UK Business Secretary Rules Out Spinout Exit Tax After Investor Backlash Over University Equity Stakes
Updated: Oct 7
For a few days this week, investors backing Britain's university spinouts were bracing for a levy that would have taxed them on the way out. Rumours spread that the government was considering an exit tax on spinouts that sell to an overseas buyer or list outside the UK, payable on the uplift in value at that moment. Then business secretary Jonathan Reynolds moved to close the question down, telling business leaders privately that the tax would not go ahead. A figure at the Department for Business and Trade went further to the Financial Times, calling the idea unequivocally ruled out and saying the government preferred to compete on environment and incentives rather than penalties.
The relief was audible. But the debate that produced it points to a structural question about spinout equity that the tax decision alone does not resolve, and that the emerging infrastructure around tokenised equity and PISCES is well placed to help answer.
Why the rumour landed so hard
University spinouts already give up a meaningful slice of the company before they have raised a penny of external capital. Jamie Macfarlane, cofounder of spinout investor Creator Fund, put the current arrangement bluntly: universities are taking five, ten, fifteen or twenty per cent of a company on day zero when a spinout happens, a stake justified as reimbursement for the institutional support behind the research. Layer an exit tax on top of that, he argued, and founders and their backers would effectively be paying twice, once in equity handed over at formation and again in tax on the value they eventually create.
The rumour also landed on ground already prepared by a wider exit tax debate. Academics at the LSE and the Centre for the Analysis of Taxation had argued for an exit tax on individuals who leave the UK, and in November 2025 Startup Coalition gathered an open letter signed by more than 150 founders and investors opposing a rumoured exit tax of that kind. Neither was about a levy on spinouts. Moray Wright, chief executive of prominent spinout investor Parkwalk Advisors, warned that an exit tax could prove very challenging to implement and, if the goal was to stop companies leaving, could have the opposite effect by dampening investor appetite for backing early stage ventures in the first place.
What is actually changing
The government's decision to rule out the tax is a genuine, if narrow, win for spinout investors and the founders who depend on them. It also reflects something broader: a growing recognition across UK venture that the way to keep high growth, research backed companies anchored in Britain is not to punish them for leaving, but to make staying and scaling here more attractive than the alternative.
That reframing is already visible in how spinout investors are behaving. Northern Gritstone, which backs spinouts across the north of England, opened a San Francisco office earlier this year specifically to pull US capital into its portfolio rather than watch its companies chase that capital abroad. Chief executive Duncan Johnson argued the UK needs to be realistic about where it sits on the venture capital journey, and that international expansion should not be treated as being at odds with domestic wealth creation.
Companies need access to markets like the US, he said, and international investors need not mean international headquarters.
Ale Maiano, cofounder of pre-seed investor Wilbe, which backs scientist founders, made a related point about where the real leverage sits. Instead of reaching for more taxes, he said, the government could help spinouts by pushing universities to create more favourable environments for the companies they birth, starting with how much they spend on admin and overheads and how much their tech transfer offices secure in equity from the spinouts that come through them. That is a governance and incentive question, not a tax question, and it sits closer to the root of the frustration that the exit tax rumour tapped into.
The open question the tax decision does not answer
Ruling out an exit tax removes a punitive measure. It does not touch the underlying mechanic that generated the frustration in the first place: a spinout founder typically hands over a substantial equity stake to their university at formation, long before the company has proven anything, in exchange for support that is itself often hard to value precisely. That stake is illiquid for the university for years, and the founder carries the full dilution from day one regardless of how the company performs.
This is precisely the kind of structural friction that tokenised equity and PISCES trading windows were designed to address, not by changing how much equity a university takes, but by changing what both sides can do with that equity once it exists. A tokenised spinout cap table, reconciled properly against Companies House as the legal register of record, could in principle let a university's stake be held on a ledger that supports staged, regulated secondary sales through a PISCES venue once a company reaches a suitable maturity point, rather than sitting untouched until a full exit event years later. That would not shrink the initial stake. It would give the university a realistic route to realising some value earlier and more flexibly, which in turn could reduce the pressure to negotiate for a larger day zero stake to compensate for a long, uncertain wait.
Whether that is workable in practice, and on what terms, is genuinely open. It would require universities, tech transfer offices and their legal advisers to treat spinout equity as an asset that can be structured for eventual staged liquidity from the outset, not retrofitted later. It would also require PISCES operators and custodians to build comfort with university and public sector holders as participants, which is a different proposition from the founder and employee liquidity events PISCES has handled so far. Nothing here is settled, and nothing here is tax advice.
Where this leaves founders
Sifted's Tom Nugent is right that there is a bigger conversation to be had about getting the most out of the UK's base of academic founders, and that an exit tax was never going to be part of the answer. The government's decision this week removes a genuine threat. What it leaves in place is the quieter, more interesting question of whether the equity mechanics that spinouts have lived with for years can be modernised so that universities, investors and founders all get more out of the arrangement, without anyone needing a punitive tax to feel like the deal is fair.
Key takeaways
The UK government has ruled out an exit tax on university spinouts that sell overseas or list abroad, following a backlash from spinout investors.
Spinout investors argue the real friction is not exit taxation but the equity stakes universities already take at formation, often five to twenty per cent, before any external capital is raised.
Northern Gritstone and other spinout backers are responding by pulling in international capital rather than treating overseas interest as a threat to be taxed.
Tokenised equity and PISCES trading windows offer a genuinely open, unresolved route to giving universities staged liquidity on their spinout stakes without increasing dilution, though the custody and governance questions remain unanswered.
Tokenising Startups is inviting tech transfer offices, spinout investors, PISCES operators and legal advisers to respond on whether staged tokenised liquidity for institutional equity stakes is workable.
Sources:
Sifted (Tom Nugent), Dealroom.
How we got here
University equity has been on the policy agenda for several years. The Independent Review of University Spin-out Companies, co-chaired by Professor Irene Tracey, vice-chancellor of the University of Oxford, and Dr Andrew Williamson of Cambridge Innovation Capital, reported in November 2023. It recommended university stakes of 10 to 25 per cent for life sciences spinouts and 10 per cent or less for less IP intensive sectors such as software, building on the TenU University Spin-out Investment Terms guide, known as USIT. The government accepted all of its recommendations and committed £20 million to support spinout formation.
Stakes have fallen since. The Royal Academy of Engineering's sixth Spotlight on Spinouts report, covered in July 2026, put the average university stake at 16 per cent, a decade low, down from 22 per cent the year before. For deals struck in 2024 and 2025, life sciences averaged 20 per cent and hardware 14 per cent. UK spinouts raised £2.6 billion in 2024, up 38 per cent on the year, while wider UK venture funding contracted.
The exit tax argument drew on a wider debate about capital leaving the UK. Academics at the LSE and the Centre for the Analysis of Taxation had argued that people who leave the country permanently can take unrealised capital gains abroad untaxed. More than 2,000 UK university spinouts have been formed since 2010, which is why the question of where their value ends up matters to the Treasury.
What it means for UK founders
The day zero stake is more negotiable than the debate suggests. Founders forming a spinout can point to the USIT guide, the review's benchmarks and the falling average when discussing terms with a technology transfer office. For a software spinout, a university stake of 10 per cent or less is a published reference point, not an outlier.
For founders interested in the staged liquidity idea, the building blocks exist but have not been tested for this use. PISCES allows intermittent trading in private company shares, and SEIS and EIS investors in a spinout will want to understand how any secondary sale by a university affects their own position. Founders may want to take professional advice before agreeing terms that anticipate staged sales.
Key facts at a glance
November 2023: the spinout review recommends university stakes of 10 to 25 per cent for life sciences and 10 per cent or less for software.
The government accepted all recommendations and committed £20 million for spinout formation.
Average university stake now 16 per cent, a decade low, down from 22 per cent, according to the Royal Academy of Engineering.
UK spinouts raised £2.6 billion in 2024, up 38 per cent year on year.
More than 2,000 UK university spinouts have been formed since 2010.
Further reading
Frequently asked questions
Has the UK government ruled out an exit tax on university spinouts?
Yes. Business Secretary Jonathan Reynolds told business leaders privately that the tax would not go ahead, and a figure at the Department for Business and Trade told the Financial Times the idea was unequivocally ruled out.
What would the rumoured UK spinout exit tax have applied to?
The rumoured tax would have applied to university spinouts that sell to an overseas buyer or list outside the UK, payable on the uplift in value at that moment.
How much equity do UK universities take in their spinouts?
According to Jamie Macfarlane of Creator Fund, universities take five, ten, fifteen or twenty per cent of a company on day zero. The stake is justified as reimbursement for the institutional support behind the research.
Who opposed the UK spinout exit tax?
Spinout investors pushed back. Moray Wright of Parkwalk Advisors warned it could be very challenging to implement and could dampen investor appetite for early stage ventures, and Jamie Macfarlane of Creator Fund argued founders and their backers would effectively be paying twice. The Startup Coalition open letter signed by more than 150 founders and investors dates from November 2025 and opposed a wider exit tax on individuals leaving the UK, not the spinout levy.
How could tokenised equity and PISCES help with university spinout stakes?
A tokenised cap table reconciled against Companies House could in principle let a university sell part of its stake through staged, regulated secondary sales on a PISCES venue, rather than waiting for a full exit. Whether this is workable in practice, and on what terms, is still genuinely open.
This piece is general information for an open editorial discussion and is not tax or investment advice.
Comments