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HMRC internal manual

Capital Allowances Manual

Patents: Sale of patent rights: Deduction of tax from payments to non-residents

When rights in a UK patent are sold to a UK resident person for a capital sum by someone who is not resident in the UK, the non-resident seller person is assessable on the profit. When the UK resident buyer pays for the rights tax should be deducted under ICTA88/S349 (1). If the buyer is a UK resident company the tax deducted should be accounted for to the Revenue under the quarterly return procedure provided for by ICTA88/SCH16. If the company does not follow this procedure, or if Schedule 16 does not apply to the buyer, tax should be collected by making an assessment on the buyer under ICTA88/S350.

The buyer cannot treat the Section 350 assessment as a loss to carry forward.

It is possible that payments to non-residents for patent rights are exempt from UK tax under some double tax agreements. If you get a claim to exemption you should send the claim to the Centre for non-residents, Nottingham in accordance with DT1821.

Where a capital sum for the purchase of patent rights is paid to a non resident person without deduction of tax it is possible that the seller may be entitled to exemption from UK tax under the terms of a double taxation convention. If that happens the Centre for non-residents, Nottingham will tell you and an assessment under Section 350 is not needed.

For payments made on or after 1 October 2002

FA02 introduced a new section ICTA88/S349E, - payments by companies of royalties to overseas recipients on or after 1 October 2002. Where the payer reasonably believes that the recipient would be entitled to double taxation relief at the time of the payment in relation to that payment can be made under deduction of tax at the rate prescribed in the relevant agreement. ‘Royalties’ for the purposes of this legislation include the proceeds of sale of all or any part of any patent rights. There is more on this at CTM35270.