UK Patent Box 10% Rate 2026/27: Who Qualifies and How It Is Calculated
UK Patent Box 2026/27: the 10% rate on relevant IP profits, qualifying patents, the R&D fraction, the 2-year election window and Corporation Tax savings.
How much the Patent Box saves in 2026/27
The special IP rate is 10% (CTA 2010 s.357A(4)). The relief is a deduction of relevant IP profits x (AR - 10%) / AR, so the saving is the gap between the company's rate and 10%:
| Company pays | Deduction per £1,000,000 of relevant IP profits | Tax saved |
|---|---|---|
| Main rate (25%) | £600,000 | £150,000 |
| Small profits rate (19%) | £473,684 | £90,000 |
A company with profits between the small profits and main rate limits uses the main rate as AR, because it is not charged at the small profits rate.
Illustrative calculation
The inputs below are assumptions, chosen to show the order of the steps in CTA 2010 s.357BF for one sub-stream. A real claim needs the company's own figures.
- Relevant IP income in the sub-stream: £30m
- Less costs allocated to it: £18m
- Less routine return, 10% of £14m of routine deductions: £1.4m
- Less marketing assets return (assumed): £0.5m
- Multiply by the R&D fraction (assumed 0.9): relevant IP profits £9.09m
- Patent Box deduction at the 25% main rate: £5.454m, saving £1,363,500 of Corporation Tax
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Frequently asked questions
What is the UK Patent Box?
The Patent Box lets a company that elects into it apply a 10% rate of Corporation Tax to its relevant IP profits (CTA 2010 s.357A). It works by a deduction from trading profits equal to the relevant IP profits multiplied by (AR - 10%) / AR, where AR is the small profits rate if the company pays that rate and the main rate otherwise. In 2026/27 that means a company paying the 25% main rate saves £150,000 for every £1,000,000 of relevant IP profits, and a company paying the 19% small profits rate saves £90,000.
Which companies can use the Patent Box?
HMRC says the company must be liable to Corporation Tax, make a profit from exploiting patented inventions, own or hold an exclusive licence over the patents, and have undertaken qualifying development on them (making a significant contribution to the invention or to a product incorporating it). A company in a group must also actively own the patents, taking a significant role in managing the group's portfolio.
Which patents and rights qualify?
Under CTA 2010 s.357BB: patents granted under the Patents Act 1977 (UK Intellectual Property Office), patents granted under the European Patent Convention, corresponding rights granted by specified EEA states, supplementary protection certificates, and plant breeders' rights under the Plant Varieties Act 1997. The holder of a marketing authorisation for a product with marketing or data protection under the medicines and plant protection rules is also treated as holding a qualifying right. Trade marks, copyright, designs and patents that have only been applied for are not on the list.
How is the Patent Box figure calculated?
For a new entrant, and for every company for accounting periods beginning on or after 1 July 2021, CTA 2010 s.357BF sets out the steps: split income into relevant IP income and other income; divide the IP income into sub-streams by patent, product or process; allocate costs; deduct a routine return of 10% of the routine deductions allocated to each sub-stream (s.357BJ); deduct a marketing assets return; multiply by the R&D fraction for each sub-stream; and add the results. The total is the relevant IP profits on which the deduction is calculated.
What is the R&D fraction?
The R&D fraction is the lesser of 1 and (D + S1) x 1.3 divided by (D + S1 + S2 + A), where D is in-house R&D spend, S1 is R&D subcontracted to unconnected persons, S2 is R&D subcontracted to connected persons and A is spend on acquiring the IP (s.357BLA, HMRC CIRD274200). The 1.3 uplift means up to 30% of the spend can be connected-party subcontracting or acquisition costs before the fraction falls. Example: £8m in-house and £2m connected subcontracting gives a fraction of 1; £5m of each gives 0.65.
How and when do I elect into the Patent Box?
By notice to HMRC, in the computations with the Company Tax Return or separately in writing. There is no form of words and no box on the return. The notice must specify the first accounting period it applies to and be given by the last day on which the return for that period could be amended (CTA 2010 s.357G), which HMRC describes as within 2 years after the end of the accounting period. The election then applies to that period and all later ones.
Can I revoke a Patent Box election?
Yes, by notice to HMRC within the same time limit (CTA 2010 s.357GA). The revocation applies to the period specified and all later periods, and a new election cannot have effect for any accounting period beginning within 5 years of the day after the end of the period the revocation was specified for.
Is there a simpler route for small claims?
Yes. Where a company carries on one trade and its qualifying residual profit does not exceed the greater of £1,000,000 and the relevant maximum (£3,000,000 for a company with no associated companies), it can make a notional royalty election, a small claims figure election and a global streaming election (CTA 2010 s.357BN). These reduce the work of streaming and of calculating the marketing assets return.
How does Patent Box interact with R&D tax relief?
They are separate reliefs and can both apply to the same work: R&D relief is given on qualifying R&D spending, and the Patent Box later reduces tax on profits from the patented result. For accounting periods beginning on or after 1 April 2024, R&D relief is claimed under the merged scheme, where the expenditure credit is 20%, or under enhanced R&D intensive support for loss-making SMEs whose relevant R&D is at least 30% of total expenditure (an extra 86% deduction plus a payable credit of up to 14.5% of the surrenderable loss). HMRC notes R&D spend need not have been in an R&D claim to count in the R&D fraction.
Does the Pillar 2 minimum tax affect the Patent Box?
It can for large groups. The UK Pillar 2 top-up taxes apply to groups with a UK entity and consolidated revenue of 750 million euros or more in at least 2 of the previous 4 accounting periods. Top-up tax is based on the gap between 15% and the group's effective tax rate in a territory (Finance (No. 2) Act 2023 s.194), so a 10% rate on IP profits may be partly topped up. The effect depends on the whole group's computation, not on the Patent Box alone.
What records does a Patent Box company need?
Enough to show how income was streamed, how costs were allocated, how routine and marketing returns were worked out and how each R&D fraction was built up, since the fraction is cumulative and tracks spend on each right. Companies must keep the records needed for a correct return until at least the sixth anniversary of the end of the period (Finance Act 1998 Schedule 18 paragraph 21).