From 1 April 2013, UK companies have been able to elect into a new regime that applies a lower rate of corporation tax to profits from qualifying intellectual property rights. The relief will be phased in, culminating on 1 April 2017 in an effective corporation tax rate of ten per cent on worldwide income attributable to IP within the "patent box".


The purpose of the new regime is to provide an incentive for UK companies to maintain and commercialise their existing IP, to encourage them to "locate the high-value jobs associated with the development, manufacture and exploitation of patents in the UK and to maintain the UK’s position as a world leader in patented technologies". The UK Government hopes this new initiative will help to achieve sustainable private sector growth.

The legislation implementing the patent box regime forms a new Part 8A of the Corporation Tax Act 2010.


A UK company may benefit from the regime if it owns or licenses "qualifying IP". This includes patents granted by the European Patent Office (EPO) and a number of European Economic Area (EEA) countries. Supplementary Protection Certificates (SPCs), certain plant breeders’ rights, plant variety rights, marketing exclusivity rights, orphan drug rights and regulatory data protection rights also qualify.

In order to qualify, a company must have created, or made a significant contribution to the creation or development of the protected item or a product or process incorporating it. If the company is a member of a group, it may satisfy this requirement where another group company has undertaken the development of the protected item. A company that is a member of a group must also satisfy an "active ownership" condition, which broadly requires that the company itself takes a significant role in developing or exploiting the protected rights. Licensees of qualifying IP rights are also eligible for relief, as long as the licence confers exclusivity throughout the whole of at least one national territory.

In order to pay reduced corporation tax on "relevant IP profits" for an accounting period, an eligible company must make a written election to Her Majesty’s Revenue and Customs. Relief due is calculated on "qualifying income", which includes licensing royalties, income from the sale of products incorporating a qualifying item, income from the sale of qualifying IP and infringement or compensation income.

In order to maximise the benefits of the patent box, the following IP portfolio management issues should be contemplated:

  • Application policy review: companies may consider whether or not to increase the number of products for which they seek patents and should also investigate ways of extending the life of a patent to maintain eligibility for the patent box, perhaps by pursuing SPCs.
  • Restructuring: groups that currently hold their qualifying IP in non-UK companies may wish to consider reorganising their IP management arrangements. Qualifying IP could be transferred to a UK IP holding company by assignment or exclusive licence. Development activity in relation to that IP could still be undertaken elsewhere, but the UK IP holding company would need to actively manage the qualifying IP in order to enjoy the tax benefits of the regime.
  • Licensing review: licensees should identify which licences are exclusive to meet the requirements of the patent box. It may be possible for licensees to renegotiate licences to make them exclusive, especially those that are intra-group licences.
  • Accounting review: companies that elect into the patent box regime should establish systems so qualifying income and profits/losses subject to the patent box can be calculated accurately.
  • Document portfolio management: the formulation of plans and the decision-making process should be documented to provide proof of IP portfolio management activity, in turn evidencing the active ownership requirement.
  • Ongoing review: where a company has net patent box losses, it should consider leaving the regime to avoid the losses being relieved only at the reduced patent box rate.


Although regime administration may be at the more complex end of the spectrum, the patent box holds the greatest attraction for organisations that rely heavily on qualifying IP rights in their business model, such as those in the pharmaceuticals or biotechnology sectors.

In terms of passive intellectual property income, the tax regime in the UK remains considerably less generous than in other European jurisdictions. While the patent box offers significant potential benefits for qualifying companies, any election into it should also be considered in a wider context, in particular in relation to the impact on enforcement and future litigation concerning the qualifying IP rights.