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HMRC internal manual

Employment Related Securities Manual

HM Revenue & Customs
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University Spin-outs

Effect of new rules

The starting point for the Income Tax and NICs charge is

  • the difference between the price paid for the researcher’s shares and the (possibly much higher) market value, where shares are acquired at undervalue, or
  • any value transferred into the shares post-acquisition.

The new legislation will deem the market value to be the value that the shares would have had if the IP had not been transferred, so there will be no Income Tax or NICs charge in respect of the IP sharing.

Looking forward, if the spin-out fails, then there is no Income Tax, NICs or CGT charge on the whole cycle flowing from the IP transfer. The IP, whether further developed or not, would usually revert to the RI. If, on the other hand, development is successful, the gain on the shares held by Thomas and Moore in Example 1 (see ERSM100040) will be within the normal rules for CGT. The base cost for CGT purposes will take into account that nothing has been charged to Income Tax at an earlier stage.