As a business owner, you may have mixed feelings about the prospect of retirement. While you might be looking forward to spending more time with family, travelling, or relaxing, you could also feel apprehensive about stepping away from your business.
In some cases, a phased or semi-retirement can offer the best of both worlds – keeping you engaged and earning through your business, while freeing up more time to enjoy life outside of work.
Discover the potential financial benefits of a phased retirement and how this approach could help you and your business adapt to changes as you retire.
By earning for longer, your retirement savings may stretch further
Since the pandemic, more people have been opting to retire early – according to UK parliament figures.
What’s more, with life expectancies growing, many people are living longer. According to the Guardian, the number of UK centenarians in 2023 was more than double the number in 2002.
As a result, retirement savings often have to stretch much further than before, and in some cases, retirement can make up a third of a person’s life.
By continuing to work on a part-time basis at the start of your retirement, you can not only limit how much you need to draw down from your pension early on, but also continue contributing to it as you earn.
Additionally, since pension funds are typically invested across a range of assets, keeping your savings invested can allow them to grow through compound returns. You could therefore boost your retirement savings while enjoying more time away from work.
A phased handover to your successor could help make the leadership transition smoother
According to Business Money, 21% of business owners surveyed said their biggest concern in succession planning was the business failing.
By phasing into your retirement, you could help ensure your successor has all the training, knowledge, and support they need to take the reins. So, when you do choose to exit the business, you can rest assured it’s in safe hands.
Moreover, a gradual transition to new leadership can help your workforce acclimatise to change, helping to ensure the business continues to operate smoothly after you retire.
Depending on the type of business, this approach can also offer reassurance to clients. In some cases, you may have built relationships with them over several years – or even decades. Gradually handing the reins over to your successor can help them adjust, potentially reducing the likelihood of the business losing clients after you exit.
Stepping back from the business gradually could help you adjust
Leaving your own business can be difficult, especially if you have dedicated many years to building it. While you may be excited by the opportunity to enjoy more free time in retirement, that doesn’t necessarily mean you’re ready to fully relinquish control of your business.
As a result, you may find a sudden change from full-time work to retirement overwhelming.
By splitting your time between work and retirement over several months, or even years, you could ease yourself into your new lifestyle without fully letting go of your business.
If you’re retiring early, a phased approach also gives you the opportunity to try out retirement before you fully commit. You may discover you’re not as ready to step back as you thought; semi-retirement gives you the flexibility to return to the business full-time if you choose.
Phasing your exit could help you mitigate the risks and tax factors associated with selling your business
If you’re planning to sell your business when you retire, doing so gradually could help mitigate some risks and reduce your tax liability.
In some cases, a sudden departure by a leader can affect valuation, creating uncertainty among employees and customers.
Rather than selling your entire business in one go, you could potentially release capital in stages. This way, you retain a portion of the business, and can continue to receive an income while selling the rest. Investors may gain confidence in new leadership over time, potentially allowing you to sell some of your stake when valuations are higher.
Additionally, by spreading your sale of the business out over time, you may be able to reduce your tax liabilities. Taking smaller amounts over several years could help reduce your Capital Gains Tax (CGT) and Income Tax liability.
A gradual restructuring of this nature can also improve financial planning by giving you more time to decide where assets will be held or invested, and how they could be passed on tax-efficiently after your death.
Find out how we can help
If you’re a business owner thinking about retirement, get in touch for support in defining a retirement plan and exit strategy that works for you.
Email us at [email protected], or call 01273 076 587.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.
The Financial Conduct Authority does not regulate tax planning.
