By setting a corporation tax rate of 10% on profits earned from patents and supplementary protection certificates, the Patent Box is expected to strengthen life science R&D in the UK.
The tax break, which extends to royalty and milestone payments, comes together with the introduction of a special 10% rate of R&D tax credits.
The special 10% tax rate is a major cut from the current corporation tax rate of 23%, which falls to 21% in 2015. It will be phased in over four years, with 60% available this year.
The Patent Box was developed by the Office for Life Sciences under the previous government as a way to strengthen the UK’s ‘knowledge economy’.
HM Treasury estimates that it will save UK businesses £1bn in tax, differentially rewarding innovation and encouraging investment in the UK’s R&D base.
Leading UK pharma company GSK, which was involved in the Treasury working group that advised on the policy, has since invested in a new £350m manufacturing facility in Cumbria.
Paul Belsman, National Head of Tax at accountancy consultant RSM Tenon, commented: “Combined with the research and developments tax credits system, this should provide strong fiscal incentive for companies and arguably attract inbound investment into the UK.”
The BioIndustry Association, which represents the UK biotechnology industry, has welcomed the opportunities within the Patent Box.
Steve Bates, CEO of the BIA, said the Patent Box would combine with “the improvements to R&D tax credits and reduction in corporation tax, the Government’s Strategy for UK Life Sciences and programmes such as the Biomedical Catalyst” to establish the UK as “a globally competitive location for life science companies”.