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HMRC internal manual

Employment Related Securities Manual

HM Revenue & Customs
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University Spin-outs

Joining a spin-out later on

Example 5: Theophrastus

Continuing from Example 3 (ERSM100110), 4 months after IP was transferred in and after the funding was introduced, Plato asks another employee, Theophrastus, of the Republic University to join the spin-out and subscribe for 5 shares at par of £1 each. He was actively involved in the research. The shares are currently worth £800, interest in the commercial exploitation of hemlock having recently fallen.


There is potential liability on acquisition of shares by Theophrastus at undervalue, only partly relieved by relief for spin-outs:

  Value of shares received 5 x £800 £4,000  
  Payment for shares (£5)  
  Potential charge on undervalue £3,995  
  Spin-out relief – effect of IP – say (£2,000)  
  Liability on £1,995  

Theophrastus will be entitled to relief under ITEPA03/S452 for the element in the value of the shares he is acquiring that relates to the IP transferred in from his employer. However he will have to accept that if he pays less than the market value of the shares, even ignoring the effect of the IP, he will be liable to a charge on the difference.