UK universities are taking smaller equity stakes in spin-outs than they were a year ago. The sector average fell to 16% in 2026, down from 22%, and the TenU USIT guides have become the de facto norm. This page explains what universities take now, how founder shares work, the tax trap that catches cheap shares, and how the cap table should look when SEIS and EIS investors arrive.
Two documents shape every spin-out term sheet in the UK:
The recommended landing zones:
| Sector | USIT university equity | Context |
|---|---|---|
| Life sciences / IP-heavy physical sciences | 10–25% | Patent-protected IP, large upfront investment |
| Software | 5–10% | Thinner IP, founders’ ongoing execution carries value |
| Sector average (RAEng, July 2026) | 16% | Down from 22% the year before |
Policy changes in the last 18 months at Oxford (equity-sharing policy aligned to USIT), King’s College London (July 2026: founder equity increased), Southampton (10% for IP-heavy, 5% for software), Abdn (5–25% range), and Bath (sector-specific terms). Most Russell Group universities now publish their equity policy. If yours does not, ask.
At incorporation, the founders subscribe for ordinary shares, usually at par value (£0.0001 or £0.01 per share). The university’s shares are issued at the same price on completion of the licence or assignment of the IP.
Illustrative pre-money cap table for a software spin-out:
| Holder | Shares | % |
|---|---|---|
| Founders (two academics, one commercial CEO) | 850,000 | 85% |
| University | 75,000 | 7.5% |
| Option pool (reserved for future hires under EMI) | 75,000 | 7.5% |
| Total issued | 1,000,000 | 100% |
For a life sciences spin-out with heavier IP, the university stake typically sits at 15–20%, with 70–75% to founders and 10% to the option pool.
If a founder acquires shares cheaply after the IP has given the company real value, HMRC can treat the discount as employment income taxable at the founder’s marginal rate (potentially 45% plus NI). The relevant regime is Part 7 of ITEPA 2003, employment-related securities.
Two protections are available at incorporation:
Form ERS is the annual employment-related securities return. It is due by 6 July following the end of the tax year in which the shares were issued. The scheme must be registered online with HMRC first.
Most spin-outs reserve 7.5–15% of equity as an option pool for future hires. Enterprise Management Incentive (EMI) options are the UK’s primary tax-efficient employee share scheme: no income tax or NI on grant or exercise, Business Asset Disposal Relief on sale (18% CGT for 2026/27, lifetime limit £1m).
EMI eligibility is specific: the company must have fewer than 250 full-time equivalents at grant, gross assets of £30m or less, trade in a qualifying activity, and be independent. A university minority shareholding does not usually breach independence. Our EMI founders’ guide (2026/27) covers the detail.
SEIS and EIS investors read the cap table before they read the pitch. Three things matter:
Dedicated spoke page: SEIS and EIS for university spin-outs. SEIS/EIS basics: SEIS and EIS explained (2026/27).
Universities take a mix of equity, upfront licence fees, milestone payments and running royalties. A university that takes a smaller equity stake usually takes a running royalty to compensate; a university that takes equity only usually takes a larger stake. The commercial trade-off is covered on the sister page: accounting for a university IP licence.
For 2026, the sector average is 16%. The USIT bands recommend 10–25% for life sciences and IP-heavy spin-outs, and 5–10% for software. Terms outside these bands increasingly need justification.
Usually no, if the shares are subscribed for before the IP enters the company and a section 431 election is made within 14 days. Without those steps, the discount between what the founder paid and the market value can be taxed as employment income.
Yes, typically. A minority university equity stake is compatible with the SEIS and EIS control and independence tests. University-linked corporate investors need separate review. Preference shares and complex structures are the usual blockers.
Yes. The USIT guide treats the bands as recommended, not fixed. A software spin-out being offered 25% has grounds to push back toward the 5–10% software band. The 2023 Independent Review has made negotiations more transparent than they were.
Official guidance: Employment-related securities, EMI, EIS, SEIS. AccTek is independent of HMRC and GOV.UK.
Related: university spin-outs and student startups (hub) | SEIS/EIS for spin-outs | EMI founders’ guide | SEIS/EIS founders’ guide
Godwin Pinto ACA (ICAI) is the founder of AccTek and a member of ICPA, with 20+ years of experience in accounting and tax for contractors, startups and SMEs. Previously at PwC.
AccTek is a member firm of the Institute of Certified Practising Accountants (ICPA), and our founder is a member of the Association of International Accountants (AIA) holding an AIA Practising Certificate. Our accountants hold qualifications and accreditations from trusted professional bodies including the AIA, ICPA, AAT and ACCA.
