Navigating retirement when closing your small business
By Team SalaryCalculate · 7/18/2025
Shutting down your small business can feel like a seismic life shift—especially if you're doing it in your early 60s and don’t have a traditional pension to rely on. Whether it's due to health challenges, burnout, or simply a desire to slow down, navigating the transition from entrepreneur to retiree is a significant moment. And if you're staring at a mix of savings, investments, and business assets without a clear income plan, you're not alone.
This guide explores practical, tax-efficient strategies to help you build a stable financial future—without a formal pension.
Step 1: Assess Your Situation Holistically
Before making any major financial decisions, take a complete inventory of what you own and owe:
- Business assets (property, equipment, stock, goodwill)
- Personal savings and ISAs
- Investment accounts
- Company profits or retained earnings
- State Pension eligibility
Use the UK’s State Pension Forecast tool to estimate what you’ll receive and when:
Check your State Pension forecast (GOV.UK)
Step 2: Talk to a Professional
One of the most valuable investments you can make right now is in a chartered financial planner or retirement-focused accountant. They can help:
- Minimize tax on dividends and withdrawals
- Optimize income from multiple sources
- Structure your post-business finances for long-term security
You can find a qualified, regulated advisor via:
Unbiased.co.uk – Find a financial adviser
Chartered Institute for Securities & Investment (CISI) Find a Planner
Step 3: Consider Dividend Withdrawals — Cautiously
If your limited company has retained earnings, you could pay yourself dividends before winding it down. This approach offers:
Lower dividend tax than salary
Flexibility to spread payouts over multiple tax years
Possible annual tax-free dividend allowance (currently £500 for 2024/25)
However, dividend tax rates rise quickly:
- 8.75% (basic rate)
- 33.75% (higher rate)
- 39.35% (additional rate)
Also note: dividends do not reduce corporation tax—so once paid, that money becomes subject to personal tax, and it's no longer within the business.
Step 4: Think About Last-Minute Pension Contributions
Even at retirement age, pensions offer a compelling tax advantage.
Why?
- Employer contributions are deductible from profits—reducing corporation tax
- You can contribute up to £60,000/year (or more with carry forward rules)
- Funds grow tax-free until withdrawal
- Withdraw 25% tax-free from age 55 (rising to 57 in 2028)
If you’re closing your business, consider a large, final pension contribution before striking off the company. This could help you reclaim previous corporation tax or reduce a current bill.
Pension contribution limits and rules – MoneyHelper
Step 5: Plan for Monthly Income
Once the dust settles, the question becomes: How do I draw income in a tax-smart way?
Here’s a common structure:
- Small, regular withdrawals from ISAs or investment accounts
- Tax-free pension withdrawals up to 25%
- Use of Personal Allowance (£12,570)
- Eventually, your State Pension
If your investments are outside a pension or ISA, be mindful of Capital Gains Tax (CGT). You have an annual CGT exemption of £3,000 (2024/25).
Capital Gains Tax overview – GOV.UK
Step 6: Consider Low-Risk Investment Options
If you receive a lump sum from selling business assets or winding down the company, keep it productive:
- Cash ISAs or savings accounts – ensure they beat inflation
- Bonds or gilts – low risk, income-generating
- Multi-asset retirement portfolios – managed for income drawdown
- NS&I products – backed by the UK government
NS&I Guaranteed Income Bonds
You don’t need to be aggressive with your investments—but you do need them to keep pace with inflation over a 20-30 year retirement.
Bonus: Use Business Asset Disposal Relief (BADR)
If you’re selling your company and qualify for Business Asset Disposal Relief (formerly Entrepreneurs' Relief), you may only pay 10% Capital Gains Tax on the first £1 million in lifetime gains.
Business Asset Disposal Relief – GOV.UK
This can free up substantial funds, which you can then deploy using the strategies outlined above.
Final Thoughts: Retirement Without a Pension Is Possible
You don’t need a corporate pension to retire comfortably. With smart use of:
Dividends
Pension contributions
Investment drawdown
Tax allowances
Professional planning
…you can build a retirement income strategy tailored to your needs, lifestyle, and goals.
Remember: it's not just about saving taxes—it’s about gaining peace of mind, flexibility, and control over your future.