10% Corporation Tax Rate on Patented IP Profits
Patent Box reduces Corporation Tax from the standard 25% main rate down to 10% on profits earned from patented products and licensing. The relief is adjusted by your company's R&D Nexus fraction.
Patent Box Tax Savings Evaluator
Calculates Nexus fraction, Corporation Tax deduction, and net tax savings
Patent Box Tax Relief Result
Standard Corp Tax (25%)
£50,000
Without Patent BoxTax Saved (15% Saving)
£50,000
Tax ReductionNet Corp Tax Payable
£0
Effective 0.0% Rate| OECD R&D Nexus Fraction | 100.0% |
| Tax-Relievable IP Profit (Qualifying Profit × Nexus) | £200,000 |
| CT Deduction Claimed on CT600 | £120,000 |
| TOTAL CORPORATION TAX SAVINGS | £50,000 |
Understanding the Nexus Fraction Formula
The OECD Modified Nexus rules ensure Patent Box relief is tied to R&D conducted by your company:
| Component | HMRC Treatment |
|---|---|
| Direct R&D + Unconnected Subcontracting | Included in numerator and boosted by 30% (capped at 100%). |
| Connected Party Subcontracting | Included in denominator only (reduces Nexus fraction). |
| IP Acquisition Costs | Included in denominator only (reduces Nexus fraction). |
Frequently Asked Questions (6 Detailed FAQs)
The UK Patent Box scheme is a government tax incentive that enables companies to apply a reduced 10% Corporation Tax rate (instead of the standard 25% main rate) to profits derived from patented inventions and qualifying intellectual property (IP).
Under OECD Modified Nexus rules, the Nexus fraction links tax relief directly to the company’s own R&D expenditure. The formula is min(1.0, ((Direct R&D + Unconnected Subcontracting) × 1.3) ÷ (Direct R&D + Unconnected Subcontracting + Connected Subcontracting + IP Acquisition Costs)).
Patents granted by the UK Intellectual Property Office (IPO), European Patent Office (EPO), or designated EEA national patent offices qualify. The company must hold an exclusive licence or ownership rights and meet the active ownership condition.
Yes. If a product incorporates a qualifying patented component, worldwide net profits from the sale of the entire product (or bespoke spare parts/licensing) can qualify for Patent Box relief.
Election into the Patent Box scheme must be made in writing within 2 years of the end of the relevant accounting period, usually via the company’s CT600 Corporation Tax return.
R&D Tax Relief (including the merged R&D Expenditure Credit) and Patent Box are complementary. R&D relief reduces tax liability during the development phase, while Patent Box reduces Corporation Tax to 10% during the commercialisation phase.
Official HMRC Patent Box Sources
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Patent Box Benchmarks 2026
Patent Box Tax Rate10% Effective
Standard Main Corp Tax25% Rate
Effective Tax Saving15% CT Saving
Election Time Limit2 Years (CT600)