If you’ve built a business, it’s probably one of the largest things you own, and it’s natural to think of eventually selling it as your retirement plan. It’s also worth knowing that just 20% of self-employed people pay into a pension, compared with 78% of employees, according to research from the Social Market Foundation (August 2025) – not every self-employed person is a business owner, but the figures point to a wider pattern of business owners leaning on their business, rather than a pension, to fund retirement.
That approach carries more risk than it might first appear, and two changes over the past couple of years have made relying on it exclusively even less attractive than it used to be.
The risk of treating your business as your only retirement plan
Selling a business depends on finding a buyer prepared to pay what you think it’s worth, at a time that suits you – and none of those three things is guaranteed. A sale can take considerably longer than expected, a suitable buyer might not materialise on your timeline, and your business’s valuation can move for reasons entirely outside your control, whether that’s your sector falling out of favour or wider economic conditions. If you needed to retire earlier than planned – ill health being the obvious example – being unable to do so until a sale completes isn’t a comfortable position to be in.
None of this means your exit strategy shouldn’t form part of your retirement plan – it almost certainly should. It just means that if it’s the only part, a financial review that adds a pension and other options alongside it is worth having.
The maths have shifted, and not in the business-sale-only approach’s favour
Two changes are worth knowing about if you’ve been assuming the tax treatment of a sale or handover works the way it used to. Business Asset Disposal Relief, which reduces the Capital Gains Tax rate on qualifying business sales, has risen from 10% as recently as 2024 to 14% in 2025/26, and now 18% from April 2026 – still better than the standard 24% rate, but a narrowing advantage compared to a few years ago, on gains up to the £1 million lifetime limit. Separately, if passing the business to family is more your plan than selling it, Business Relief (which can shelter qualifying business assets from Inheritance Tax) has been capped at £2.5 million combined with Agricultural Property Relief since 6 April 2026, with only 50% relief available above that threshold rather than the previous unlimited 100%. Both changes mean less of the value tied up in your business is likely to reach you, or your family, as tax-efficiently as it once would have – which makes building retirement income through other routes, alongside the business, more worthwhile rather than less.
Pension contributions are tax-efficient for you personally
Contributing to a pension gets you tax relief at your marginal rate of Income Tax, provided you stay within the Annual Allowance – currently £60,000, or 100% of your earnings if lower. That’s an immediate uplift on whatever you contribute. Once inside your pension, investment returns aren’t subject to Capital Gains Tax either, so growth compounds without being eroded by tax along the way – valuable if a chunk of your retirement funding is going to come from investment growth over a decade or more, rather than solely from a future sale.
Pension contributions can be tax-efficient for your business too
If your business makes the contribution directly, rather than you personally, there’s a second layer of efficiency. Employer pension contributions are generally an allowable expense, deductible against your profits before Corporation Tax is calculated, provided they meet HMRC’s “wholly and exclusively for the purpose of the trade” test – broadly, that the contribution is a reasonable reflection of your role and remuneration, not simply the business’s biggest available deduction. On top of that, employer contributions aren’t subject to National Insurance for either the business or you personally – worth more today than it used to be, now that employer National Insurance sits at 15%. If you’re extracting value from the business through a salary sacrifice arrangement specifically, it’s also worth knowing the National Insurance advantage on salary-sacrificed pension contributions is being capped at £2,000 a year from April 2029, under rules confirmed in the Autumn 2025 Budget – a change worth factoring into how you structure contributions over the next few years, even though the date itself is some way off.
Your pension could even own your business premises
If you hold a Self-Invested Personal Pension or Small Self-Administered Scheme, one further option is using it to purchase commercial property – potentially including your own business premises. Structured this way, your pension becomes your landlord, and the rent your business pays goes toward your retirement fund rather than a third party’s. The rules around commercial property and pensions are genuinely complex, with plenty of ways to get the detail wrong, so this is one very much worth exploring with tailored advice rather than attempting alone.
Building a retirement plan that doesn’t depend on one thing going right
As financial planners based in Poole, we work with business owners across Bournemouth and the wider Dorset area to build a retirement plan that draws on your business exit and your pension together, rather than leaning entirely on one or the other. If you’d like to talk through what that could look like for you, we’re always happy to have a no-obligation conversation.
Get in touch to talk about building a retirement and exit strategy that work together.
This article is for general information only and does not constitute advice. The information is aimed at individuals only. All information is correct at the time of writing (September 2026) and is subject to change in the future. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension contributions and withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The Financial Conduct Authority does not regulate tax planning, Inheritance Tax planning or estate planning.