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A Fresh Look: Tax Relief for University Spin-Out Companies

Universities and other research institutions are hotbeds for cutting-edge thinking, scientific breakthroughs and innovation. From these intellectual advancements occasionally form “spin-out” companies which seek to capitalise on the residual intellectual property (IP) rights owned and generated by the researchers of these institutions. Though not a state-of-the-art proposition – the relief was introduced in the Finance Act 2005 – we encourage you to take a fresh look at this tax relief for university spin-out companies.

Who may benefit from the relief?

Researchers from a university or research institution who will be acquiring shares in a university spin-out company to which they will be transferring IP rights.

What are the benefits?

Where a researcher was or is employed by the research institution and acquires shares in a spin-out company, and the research institution puts value into that spin-out company by transferring IP into it, a charge to income tax and national insurance contributions would ordinarily arise.

The charge would usually be based on current values when the shares are acquired, or the IP transferred, and there would be no relief against income were the spin-out company to fail later on and the IP to revert to the research institution.

Fortunately, this tax relief for university spin-out companies prevents a charge to income tax and national insurance contributions arising in these circumstances; hedging against the risk of potential commercial failure.

When does the relief apply?

Broadly, the relief applies to the acquisition of shares in university or research institutions’ spin-out companies and enables researchers to benefit in the event of the IP that they develop being successful.

There must also be a transfer of IP from the institution to the shares acquired and there are four key requirements for the application of the relief: –

1. There must be an agreement to transfer IP from one or more research institutions to a spin-out company;

2. the researcher must acquire shares in the spin-out company either before the IP transfer agreement is made or within 183 days thereafter;

3. the right or opportunity to acquire the shares must have been available by reason of the researcher’s employment with the spin-out company or with any of the research institutions; and

4. the researcher must be involved in research in relation to the IP that is the subject of the IP transfer agreement.

If you believe that you may eligible for this relief, or you would simply like to find out more, please do not hesitate to contact us to discuss further details of the eligibility requirements for this advantageous tax relief.

Pett, Franklin & Co. LLP are experts in share schemesexecutive incentives and share plans. For more information about how we can help you or client, please call 0121 281 5798 or email