Key takeaways
- The Patent Box lets companies pay an effective 10% Corporation Tax rate on profits from qualifying patents, instead of up to 25%.
- It covers patents granted by the UK Intellectual Property Office, the European Patent Office and certain EEA countries, plus some other rights.
- The company must own or exclusively license the patent and have developed it, or be in a group that did.
- Since 2016, relief follows the nexus approach: profits are reduced if R&D was bought in or done by related parties.
- You must elect into the regime within two years of the end of the first accounting period it applies to.
The Patent Box is designed to keep innovation and the profits from it in the UK. Companies that develop and patent inventions can have the profits attributable to those patents taxed at an effective rate of 10%. With the main Corporation Tax rate at 25%, that is a significant saving for companies with valuable patented products.
Who can use it
A company can elect into the Patent Box if:
- it is within the charge to UK Corporation Tax
- it holds qualifying intellectual property or an exclusive licence over it
- it, or a company in its group, has carried out qualifying development on the IP, by creating or significantly contributing to the invention, or developing it or a product incorporating it
- if it is part of a group and has not done the development itself, it actively manages its IP portfolio
Qualifying intellectual property
- patents granted by the UK Intellectual Property Office or the European Patent Office
- patents granted by certain EEA states with equivalent examination processes
- supplementary protection certificates, regulatory data protection and plant variety rights
Patents that are pending can qualify once granted, and relief can be backdated for up to six years to cover profits made while the application was pending, if the company had elected in.
How the profits are worked out
The calculation separates profit from the patents from the company’s other profits:
- Start with the company’s trading profits.
- Identify the relevant IP income: sales of patented products (or products containing a patented invention), licence fees, royalties, infringement income and some other receipts.
- Remove a routine return of 10% on certain costs, representing the profit any business would make.
- Remove a marketing assets return representing profit from brands and other marketing intangibles.
- Apply the nexus fraction, which reduces relief where R&D was not done by the company itself (it favours in-house R&D and unconnected subcontractors).
The result is the relevant IP profit. The Patent Box gives an additional deduction so that this profit is taxed at an effective 10%.
How the deduction works
The deduction is:
Relevant IP profits × (main rate − 10%) ÷ main rate
With the main rate at 25%, the deduction is 60% of relevant IP profits, leaving 40% taxed at 25%: an effective rate of 10%.
Example
A company has relevant IP profits of £800,000 from a patented medical device and pays Corporation Tax at the main rate of 25%.
| Without Patent Box | With Patent Box | |
|---|---|---|
| Relevant IP profits | £800,000 | £800,000 |
| Patent Box deduction (60%) | £0 | (£480,000) |
| Taxable | £800,000 | £320,000 |
| Corporation Tax at 25% | £200,000 | £80,000 |
The effective rate on the patent profits is 10%, saving £120,000.
Making the election
- Elect in writing, or through the CT600, within two years of the end of the first accounting period you want the regime to apply to.
- Once made, the election applies to all later periods until revoked. If revoked, the company cannot re-elect for five years.
- Patent Box losses (where relevant IP profits are negative) can reduce other profits in some cases and must be set off against future relevant IP profits.
Patent Box and R&D relief
Patent Box and R&D tax relief work together. R&D relief helps with the cost of developing the invention; the Patent Box reduces the tax on the profits once it is patented and commercialised. Because R&D credits are taxable and increase profits, they are part of the calculation. See R&D tax relief.
Is it worth it?
The calculations, especially the nexus fraction and streaming of income, can be complex and costly. The Patent Box tends to suit companies with:
- significant and sustained profits from patented products or licences
- in-house R&D, which gives a nexus fraction close to 100%
- clear records linking income to the patented products
Small companies paying the 19% rate on modest profits gain less, because the saving is the difference between their rate and 10%.
Frequently asked questions
What is the Patent Box rate?
An effective 10% Corporation Tax rate on qualifying profits from patents.
Which patents qualify for the Patent Box?
Patents granted by the UK Intellectual Property Office, the European Patent Office or certain EEA countries, plus some similar rights.
How do I elect into the Patent Box?
By notifying HMRC, usually through the Corporation Tax return, within two years of the end of the first accounting period the election is to apply to.
Can I claim the Patent Box while my patent is pending?
You can elect in, and once the patent is granted you can claim relief for profits from the pending period, going back up to six years.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance in October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.