How to fund your dream retirement when you are self-employed

When you work for yourself, managing your business finances alongside your personal finances can become a tricky balancing act.

While you benefit from pension auto-enrolment when you are employed, there is no equivalent scheme in place for self-employed workers, which means the onus is on you to build your retirement strategy from scratch.

It’s easy to understand why many are forgoing retirement planning; according to a PensionsAge report, 2 in 5 self-employed people do not currently pay into a pension.

Though it might seem like an uphill struggle, organising your long-term financial strategy now – and in the most efficient way – can help relieve the pressure of retirement planning and offer you valuable peace of mind.

Continue reading to discover tax efficiencies and growth opportunities you can take advantage of when planning for retirement as a self-employed person.

Maximise your tax-deductible expenses

When you are self-employed, one of the main tax benefits you can take advantage of is claiming relief on allowable expenses.

Allowable expenses refer to any and all costs incurred “wholly and exclusively” for business purposes. These costs can reduce your overall income and, consequently, the amount of Income Tax you are liable to pay.

Allowable expenses might include:

• Office supplies and equipment
• Transportation
• Marketing costs
• Utilities
• Stocks and raw materials

If you do not factor in allowable expenses, you could be missing out on a valuable Income Tax reduction that helps you retain more wealth and enables you to reach your retirement planning objectives sooner.

If you think certain costs qualify for HMRC’s “wholly and exclusively” rule, keep detailed records and receipts of the charges over the tax year. You can claim allowable expenses on your annual tax return.

HMRC doesn’t provide a defined list of allowable expenses. If you’d like help knowing what costs you could claim back, your accountant or Kellands financial planner may be able to help.

Set up a self-invested personal pension and make a plan

Without a well-defined pension plan in place, you could be underinvesting in your future, which may then impact your later-life income and standard of living.

Opening a pension is the first port of call.

As self-employed individuals don’t benefit from pension auto-enrolment, you could instead open a self-invested personal pension (SIPP). With a SIPP, you can choose how much you want to contribute on a month-to-month basis, as well as benefit from flexible investment options.

Like other personal pensions, SIPPs can take advantage of standard pension tax rules – you can normally contribute up to the Annual Allowance, currently fixed at £60,000 for the 2025/26 tax year for most earners, without triggering a tax charge. SIPP contributions also benefit from pension tax relief at your marginal rate, which allows you to build your pot tax-efficiently.

Once you have set up your pension and begun paying into it, it is vital that you establish a plan that suits your life goals.

Ask yourself:

• At what age do I want to retire?
• What standard of living do I want?
• How much annual retirement income will I need?

Finding the answers to these questions can help you identify your future needs and calculate sustainable monthly pension contributions that build toward your vision for the future.

When you work with a financial planner, we will use cashflow modelling software to help project your future circumstances and give you peace of mind. We can ensure your SIPP contributions are both sustainable and tax-efficient, giving you a clear idea of how your pot may grow over the years before you retire.

Make the most of your ISA allowance each tax year

Outside of your pension, ISAs are a reliable, tax-efficient route that could complement your retirement strategy.

ISAs are an effective tax wrapper – your savings and investments aren’t subject to Income Tax, Dividend Tax, or Capital Gains Tax (CGT). In contrast, in regular savings accounts or general investment accounts (GIAs), you could be taxed on the gains you make.

Using one or more ISAs, you can build wealth that not only benefits from interest and/or market growth but also reduces your tax liability.

There are four adult ISAs that you can take advantage of for retirement planning:

• Cash
• Stocks and Shares
• Lifetime
• Innovative Finance

The annual subscription allowance for ISAs is £20,000 for the 2025/26 tax year. Some accounts, like Lifetime ISAs, have their own individual contribution limits within this £20,000 allowance.

ISAs could be particularly effective if you use up your pension Annual Allowance in any given tax year. Therefore, creating a retirement plan with ISAs included may help you achieve long-term growth outside of pension reliance.

Note: The Cash ISA subscription limit is reducing to £12,000 in April 2027 for under-65s.

Read more: Under 65? Here’s what the Autumn Budget ISA reforms mean for you

Create a diversified portfolio of investments suited towards your personal goals

Investing outside of your pension (as well as within it) is often a viable option to help you build long-term growth.

As you read about earlier, if you haven’t already used your ISA allowance, you can take advantage of a Stocks and Shares ISA, which would help you grow tax-efficient investment wealth.

While investing assumes risk, a well-managed portfolio can grow your wealth at a rate that might outpace inflation and help you reach your retirement objectives more efficiently.

However, to successfully integrate an investment portfolio into your overall retirement strategy, it is important that you do so in line with your personal goals and tolerance for risk.

What’s more, it is important to consider a long-term approach to investing. This involves weathering periods of market volatility – panic-selling during market downturns could mean you miss out on future growth once the market recovers, which it is historically known to do.

Likewise, if you take advantage of diversified asset classes across a range of markets and geographical locations, it usually reduces investment risk. For example, if one area of the market dips, another might rise, keeping your portfolio balanced overall.

Get in touch with a Kellands financial planner

If you’d like help setting up your self-employed retirement plan, get in touch with your Kellands financial planner today. Our award-winning team can ensure that you have the right plan in place to empower your retirement with professional advice.

Email us at hale@kelland.co.uk or call 0161 929 8838 to discover how we can help you.

Please note

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 and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, cashflow planning, tax planning, trusts, Lasting Powers of Attorney, or will writing.

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 withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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