Understanding Pension and Inheritance Tax for Small Business Owners

Running your own business often means your personal and professional finances are closely intertwined. While focusing on growth, cash flow, and customers, it’s easy to overlook how pensions and inheritance tax (IHT) could impact the long-term security of your estate — and your family’s future.

At Pecunia Financial Planning, we regularly meet business owners who’ve built successful enterprises but haven’t structured their finances to make the most of pension and inheritance tax allowances. Let’s explore the basics and why expert financial advice can make a big difference.

Understanding Pensions for Small Business Owners

Unlike employees with workplace pension schemes, small business owners — particularly limited company directors — have unique flexibility when it comes to pension contributions.

1. Tax-efficient contributions

Company pension contributions are treated as a business expense, reducing your corporation tax bill. This can be significantly more efficient than taking the same funds as salary or dividends.

2. Personal pension benefits

Contributing personally to a pension allows you to receive tax relief at your marginal rate. For higher or additional rate taxpayers, this can add up to substantial savings.

3. Investment growth and accessibility

Funds within a pension grow free from income and capital gains tax, and from age 55 (rising to 57 in 2028), you can usually access 25% tax-free. This makes pensions a powerful long-term wealth-building tool.

Inheritance Tax: A Growing Concern for Entrepreneurs

With property values and business assets rising, more families are being caught in the inheritance tax net than ever before. The current IHT threshold (known as the nil-rate band) is £325,000 per person, with potential additional allowances for a family home. Anything above this is typically taxed at 40% — a significant cost to your beneficiaries.

For business owners, IHT planning can be complex. Some business assets may qualify for Business Relief, potentially reducing or eliminating the tax due on those assets. However, eligibility depends on how your company is structured and whether it continues to trade actively.

Failing to plan properly could mean that valuable business assets, or even shares, need to be sold to pay a tax bill — something most owners want to avoid.

Why Professional Advice Matters

Tax and pension rules in the UK are complex and ever-changing. Small business owners need a coordinated approach that aligns pension strategy, business structure, and estate planning.

At Pecunia Financial Planning, we help entrepreneurs:

• Identify the most tax-efficient pension options for their circumstances.

• Structure company and personal finances to minimise inheritance tax exposure.

• Develop a succession plan that protects their family and ensures business continuity.

A personalised financial plan ensures your hard work benefits you now and supports your loved ones in the future.

Take Control of Your Financial Future

Pensions and inheritance tax aren’t just about numbers — they’re about legacy, security, and peace of mind. Whether you’re just starting out or planning your exit strategy, it’s never too early to take professional advice.

📞 Book a free consultation with one of our financial planners today to discuss how we can help you protect your estate and build a secure future.

👉 Contact Pecunia Financial Planning to get started.

Join the Conversation

Are you a business owner thinking about pension or inheritance tax planning? Have you encountered challenges balancing your business and personal finances?

💬 Share your thoughts in the comments below — or share this post in your business or networking group to help others make informed financial decisions.