15th February 2024

Almost a Third of UK Business Owners to Sell Up to Fund Retirement

Almost one third (30%) of UK business owners plan to sell their businesses to help fund their retirement, according to new research.

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Almost a Third of UK Business Owners to Sell Up to Fund Retirement
Fund Retirement

Almost one third (30%) of UK business owners plan to sell their businesses to help fund their retirement, according to new research. 

Business owners across the country have been fighting rising costs from energy bills to higher living wages and it seems for many, now is the time to contemplate retirement. However, planning for retirement and how to fund it has become trickier to plan. 

According to the research from leading tax and advisory firm Mazars, not all are considering a clean break from their business. The study examining business owners’ attitudes to succession planning found almost half (49%) of business owners said they plan to partially transfer their business to family, such as their children or grandchildren and continue to draw an income from it to fund their retirement. The absence of an immediate end point can mean it is challenging to plan and think about how to fund their retirement and pension plans. 

For those considering a full or partial sale, almost two-fifths (39%) say they plan to invest the proceeds into a pension, while the same amount (39%) plan to sell the business to generate a pot of money they can use to draw income from themselves. 

It is not just retirement that business owners should be considering. When owning a business there are many ways business owners choose to remunerate themselves, each with its unique pros and cons. Worryingly, considering significant changes to thresholds in the past few years, two-fifths (42%) haven’t reviewed how they take an income for 2 or 3 years. Just one in 10 business owners have done so in the past year and 73% of those who have reviewed in the past year did so before April 2023 when personal tax changes such as an increase in higher and additional rate income tax came into effect. 

Mazars are warning that the continued frozen income tax thresholds and the resulting fiscal drag pushing many into higher rate tax bands could mean many are not remunerating themselves in the best possible way. Currently, 39% of business owners are most likely to pay themselves a salary and a bonus (subject to profits), while a quarter 24% take a set annual salary and 24% of business owners said they take cash drawn against a loan account. 

Zoe Davies, Partner at Mazars said: “Planning for retirement takes time and many aspects should be considered, especially when it comes to funding your retirement through a business sale. Thinking of any tax implications of a sale should also be a priority as a hefty tax bill might scupper even the best plans of retiring off the proceeds of a sale. 

“It is also vital in the build-up to retirement to review how you are taking an income from your business. Reviewing this often and keeping it in mind alongside any exit plans is vital to ensuring a tax-efficient retirement and as much income for retirement as possible.”

Zoe’s top four things to consider

Start with the why

Sit down and work out your long-term objectives, both personal and professional, and then understand the pros and cons of staying in the business vs de-risking. There’s no “one size fits all”, it completely depends on your personal timeframes, the potential growth in the business, the risk and impact of political and economic change and a clear view on how much is “enough”. Understanding what is important to you means there is nearly always a solution that works. 

Consider a partial sale

Selling 100% of your business today is one option but what about selling some of your business and retaining the rest? Taking some money today but still being involved in the business and enjoying some future growth? Or selling to your employees via an employee ownership trust so that you know the future of the business is secure? 

Don’t forget about IHT

Most people involved in a sale of their business will want to ensure their tax liabilities on the sale are in line with their expectations. And this means that IHT is often overlooked. It shouldn’t be. From the point you sign the contract for sale, the value in your business will almost always move from being fully relieved from IHT as a result of Business Property Relief, to potentially having full IHT exposure at 40%. The important thing to think about here is how your business sale, and it proceeds, tie in with your personal tax planning. 

It’s never too early 

Selling a business, either in its entirety or partially, and achieving a good outcome takes time. And the longer you have, in most cases, the better. Even if it’s just a thought that has crossed your mind, it’s never too early to get a tax health check on your business and start thinking about what that exit plan could look like. This will ensure you are in the best possible position when it comes round to selling up. 

Categories: Articles, Funds

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