Planning for life after business: where to start
As a business owner, your retirement plan will look very different from that of an employee. Unlike employees who often have a workplace pension and a predictable retirement income, you may be reliant on selling your business or extracting enough wealth during its lifetime to sustain your future.
Effective retirement planning for business owners requires foresight, strategy, and proactive wealth-building. The key is to start with the end in mind. What do you want retirement to look like, and when do you want to get there? Once you have a clear vision, you can work backwards to ensure your business provides the financial foundation you need.
Defining your retirement goals
The first step is to determine what retirement means to you.
- When do you want to retire? Do you have a specific age or timeframe in mind?
- What lifestyle do you want? Will you maintain your current standard of living, downsize, or travel extensively?
- How much income will you need? Factor in day-to-day expenses, inflation, and any new lifestyle costs.
- What role will your business play? Will you sell it, pass it on, or extract wealth over time?
By answering these questions, you can begin shaping a strategy that ensures your business serves as a financial asset rather than a burden.
How your business can fund your retirement
Unlike employees who contribute to pensions and receive employer contributions, business owners must take a more strategic approach to building retirement wealth. Your business can provide financial security in a few key ways:
1. Selling your business
If your plan involves selling your business, you need a strategy to maximise its value. Consider:
- Building a valuable, transferable business – Can your business operate without you? Buyers prefer businesses with strong systems and management teams.
- Understanding valuation methods – A business is typically valued based on profit multiples or asset values.
- Planning your exit early – A successful exit may take years of preparation, so don’t leave it too late.
- Tax efficiency – Entrepreneurs’ Relief (now Business Asset Disposal Relief) can reduce Capital Gains Tax when selling, but professional planning is essential.
2. Extracting wealth while running your business
If selling isn’t part of your plan, you must extract enough wealth from your business over time. Strategies include:
- Maximising salary and dividends – As a director, you can pay yourself a mix of salary and dividends, balancing tax efficiency.
- Company pension contributions – Employer pension contributions are highly tax-efficient and reduce corporation tax.
- Building investment portfolios – Extracted profits can be invested in ISAs, property, or other assets to create a diversified income.
- Using surplus cash wisely – If your business generates excess cash, investing it in a tax-efficient manner can boost your retirement savings.
Tax-efficient retirement planning for business owners
Business owners have more flexibility in tax planning compared to employees. Key tax-efficient strategies include:
1. Pension contributions
Pensions remain one of the most tax-efficient ways to save for retirement. Benefits include:
- Tax relief on contributions – Company pension contributions are deductible against corporation tax.
- Tax-free growth – Investments within pensions grow free of capital gains and income tax.
- 25% tax-free lump sum – At retirement, you can take 25% of your pension pot tax-free.
- Inheritance tax benefits – Pensions are typically outside your estate for inheritance tax purposes, though changes coming in 2027 may affect how they are treated. It’s important to review your plans with a financial adviser to stay updated on any tax implications.
2. Extracting money to build personal wealth
Extracting profits from your business in a tax-efficient way is crucial for building personal wealth outside the company. Several investment options allow for long-term financial growth and retirement security:
- ISAs – Provide tax-free growth and withdrawals, making them a flexible complement to pensions.
- Investment portfolios – Managed funds can offer diversified growth opportunities.
- Property investment – Using extracted profits to invest in property can generate rental income and capital appreciation.
By strategically using these methods, you can create multiple income streams to support your retirement beyond your business.
3. Business relief on inheritance tax
If your business qualifies for Business Relief, it may be exempt from inheritance tax (IHT), making it an effective wealth-transfer tool. Currently, Business Relief can reduce the taxable value of a business by up to 100% for IHT purposes, provided the business meets eligibility criteria such as being actively trading for at least two years.
However, changes coming in April 2026 may affect how these reliefs apply.
Planning your retirement timeline
To ensure you are on track, break your retirement plan into key stages:
1. Early-stage planning (10+ years from retirement)
- Define your retirement goals and timeline.
- Start tax-efficient pension contributions.
- Build personal investments alongside your business.
- Develop an exit strategy if selling the business.
2. Mid-stage planning (5–10 years from retirement)
- Increase pension contributions to take advantage of tax relief.
- Prepare your business for sale or succession.
- Reduce reliance on the business for personal income.
3. Final-stage planning (1–5 years from retirement)
- Finalise your exit strategy.
- Extract any remaining wealth tax-efficiently.
- Ensure personal and business finances are structured for a smooth transition.
- Seek professional financial and tax advice.
Final thoughts: securing your future
Retirement planning for business owners requires a proactive approach. Whether you plan to sell your business or extract wealth gradually, early planning is key to securing financial stability.
At Chilvester, we specialise in helping business owners create tailored retirement plans, whether through business sales, wealth extraction, or tax-efficient investments. Get in touch with our expert team today to start building a secure financial future beyond your business.
