As research shows that one in ten people aged over 55 are considering drawing on their pension pot to start their own business, an Otley expert is urging would-be entrepreneurs to avoid potential pitfalls.
Andrew Thornton who runs TaxAssist Accountants in Otley said: “The new pension reforms, which mean that people aged 55 and over with a defined contribution pension can now choose to take their money rather than buy an annuity, are encouraging a new generation of later-life entrepreneurs.
“But we’re urging these so-called silver start-ups to obey some golden rules to help protect their hard-earned retirement savings.”
The research, from wealth managers Axa Wealth, showed that one in ten people were considering drawing money from their pension pot to start their own business, with almost half that number planning to use their 25 per cent tax-free lump sum. Business choices ranged from tea shops and art galleries to manufacturing and computer repairs.
“Running your own show can be a tremendously rewarding experience,” said Andrew Thornton. “But I’m urging local people considering taking that step, to plan carefully and obey some golden rules:
- Remember that only the first 25 per cent of any pension pot draw-down is tax-free, so factor in paying income tax on the rest and avoid pushing yourself into a higher tax bracket
- Consider bite-size chunks of funding, to gradually build your business, add necessary equipment and support cashflow – each draw-down then qualifies for 25 per cent tax free
- Work with your advisers to produce a clear business plan and cashflow forecast, which includes all living costs and targets payback times on the investment
- Consider part-funding from other sources, such as the Enterprise Finance Guarantee Scheme, to safeguard some of your retirement savings.”
TaxAssist Accountants Otley is a local business, operating across Otley, Guiseley and North Leeds, providing tax and accountancy advice and services purely to small businesses.