Spinning-out entrepreneurs’ relief

Jacob Gilkes

Universities will often set up spin-out companies to commercialise the intellectual property generated by their academic research projects.  Spin-out companies are particularly common in the life sciences and technology sectors.  University academics and researchers who have assisted with the development of the intellectual property will frequently receive shares in the spin-out company as a reward for their work.

Often the academics and researchers will not satisfy the requirements to claim entrepreneurs’ relief on the capital gain when they sell their shares in the spin-out company, either as a result of holding less than 5% of the shares in the company or because they are not an employee or director of the company.

The Government announced today that it will consult on the availability of entrepreneurs’ relief for academics and researchers who hold shares in spin-out companies to ensure that they are appropriately rewarded for their contribution towards the valuable intellectual property used by the spin-out company.  No further details have been revealed and so it is not clear what relaxations the Government intends to make to the requirements for entrepreneurs’ relief to allow academics and researchers to qualify.  We anticipate that any changes are likely to relate to the 5% shareholding test and the employment test.

Additional changes were also announced restricting the application of entrepreneurs’ relief to management company structuresassociated disposals and transfers of goodwill.

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