As a business owner, it can be easy to focus all your time and energy on making your business a success. You can spend so much time worrying about ensuring your business runs smoothly and remains profitable for long into the future, you let planning for your own future take a back seat.
This does not constitute advice and advice should be sought in all instances before acting on it. The Financial Conduct Authority does not regulate tax advice.
It’s not uncommon for a business owner to think of their business as their retirement plan — you’ll often hear, “My business is my pension,” because pensions aren’t always popular with business owners. There’s no doubt that your business could provide all the income you need during retirement, but there is no guarantee that your business will always remain profitable or that you hold on to your company forever, so it’s important to have a safety net in place to supplement income during retirement so you don’t have to work any longer than you want to.
Besides being a great way to save for retirement, pensions come with significant tax benefits that could make all the difference in the future. The idea of having more than one option for retirement income is much like having a diversified investment portfolio — don’t put all your eggs in one basket!
Ways to save
There are many ways to save for retirement as a business owner. If you own a limited company, you can actually claim pension contributions as an allowable business expense to offset your Corporation Tax bill. If your plan is to sell your business to bankroll your retirement, maximising your pension allowances can help reduce the Capital Gains Tax you might own when you sell your company.
There are plenty of ways for employees to save toward their pension, but what are your options as a business owner?
Through Self-Invested Personal Pensions (SIPP) and Small Self-Administered Schemes (SSAS) you can directly invest in UK commercial property. These options are particularly appealing to business owners and self-employed people because your pension actually holds the property where your business is run. While you can’t invest in residential property, you can purchase offices, retail units, factories, etc. for commercial purposes through SIPPs and SSASs.
Self-Invested Personal Pension (SIPP)
A Self-Invested Personal Pension allows more control over your own pension fund and lets you make investment decisions on your own. A SIPP is a pension wrapper that holds a variety of investments while providing you with the same tax benefits of other personal pension plans.
Small Self-Administered Scheme (SSAS)
Small Self-Administered Schemes give directors control over former, and existing, pension funds that can be invested in your business or in property. This pension scheme is set up through a limited company on a defined contribution basis. These are mainly used for company directors, family employees, and key personnel.
Executive Pension Plan (EPP)
A third option is Executive Pension Plans (EPP), which is a tax-efficient savings plan for key employees in the company. The employer (and often the employee) contribute to the plan to build a tax-efficient fund. When it comes time to retire, you can get a tax-free cash and a pension income. For the most part, these are managed just like any other pension scheme.
It’s important that you have a plan to build and grow your wealth so that you can have a comfortable life during retirement. If you’re struggling as a business owner to get a plan in place, Dental & Medical Financial Service is here to help.