Answers · UK 2025/26
What is the Patent Box and how does it reduce corporation tax in the UK?
The Patent Box allows UK companies to elect for a reduced 10% corporation tax rate on profits attributable to qualifying patents and certain other intellectual property rights. To benefit, the company must have developed or significantly contributed to the patented invention. It is particularly valuable for R&D-intensive manufacturers and technology companies.
Full answer
The Patent Box is a corporation tax regime introduced from 1 April 2013 that allows companies to elect for a reduced 10% CT rate on profits arising from qualifying intellectual property. It is governed by Part 8A Corporation Tax Act 2010. **Who can use the Patent Box:** - Companies subject to UK corporation tax - The company (or a group member) must hold qualifying IP: patents granted by the UK Intellectual Property Office, European Patent Office, or certain other EEA patent offices; and certain supplementary protection certificates, plant variety rights, and marketing authorisations for medicines - The company must have actively contributed to the development of the patented product or process (the "development condition") **The NEXUS fraction (modified nexus approach):** Since 2016, the Patent Box uses a NEXUS fraction to limit the benefit based on how much of the R&D underpinning the patent was performed by the company itself versus acquired or outsourced. The NEXUS formula is: (R&D expenditure by the company + 30% uplift) / total R&D expenditure related to the patent This limits the benefit for companies that primarily acquired patents without doing their own R&D. **How the tax reduction works:** The company calculates the "relevant IP profits" attributable to the Patent Box. A deduction is calculated that brings the CT rate on those profits from the main rate (19%/25%) down to 10%. Example: £1m of qualifying patent profits. Main rate CT at 25% = £250,000. Patent Box brings this to 10% = £100,000 saving £150,000 in CT. **Who benefits most:** Companies manufacturing patented products (e.g. pharmaceuticals, medical devices, engineered components) and software companies with patented processes. The Patent Box is claimed in the CT600 return. **Interaction with R&D credits:** Companies can claim both R&D tax credits (on qualifying R&D expenditure) and the Patent Box (on resulting patent profits) -- these are complementary reliefs. HMRC guidance: CIRD200000.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.