Aligning your business and personal wealth for retirement

As a business owner, do you know when you want to retire and what you’re going to do after you step back from your business? If not, you’re not alone. Only 4% of business owners in the UK have a formal plan for life after leaving their business. This may be understandable, as the commitment and focus required to run your own business often means there isn’t much time for long-term planning. But it’s inevitable that sooner or later, you’ll need to hand over to someone else. And when that time comes, you want to be sure that you have the finances you need, so you can enjoy whatever you want to do next.

Making a plan

It’s important to start thinking about all your options as soon as possible. Why? Because when you decide how you want to use your new-found freedom, you’ll need to make sure you have the funds you need to support it. This means looking at your potential annual expenditure and assessing how sustainable they are, given your potential income.

For example, walking away from your business doesn’t need to mean giving up work entirely. You may want to work part-time, or even take up a new challenge and start a different type of business. Alternatively, you may decide that, after spending so much time working hard to build a successful business, you want to enjoy the rewards and go travelling, devote more time to leisure pursuits, or spend more time with your family.

Investing for the future you want

If you decide to sell your business, then you’ll have a lump sum that you can invest to make your ideal retirement lifestyle sustainable. There are a number of options available so that you can build a retirement fund.

ISAs – You can invest up to £20,000 per tax year in ISAs and these can be a good way to make your money more sustainable, because any withdrawals, growth or income from them is tax-free.

General Investment Accounts (GIA) – If you invest your money in a GIA, this allows you to use Capital Gains Tax (CGT) and dividend allowances.

Pensions – One of the biggest advantages to pension pots is the tax relief you receive on contributions, which makes this such an attractive avenue to go down. Any growth in your pension pot is tax-free. You can also take up to 25% of your pension without paying income tax, so it may be worth looking at the most tax-efficient way to draw your pension. If you decide to leave your pension to a member of your immediate family, then this may also be free from Inheritance Tax, so it may be advantageous to look at pensions as a way of passing on some of your assets.

Enterprise Investment Schemes (EIS) – If you still want to be involved in a business, but don’t necessarily want the day-to-day responsibilities of running it, you can look at investing in a new company. If you decide to invest in a new start-up that isn’t listed yet, an EIS offers up to 30% income tax relief on investments of up to £1m a year. In addition, if you hold the shares for at least three years, any growth in their value is free from CGT. You can also defer any previous CGT incurred by, for example, selling your business, and if you sell your shares at a loss, this can be offset against income tax due in the current or future tax years. You can also offset losses against CGT.

Venture Capital Trusts (VCT) – VCTs are listed companies that invest in small UK businesses and the government offers generous tax benefits if you invest in them. If you invest in these shares, you can claim a range of tax incentives, up to a maximum of £200,000. This includes income tax relief of up to 30% if you hold the shares for at least five years, and you pay no CGT on any profits when you sell your shares. If the company pays dividends on its shares, these are also tax-free.

Passing on your assets

If you want to leave money to your loved ones when you die, there a number of tax-efficient ways to do this. One of the easiest is to gift money to them. If you gift a large sum to someone and then you die within seven years, they will potentially need to pay IHT on it. However, you can gift up to £3,000 to any individual and, depending on the nature of the gift, they won’t need to pay IHT.

You can also pay £250 gifts to as many people as you want each year without IHT applying – unless you’ve gifted them £3,000. If a relative is getting married, you can also make a gift of up to £5,000 for the wedding of a child and £2,500 for the wedding of a grandchild or great-grandchild. Or, you can gift up to £1,000 to any other relative or friend each year. All of these gifts will be free from IHT if you die within 7 years of making the gifts.

All of these approaches to future financial planning can be very complex and there are specific rules that apply to many of them. So, if you want to consider any of these options, we would always advise you to seek independent financial advice before making any decisions.

Talk to us

At Grosvenor Wealth Management, we’ve helped many business owners plan for life after their business. By understanding your individual goals, aspirations, and priorities, we can develop a personal life plan for you that sets out a coherent financial solution to achieve them.

As well as regularly monitoring investment performance, we’ll also sit down with you each year to review how it’s going and enquire about any changes to your needs, so we can help you to achieve your financial goals.

PLEASE NOTE: Grosvenor Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority. The value of investment can go down as well as up and you may not get back the original amount you invested.