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HMRC internal manual

Employment Related Securities Manual

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HM Revenue & Customs
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University Spin-outs

Sale of shares

A new section 149AB of the Taxation of Capital Gains Act 1992 provides that on a sale, the acquisition cost will be taken as:

  • the actual amount or value given for the shares and
  • any amount taxed as earnings in respect of the acquisition.

It follows that if nothing is charged to Income Tax on acquisition because of the relief for spin-outs then there will not be any deduction in the CGT computation for the second element.

Example 6: Thomas & More – trade sale of spin-out

The spin-out from the University of Utopia in Example 1 (ERSM100040 & ERSM100110) adds such value to the original IP that a large public company opens negotiations to buy all of the shares from Utopia University and Thomas & More for £1.7m two years later. They will each receive £510,000.

Outcome

£510,000 will be the proceeds of sale for CGT purposes for each of Thomas and More. The consideration given by each for the acquisition of the shares will be £15. Nothing has been previously charged to Income Tax so there is no further deduction due.

There is information on rates and computations for CGT on the HMRC website at http://www.gov.uk/capital-gains-tax/overview.