Business PlanningTAX For Individuals

Small Business Owners – 5 key steps to take in the years before retirement

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You may be thinking of retiring in the next few years. If so, there are some key considerations you should think about and plan for now to make the most of the transition as you stop working. 5 key things to consider include:

1. Are you able to sell your business?

Many businesses have a value to someone, whether because of the customer base and goodwill, business assets, web domain or value of repeat custom. As you approach retirement, you should consider what you might be able to realise by selling your business. There are things you can do to improve the look of your accounts or to make your business more appealing. Considering these things 2-3 years from your intended retirement date is usually the right timing.

2. If you are not selling, what will you do with business assets?

Even very small businesses often have assets to dispose of. It could be company cars, tools, a business property or PC equipment. Planning to dispose of these over a period of time can often avoid the difficulty of disposing of them once your business ceases. Disposing of business assets for a low or nil cost can often create a balancing charge on your tax return in the final year. If this means your final year ends up being a loss, some enhanced ‘terminal loss relief’ may be available. This is more beneficial than usual and will often result in a tax repayment for a previous year.

3. Can you top up your pension now?

Whilst you are still working, you or your company will usually be able to contribute further to your pension. Topping this up can be very good planning, particularly as upon drawing your pension, 25% of your pension pot can be taken tax free immediately. This may mean you get tax relief now on contributions, then get the money back again in a year or two, also tax free. Pension contributions also reduce your corporation tax liability, if you operate via a company.

4. Have you maximised the reliefs available to your spouse?

Now might be the last opportunity to use reliefs available to your spouse by getting them involved in the business as an employee, shareholder or director. This could include utilising dividend allowances, personal allowances or capital gains tax allowances. If you are planning on selling the business, entrepreneur’s relief might also be available to your spouse.Finally, you may also want to top up their pension if they become involved in the business.

5. Have you planned your stock levels carefully?

If you sell goods, planning your stock levels as you head towards retirement is key. If you plan to sell your business, a potential acquirer is unlikely to want to be burdened to lots of stock and will also write down the value when it comes to negotiating the value of the business. Also, if you are not selling your business, you do not want to be left with stock which you cannot sell on a retail basis as you may end up selling in bulk for a reduced price or simply throwing it away. This time of life is a key time to take advice. That advice will need to cover a range of areas – tax, investment and pension planning and commercial advice in relation to a potential sale. Wisteria have supported many clients as they make their move towards retirement. For more information, please contact us.

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