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

Full Explanation

The UK Patent Box regime, introduced in 2013, provides a reduced 10% corporation tax rate on profits attributable to qualifying patents and certain other IP rights. 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 has developed the qualifying IP itself — the benefit is proportional to the company's own R&D expenditure on the patent relative to total R&D expenditure (including subcontracted and acquired R&D). 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). Companies can elect into the Patent Box on a patent-by-patent basis. For intangible-intensive businesses with UK-developed patents, the Patent Box can reduce the effective corporation tax rate on qualifying income by 15 percentage points (from 25% to 10%), representing a significant tax saving. Companies should work with tax advisors to optimise their Patent Box elections and ensure compliance with the nexus approach requirements.

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