This regime has been announced with the UK life sciences industry in mind in particular. During the debate within the Office for Life Sciences (in which Deloitte was involved) it was clear that this would not be a regime that was applied to intellectual property in the wider sense, but only to patent income. However, patent IP is also a feature of technology and manufacturing sectors, and the potential application of a patent box could be very wide.

The combination of the R&D tax credit system (giving enhanced tax deductions for R&D expenditure) plus this regime regarding the reduced rate of tax on patent income means the life science industry in the UK is in a highly favoured tax position compared to some other industries. However, it is intended to allow the UK to maintain international competitiveness as many Western European countries have their own regimes already in place.

Many large groups have established tax efficient intellectual property holding structures outside the UK and will therefore need to reorganise in order to benefit from this measure. In particular, many will not wish to make changes until the outcome of the debate on reform of the controlled foreign company regime in the UK is concluded.

Loss making UK biotech groups will need to understand how the effective 10% rate is to be achieved in order to determine the value of this measure to them. The Belgian regime which is most comparable to this proposed UK regime provides a deemed deduction against patent income which cannot be carried forwards and so is of limited benefit to many loss making companies.