How to consider personal tax planning across your business life cycle

How to consider personal tax planning across your business life cycle

For SME owner-managers, personal and business tax are always intertwined, even though they each require their own unique approach. Over the course of your business’s journey, it’s key to regularly consider and revise your personal tax planning in order to maximise your earnings and ensure financial stability for the future.

Just as your company’s approach to tax should evolve with changing market conditions, growth goals and lifecycle stage, your personal tax strategy will change with your business’s needs, as well as your personal life goals and circumstances.

Kapil Davda explores how to consider personal tax planning in line with your own goals alongside your business and the best ways to make the most of the options available to you.

Understanding the wealth planning curve

As with most financial matters, the best results come from making a plan, testing it and revising it. When you’re first starting your business, it may feel early to start strategising, especially with so many unknowns swirling around. However, having clear goals in mind for how you want your personal finances to develop can help you in making the right decisions in the business side of your life.

With most people, earnings in life will follow a curve, starting off low, peaking as you hit your stride and reach more senior positions, then tapering off gradually as you approach the end of your working time. Alongside this comes the journey of life itself, taking on additional responsibilities, potentially starting a family and planning a future for them. Your personal financial decisions will be influenced by the different points along this curve, depending on income, outgoings and obligations.

By keeping a long-term view in mind, you can guide your financial decisions towards your goals, while also ensuring your business has the funding, flexibility and security it needs to deliver the future you want.

Early and growth stage financial planning

During the starting stage of your working lifecycle, there is often a careful balance between saving and investment in the business itself. New companies bring uncertainty, unexpected events and high start-up costs, so finding spare capital to invest for your own future can be a challenge. At the same time, as with all investments, starting early brings major advantages, especially when it comes to compound interest.

• The pragmatic approach is to make the most out of what you have by focusing on options with a long-term financial advantage, such as a Lifetime ISA or basic pension.
• For many owners, the best investment option may be the business itself, concentrating on growth opportunities to support you once you’re able to generate more income.

Middle and lifestyle financial planning

Once up, running and generating regular, stable income, business owners tend to have a clearer vision of their lifestyle and assets, as well as any dependencies they may have, such as family. This will also be a stage where there may be more spare capital to save and invest, including enough to afford a financial planning advisor.

With more clarity over your income and costs, as well as the period for which you plan to be working, business owners can focus on steady saving and investment for their own needs and their dependents.

• When managing capital inside and outside the business, owners should consider a steady and tax efficient approach to salary and dividends, keeping enough liquidity within the business while drawing an income that can support personal goals.
• As you acquire assets, owners can start considering their long-term management within the business and their family, particularly for inheritance tax. This can include planning for how to manage shares in the business, creating trusts for family members and investing in property.
• This is also the period where there will be the most time and capital to invest in a pension, so it's important to maximise contributions in line with the latest legislation and tax allowances.

Exit and succession financial planning

As the possibility of slowing work and a business exit approaches, retirement planning becomes a priority. Alongside paying enough into your pension pot, this will be the last period in which you can extract value from the business. For this more complex period, it can be advantageous to seek the advice of financial advisors to determine how much assets you need for retirement and passing on.

• Consider extra income sources, such as downsizing your home, liquidating investments and passing on assets within the inheritance tax annual threshold.
• Focus on maximising pension, ISA and dividend allowances during your last active earning years. Consideration of structures such as trusts may be suitable to protect and pass surplus wealth to future generations.
• Analyse your existing assets, work out your potential inheritance tax liabilities, and plan how you can minimise your exposure.

Taking control of your personal wealth planning

Running your own business can be hugely time consuming, leaving little time to focus on your own personal finances. When it comes to managing your long-term finances and making sure you have enough assets to set aside for your family’s future, the right advice can make all the difference.

Haines Watts advisors will help you create a plan based around your unique needs, which will give you clarity around your future income needs, enable you to take advantage of relevant investment options, maximise any tax saving opportunities, and build long term stability. We work with accredited financial advisors to create holistic plans that help you stay on track and achieve your life goals.

To find out more about how we can help you plan for your future, get in touch with one of our team.