What are the UK Patent Box rules for intangible asset income?

Full Explanation

The UK Patent Box regime, introduced in 2013, provides a 10% rate on profits attributable to qualifying patents and certain other IP rights, given through an additional deduction in the corporation tax computation. Qualifying IP includes: patents granted by the UK Intellectual Property Office (UKIPO), the European Patent Office (EPO), and patent offices in designated EEA countries. Supplementary protection certificates, regulatory data protection, and plant breeders' rights also qualify. The regime applies to: income from the sale of patented products, licence fees from patents, infringement damages, and embedded royalties within product sales. The nexus approach (aligned with the OECD BEPS recommendations) requires that the company claiming Patent Box relief, or a member of its group, has developed the qualifying IP, and scales the benefit by an R&D fraction: the company's own and unconnected subcontracted R&D spending on the IP (with a 30% uplift) relative to the total, which also includes R&D subcontracted to connected parties and the cost of acquiring the IP. This prevents companies from simply acquiring patents and claiming the reduced rate without contributing to innovation. The calculation involves streaming qualifying patent income from total income, then applying a formula to determine the residual profit attributable to the patent (after deducting routine return and marketing asset return). The election is made by the company, not patent by patent, and covers all its trades. Only the resulting relevant IP profits are taxed at 10% rather than the 25% main rate, so the effective rate on a company's total profits is usually well above 10%. Companies should work with tax advisors on whether to elect and on meeting the nexus approach requirements. For the rules, the calculation steps and a worked example, see our guide to the Patent Box.

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