Successful business owners are good at what they do - and therefore when thinking about their eventual retirements and exit from their business, more times than not, their plan involves relying on their business to fund their life in retirement. After all, this feels a comfortable strategy, you know your business inside out, you know the market, you know the projections and you feel in control, compared to handing over the reins for someone else to make investments for your future on your behalf.

However, having all your eggs in one basket is not only a risky strategy, but you may be missing out on some significant tax breaks too.

If you own a limited company, pension contributions can be treated as an allowable business expense, potentially saving the company 19% in corporation tax or dare we say it, but potentially 25% from April 2023.

Indeed, withdrawing capital from the company via pension contributions means that the payments should not be subject to income tax or national insurance for either yourself or the company. They should also help reduce the potential capital gains tax liability created when your business is sold.

Many business owners have been put off pensions by a bad experience, perhaps mediocre advice for which they have paid high fees. A good financial planner with experience of working with business owners, building plans, constructing personal future cash flow and capital projections can help you make the most of the tax planning opportunities available to you, whilst being sensitive to your individual attitude to risk.

It is sometimes hard for business owners to distinguish between their business and personal finances, often with investing in the business taking priority over saving for retirement, however the full single tier State pension is currently just under £9,340 per annum, which highlights why it is unlikely that you could rely on the State pension alone without having a real income shock and reduced living standards later in life. In our opinion, the State pension should be seen as a safety net, not a default source of income.

Engaging with a dynamic and experienced financial planner should help you transfer your business wealth into your personal wealth in a tax efficient way, using visualisations of the future and including helping you manage future exit strategies.

If the past 15 months have taught us anything it is that you never really know what is around the corner and without personal wealth built up outside the business, a turn in revenue could have a detrimental effect on your ability to live the lifestyle you envisaged.

If you would like help planning your future and turning the successes of your working life into a sound plan for your ‘golden years’ please contact us to arrange for a free, confidential and no obligation chat.

 July 2021