Question

I retired three years ago, with half my income coming from my company pension fund and the other half from interest from investments. I am paying tax at a rate of 41%. Is there anything that I can do to reduce this amount?

Answer

It is very important that you create a separate entity for the business. This will enable it to carry on functioning should you not be around.

Set up a company

You should consider setting up a company and running your business from it. 

There will be a small initial cost to set it up, as well as some statutory returns that must be done each year. 

These are, however, outweighed by enabling the business to continue functioning smoothly in your absence. 

Housing the business in a company will also make it a lot easier for you or your heirs to sell the business in years to come. 

Have the business valued

Most owners of small businesses severely underestimate the value of their businesses. This business has been giving you and your family a very comfortable income for many years, so it has a value. 

It would be a tragedy if this income-generating machine dis­appears when you are no longer around. I would strongly recommend that you have your business valued. This will enable you to put structures in place to retain the value of the business. 

Ownership

You would own all the shares in the company you set up, so there would be no real change in the ownership of the business. 

You can now, however, consider doing the following:

• Nominate your spouse or child as alternate directors to take over should you die;
• Set up a preferred compensation scheme to sell some of the shares in the company to key employees in the future.

Succession plan

You need to give some thought to who would run the business should you not be around. This could be your spouse, one of your existing employees or someone else. 

It is important that you think this through now and start setting up structures to transfer your knowledge and expertise so that the business can carry on without you.