Retiring as a partner

The time has come where you have decided to retire from the firm and you are now looking to understand what comes next.

When leaving your role there are several things you will need to consider and understand.

Retirement from the firm

The date you choose to retire could have an implication on your final tax liabilities, so it is important to consider when the right time may be.

The introduction of basis period reform has reduced the ability to delay your tax payments for a further year. Careful tax planning will still be important, especially if transitional profits not already taxed are crystallised and become taxable in the tax year of retirement.

Example

Partner A is looking to retire in 2027. They are wondering whether to retire on 31 March 2027 or in line with the firm’s year-end of 30 April 2027.

The particular facts are as follows:

Profit share for the year ended 30 April 2027 will be £600,000, and £550,000 for the period ended 31 March 2027.
Transitional profits were £100,000, meaning that there is an additional £20,000 a tax year being spread over five years.
No consultancy work/minimal income post-retirement.
Income tax and National Insurance Contributions (NICs) rates are as per the 2025/26 tax year (rates may change)

	31 March 2027 – 2026/27 tax year	30 April 2027 – 2026/27 tax year	30 April 2027 – 2027/28 tax year	30 April 2027 – Total
Taxable Income	£550,000	£550,000	£50,000	£600,000
Additional net profits	£40,000	£20,000	£20,000	£40,000
Total Taxable Income	£590,000	£570,000	£70,000	£640,000
Less: Tax and NICs	(£264,760)	(£255,360)	(£18,089)	(£273,449)
Net Cash Position	£285,240	£294,640	£31,911	£326,551
% Income retained	51.87%	–	–	54.43%

In the above scenario, a 30 April retirement date has the following impacts:

Cash benefit of an additional month’s income that will likely not be available if retiring on 31 March. Tax will be suffered at an effective rate of 15.38% on receipt of this income due to this additional month’s income being subject to lower tax bands and the ability to use the personal allowance in 2027/28.
An opportunity to make an additional year of pension contributions and receive tax relief.
Cashflow saving related to the deferral of tax on additional net profits accelerated (six-month deferral).

It is also important to be aware of when your capital will be repaid. You may be making plans on how to spend this, so you will need to know when the funds will come back to you. There are many different options that firms use, which could mean you receive a one-off payment shortly after retiring, or you may receive the funds in tranches over several years.

Lastly, think about how your tax reserve is being dealt with. It is good practice to work with your finance team to ensure the remaining balance is sufficient to cover your final liabilities.

You do not want any surprises, so if there is a shortfall, advance warning is going to be helpful.
It may be that there are funds left in your reserve once the final payments have been made. Are you aware of when these will be paid over to you?

Your next role

Having spent most or all of your career in a similar role, now is the time to consider what comes next, and there will certainly be a number of options available to you.

Continuing at your current firm in a consultancy role would enable you to wind down while still ensuring there is a good handover with your clients.

Taking up a non-executive director role with a previous client or contact would enable you to continue providing valuable advice, but perhaps in a more informal manner.

If you are looking to move away from your traditional day-to-day work, then perhaps volunteering or simply spending more time on your hobbies is the right thing for you.

Funding your retirement

You will have no doubt been saving towards your retirement for a while now and making plans with your IFA or tax advisor. Now is the time to decide how to start drawing down your income and capital.

Having a solid plan in place will ensure that you are able to receive income in a tax-efficient manner by utilising your basic rate, savings, and dividend allowances, as well as your Capital Gains Tax exemption.

For more information on the issues discussed in this article or to discuss your individual circumstances, get in touch with your usual Crowe contact.