Essential pre-exit financial planning for business owners

The hectic journey of exiting a business often means you can overlook focusing on your own financial needs but by completing a personal pre-exit financial planning exercise you can achieve significant financial benefits. Some examples include:

Pre Exit Financial Planning Strategies

Extracting cash

If the question is ‘how can I get profits out of my business in the most tax efficient manner?’ then the answer is to make pension contributions.

Pension contributions to approved schemes are usually deductible against business profits and don’t suffer national insurance. When benefits are taken, 25% is usually tax free and thereafter they are taxed at marginal rates with no national insurance to pay.

Once you have maximised your pension contributions there may still be cash left in the business which you want to extract before exit – and there are other tax-incentivised routes to consider.

For example, utilising an enterprise investment scheme (EIS) or a venture capital trust (VCT) could be an option, with significant tax reliefs available when investing in these schemes.

However, such investments are high risk and not always suitable for everyone’s circumstances – so seeking professional advice is especially important.

Trusts

Have you discussed establishing a trust?

One significant issue with most trusts is the limit on how much can be transferred into one without an immediate inheritance tax charge – currently anything above £325,000 per person per seven years will be subject to an immediate lifetime inheritance tax charge of 20%. However, while you still own your business and there is no binding contract for sale, as long as the shares qualify for business relief you can potentially pass more than £325,000 into trust without attracting the 20% tax rate by gifting a percentage of your shareholding into a trust before a sale.

This possibility may not be here for much longer, as the rules are due to change in April 2026, although the government has not yet published the details of this.

Always take professional advice before enacting a trust.

Stop the risk of losing another 40%

Once the business is sold, you may wish to spend some time considering your options and deciding what the next stage of your life looks like.

Life assurance is well worth considering. Inaugurating a life assurance policy to cover your potential inheritance tax liability, should the worst happen, will provide you with the reassurance that your beneficiaries will inherit 100% of the proceeds of your hard work.

Contact a financial planner in your local office to learn how to make informed financial decisions as a business owner.