Retirement opens the door to an exciting new chapter. For business owners, though, it also means taking the time to thoughtfully plan and carry out a seamless transfer of ownership, ensuring the future success of the business you’ve dedicated so much effort to building. One of the most significant decisions you face as a business owner is determining the best plan for succession – what do you do with your business when you retire?
What to consider when planning how to handle your business in retirement
Retiring as an employee is straightforward. You submit your resignation, complete your notice period, and then enjoy everything retirement offers. However, stepping down as a company director and shareholder involves more careful planning. You’ll need to decide what to do with the business and take the proper steps to make it happen. This might mean passing the leadership of your company to a trusted successor or possibly selling, or even closing down your company.
When planning your retirement as a company owner, it’s essential to reflect on several key questions, especially if you’re considering passing the business on:
- Can you trust the next generation, your employees, or your leadership team to own and run the business effectively in the future?
- Is there a natural successor already working in the business who could step up and take on your role?
- Are you envisioning one family member taking over or multiple? If it’s multiple, how might a more complex ownership and management structure impact decision-making down the line?
- What role do you see yourself playing in the short, medium, and long term after transitioning?
- Could you gradually step into a non-executive role, allowing your successor to lead? For instance, shifting from a Managing Director to a Chairman-style role could be an option.
- Have you sought professional advice early to ensure a smooth transition and explore the most tax-efficient ways to transfer your business?
Options for Company Directors to transfer your business:
Pass the company on to a family member
If a family member is already involved in the business, transitioning leadership to them can be a straightforward option. This process can unfold gradually, aligning with your retirement timeline and allowing you to mentor them on the ins and outs of running your company.
While passing down a family business creates a lasting legacy, it does require careful planning and execution. It involves ensuring the smooth transition of leadership and safeguarding the business’s continuity and growth.
If you’re financially secure, you might gift the business to your family member without expecting anything in return. On the other hand, if you need a financial cushion for your retirement, selling the business may be a better option, allowing the family member to invest in the company. If they’re unable to purchase the shares outright, a partial sale – combining a sale and a gift – could be a practical solution, making the business more affordable while still giving you some funds to support your retirement. However, addressing practical details like updating legal documents, planning for tax implications, and ensuring your successor is ready to take on the role is essential.
Whenever there’s a change in important details about your company, like appointing a new director, you’re legally required to notify Companies House and update the company records. At Freedom In Numbers, our company secretarial services can help keep all your statutory company records up to date.
Management Buyout
A management buyout (MBO) is a popular option for business owners planning to retire, especially if there are no family members to take over, or if the business is too small to attract external buyers. This option could be worth considering if your business has no assets and is only valuable as a going concern, such as a service related business. With a management buyout, you sell your business and its assets to your existing management team – people who already understand the business and are invested in its success.
An MBO offers a seamless way to transfer ownership while preserving your company’s legacy, protecting employees, and maintaining brand continuity. It’s a solution that minimises disruption while keeping the business in trusted hands. However, the financial and legal complexities involved in an MBO make the expertise of an accountant essential for ensuring the transition is smooth and also tax-efficient.
Transferring your business through an MBO can be a rewarding way to transition into retirement while leaving your company in capable hands. With professional accountancy support, you can confidently navigate the process, knowing every detail is handled efficiently and effectively.
Selling or Gifting Shares
When selling or gifting shares, it’s essential to understand the tax implications. Even if shares are sold at less than market value or gifted, the transaction will still be treated as if it occurred at market value for tax purposes. In this instance an accountant can help you explore opportunities like gift hold-over relief, which allows you to defer the capital gain, passing it on to the new owner’s shareholding instead.
Inheritance Tax Considerations
Gifting shares may also have inheritance tax implications. If you survive for seven years after the gift, it will no longer count toward your estate for inheritance tax purposes. Even if you pass away within that period, your beneficiaries may still qualify for business relief on inheritance tax – provided you owned the business for at least two years before the gift and they keep it as a going concern.
Trusts
If you want to transfer shares but retain control of the business, you could consider setting up a trust. This option allows you to maintain oversight of the company while securing tax and asset protection benefits. Trusts also come with various advantages, including tax benefits, asset protection, and flexibility, which can be particularly useful for family businesses. Setting up a trust can be a complex process, so you would likely need professional help to ensure this is completed properly.
Sell the company to a third-party
Another option is to sell your business to a third party, such as a startup entering your market, a competitor, other shareholders, or even your employees. Selling to a third party can be an attractive choice, as it allows you to unlock the full value of your business and secure a lump sum to fund your retirement. Many companies choose to sell their business to a competitor. To do this, you would need to prepare for the sale, value the business, market it and prepare the relevant documentation for the buyer.
Hire somebody to run the business
You’re not required to sell or close your company when you retire. If a lump sum isn’t necessary for your retirement, you might consider keeping the business running by hiring a managing director to take over daily operations. This approach lets you step back while still generating an income.
This option is particularly appealing if you want to transition into semi-retirement and continue to work part-time as a consultant for your company. It allows you to stay involved, maintain an income, and retain a connection to the business you’ve built, all while leaving the day-to-day responsibilities in capable hands.
Managing the tax implications of transferring ownership of a business
Planning ahead is crucial to transfer your business in a tax-efficient way while aligning with your broader retirement goals.
Our Strategic tax planning involves reducing your tax liability by making full use of available allowances, deductions, exclusions, and exemptions. By coordinating these opportunities effectively, you can lower your total tax bill and keep more money in your pocket – giving you the freedom to afford the lifestyle you want, including the retirement you’ve envisioned.
At Freedom in Numbers, we specialise in handling the complexities of tax planning and compliance, freeing you from the administrative burden. By keeping your financial records accurate and up to date, we make it easier for you to focus on the bigger picture – planning for your retirement and deciding how best to transition your business.
Speak to our team if you need company secretarial advice to transfer your business after retirement
A trusted advisor can be invaluable in helping you navigate complex legal and administrative tasks involved with transferring your business, including updating company records, ensuring compliance with regulations, and managing your tax implications.
Our team offers tailored company secretarial services designed to keep your company documents up to date. We can help you manage all the essential statutory records required by Companies House. Whether appointing new directors, transferring shares, or updating your registered office address, we handle the paperwork and ensure your company remains fully compliant. These tasks are time-sensitive and legally required, so having experts manage them can save you from unnecessary stress and help you to avoid penalties.
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