ERSM100140 - 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 in leaflet CGT1, available on the HMRC website at www.hmrc.gov.uk/leaflets/cgt1.htm.