UK rules out exit tax on university spinouts

The UK government has ruled out an exit tax on university spinouts, according to reporting by Sifted.

An exit tax would charge a company, or its shareholders, on unrealised gains when it moves its tax residence out of the country. Several European jurisdictions apply versions of one.

Sifted reports that venture investors welcomed the decision. No detail of the government's reasoning has been published.

For founders of university spinouts, the practical effect is narrow but real. Incorporating in the UK does not, on this decision, carry a future penalty for redomiciling later.

That matters most at the point where a spinout raises from American funds. Investors on that side of the Atlantic often press portfolio companies to flip their holding company to a Delaware parent, and an exit charge would have put a price on that move.

It also matters to anyone choosing between a UK holding company and one abroad at incorporation. One argument for setting up outside the UK from day one has been removed.

What has not changed is everything else in the spinout equation: the equity share universities take, the licensing terms attached to the underlying research, and the ordinary tax treatment of a sale.

No timetable, consultation or draft legislation has been announced alongside the decision. A policy ruled out is not the same as a policy legislated against, and a future government can revisit it.

Founders weighing where to incorporate should treat this as one variable settled rather than the question answered. The advice worth paying for is still about the licence terms, not the flag on the holding company.