As financial planners, we would advise on a diversified approach to retirement planning, with different income streams to maintain a reliable income. However, for many business owners the proceeds from selling their business can often be the main source to fund their retirement.

When thinking of selling your business, a key question to ask yourself is, “How much money do I need to fund the lifestyle I wish to maintain for the rest of my life?”.

Knowing the answer to this, you’ll feel more assured as to the amount that would be acceptable to you to sell and give you a clearer target for the negotiations.

You’ll need to think about your expenditure needs, both on a monthly or annually essential needs basis, and also what your capital requirements are to fulfil the dreams on the bucket list you have prepared mentally, if not already on paper.

By using cashflow modelling tools, we can run through various scenarios to look at whether the sale proceeds will be sufficient to meet your goals. Taking into account all the assets that you have, including future benefits such as state pensions, we can prepare your personalised lifestyle financial planning report. We can also factor in events such as market crashes, to allow you to answer the question that we are often asked: “Am I going to be ok?”.

If you have not used cashflow modelling before your business sale, this can be done at a later date to provide you with the peace of mind that you have sufficient funds to meet your objectives.

Cashflow modelling will assist conversations with your financial planner, as you will both be clear on how the money should be invested, along with how much risk is required to meet your objectives and what structure should be used to plan and mitigate inheritance tax liability. Understanding what inheritance tax exposure you have will assist with planning and potential gifting decisions.

When the day comes and the monies are received in your personal bank account, the first thought is often that the monies need to be invested immediately given the low returns on cash. We would suggest that time needs to be taken and consideration given to the right investments, both in tax efficiency and structure to ensure that your future goals can be met.

However, the more immediate concern would be that the monies now in your bank account no longer qualify for Business Relief and are part of your estate. Should the worst happen, your beneficiaries could end up with a large Inheritance tax bill - charged at a rate of 40% over your available inheritance tax allowances.

In order to protect this, a life assurance plan written on a Whole of Life basis, second death basis could be appropriate. Cover to the value of the inheritance bill can be put in place on a reviewable premium basis where the premiums are fixed at a lower rate for an initial period, normally 10 years, and rising thereafter at future periodic reviews, typically every 5 years. Again, should the worst happen, the policy will pay out monies that can be used by the beneficiaries to pay the inheritance tax bill.  

By insuring against this, you will have time to think about your immediate, short, medium and long term goals and objectives, deciding upon the best course of action with your financial planner.

Your financial planner will be able to work with you and plan a strategy to help mitigate tax and allow you to live your life on your terms.

Get in touch

If you would like to discuss anything mentioned in this article with one of our experts, then please do not hesitate to get in touch with myself, a member of our Wealth team, or your usual Johnston Carmichael adviser.

Disclaimer: Johnston Carmichael Wealth Limited is authorised and regulated by the Financial Conduct Authority.

This communication should not be read or considered as financial advice. While all possible care is taken in the preparation of this communication, no responsibility for loss occasioned by any person acting or refraining from acting as a result of the information contained herein can be accepted by this firm. 

This communication is based on our understanding of tax legislation as at 08/11/2021. The value or benefit of any specific tax reliefs or allowances will depend upon your own situation.