170 per month over a 4 year period. The loan would have an APR of 16%.

(b) Ali could use his emergency fund savings and borrow a further £4,000 using a bank loan.
The terms of the bank loan would be repayment over 2 years and 6 months, with Ali’s
monthly repayments being £155 per month at an APR of 12%.
(c) Alternatively, the same bank would lend him £5,000 at an APR of 14%. This would require
monthly repayments of £171 over 3 years, and for Ali to use £1,000 of his emergency fund as a
deposit.
(d) A colleague has suggested that Ali could use his savings to pay off his credit card debt, then
use his two credit cards, each of which has a £1,500 limit, as well as a bank overdraft facility, to
fund the purchase of the Steadicam. The colleague pointed out this would enable Ali to repay
his borrowings as quickly as he can, rather than being tied to a repayment schedule.

The credit cards both have APRs of 23%, and the overdraft has an APR of 15%.
Ali can afford a monthly repayment of around £170 but would ideally prefer to pay less.

Required:

(i) Calculate the total interest that Ali would pay on each of the financing methods set out in
options (a) to (c) above.
(4 marks)
(ii) Consider each of the options (a) to (c) above and explain why each is likely to have the APR
that it does.
(5 marks)

P.T.O. for the rest of Question 2…..

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(iii) For options (a) to (c) above, provide a reason or reasons why Ali might prefer each option. You
should also identify any negative consequences attached to the choice of each option.
Furthermore, advise Ali of ways in which he might be able to negotiate a lower APR with each
of the three debt providers.
(10 marks)
(iv) What, in your opinion, are the two main reasons why Option (d) may not be a good idea?
(2 marks)
(v) Ali was surprised to discover that his credit rating was low, as he has never failed to make
payments on time in the past. Advise him of the steps he could take to improve his credit rating
in the future.
(4 marks)

Total: (25 marks)

_______________________________________________________________________________

Question 3
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(a) Sharon has just started her first job, where she will be earning a salary of £18,600 per year.
She asks you to calculate the annual and monthly tax she will have to pay on her salary.

(3 marks)

(b) Musa is a young chartered accountant who has been qualified for five years. He has just
started a new job with a large bank, where he will be earning £57,000 per year.
(i) Calculate the annual income tax which Musa will have to pay on his salary.
(4 marks)
(ii) Class 1 National Insurance of £434.41 is payable on Musa’s current monthly salary.
Advise him how much money he will have each month, after tax and NI have been
deducted from his salary.
(1 mark)
(c) Gina is the Marketing Director of a large Cosmetics company, where she earns a salary of
£124,000 per year. Calculate the annual income tax payable on Gina’s salary.
(5 marks)
(d) Ismail earns a salary of £17,400 per year and earns interest of £1,700 per year from savings
he has built up over time. Calculate the tax that Ismail will have to pay on his total income for
the year.
(7 marks)
(e) Mention any five factors which indicate that a taxpayer is an employee rather than self-
employed for tax purposes.
(5 marks)

Total: (25 marks)

_____________________________________________________________________________

Appendix A
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Tax Data
Income tax Rates/Limits
Tax rates and bands 2022/23

Basic rate 20%

Higher rate 40%
Additional rate 45%

Tax Bands (Based on Taxable Income)

Basic Rate £1 - £37,700
Higher rate £37,701 -
£150,000
Additional rate £150,001+

Starting rate for savings 0%

Starting rate limit for savings £5,000
Personal Savings Allowance (maximum) – Basic Rate £1,000
Personal Savings Allowance (maximum) – Higher Rate £500

Dividend allowance £2,000

Dividends – ordinary rate 8.75%
Dividends – upper rate 33.75%
Dividends – additional rate 39.35%

Allowances
Personal allowance £12,570

National Insurance Contributions

Employee Class 1 contributions – monthly earnings

On the first £1,048.00 (£12,570 per annum) 0%

Between £1,048 and £4,189 (£12,576 - £50,270 p.a.) 13.25%
On earnings in excess of £4,189 ( > £50,270 p.a.) 3.25%

Class 2 Weekly contribution Small Profits threshold £6,725 £3.15 per week

CLASS 4 Lower profits limit between £11,908 and £50,270 10.25%

Upper profits limit on profit over £50,270 3.25%

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CAR AND FUEL BENEFIT
Zero emissions 2%
*1-50 g/km (depending upon electric range) 2% - 14%
*51g/km to 54g/km 15%
*55g/km to 59g/km 16%
*60g/km to 64g/km 17%
Amount used in car fuel benefit calculation £25,300

Capital Gains Tax

Standard rate 10%
Higher rate 20%
Annual exemption (Individual) £12,300

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