Income and Corporation Taxes Act 1970

380 Taxation as income of capital sums received for sale of patent rights

(1) Where a person resident in the United Kingdom sells all or any part of any patent rights and the net proceeds of the sale consist wholly or partly of a capital sum, he shall, subject to the provisions of this Chapter, be charged to tax under Case VI of Schedule D, for the chargeable period in which the sum is received by him and successive chargeable periods, being charged in each period on the same fraction of the sum as the period is of six years (or such less fraction as has not already been charged):

Provided that if that person, by notice in writing served on the inspector not later than two years after the end of the chargeable period in which the said amount was received, elects that the whole of the said sum shall be charged to tax for the said chargeable period, it shall be charged to tax accordingly.

References in this subsection to tax for a chargeable period shall be construed, in relation to corporation tax, as referring to the tax for any financial year which is charged in respect of that period.

(2) Where a person not resident in the United Kingdom sells all or any part of any patent rights and the net proceeds of the sale consist wholly or partly of a capital sum, and the patent is a United Kingdom patent, then, subject to the provisions of this Chapter—

(a) he shall be chargeable to tax in respect of that sum under Case VI of Schedule D; and

(b) section 53 of this Act (deduction of income tax at source) shall apply to that sum as if it was an annual sum payable otherwise than out of profits or gains charged to income tax; and

(c) all the other provisions of the Tax Acts shall, save as therein otherwise provided, have effect accordingly:

Provided that if, not later than two years after the end of the year of assessment in which the sum is paid, the person to whom it is paid, by notice in writing to the Board, elects that the said sum shall be treated for the purpose of income tax for that year and each of the five succeeding years as if one-sixth thereof, and no more, were included in his income chargeable to tax for all those years respectively, it shall be so treated, and all such repayments and assessments of tax for each of those years shall be made as are necessary to give effect to the election, so, however, that—

(i) the election shall not affect the amount of tax which is to be deducted and assessed under the said section 53; and

(ii) where any sum is deducted under the said section 53, any adjustments necessary to give effect to the election shall be made by way of repayment of tax; and

(iii) the said adjustments shall be made year by year and as if one-sixth of the sum deducted had been deducted in respect of tax for each year, and no repayment of, or of any part of, that portion of the tax deducted which is to be treated as deducted in respect of tax for any year shall be made unless and until it is ascertained that the tax (other than surtax) ultimately falling to be paid for that year is less than the amount of tax (other than surtax) paid for that year.

(3) In subsection (2) above the word " tax" shall mean income tax, unless the seller of the patent rights, being a company, would be within the charge to corporation tax in respect of any proceeds of the sale not consisting of a capital sum; and where the subsection applies to charge a company to corporation tax in respect of a sum paid to it, the proviso shall not apply, but the company may, by notice in writing given to the Board not later than two years after the end of the accounting period in which the sum is paid, elect that the sum shall be treated as arising rateably in the accounting periods ending not later than six years from the beginning of that in which the sum is paid (being accounting periods during which the company remains within the charge to corporation tax as aforesa(d), and there shall be made all such repayments of tax and assessments to tax as are necessary to give effect to any such election.

(4) Where the person selling all or any part of any patent rights acquired the rights sold, or the rights out of which they were granted, by purchase and the price paid by him consisted wholly or partly of a capital sum, the preceding provisions of this section shall apply as if any capital sum received by him when he sells the rights were reduced by the amount of that sum:

Provided that—

(a) where between the said purchase and the said sale he has sold part of the rights acquired by him and the net proceeds of that sale consist wholly or partly of a capital sum, the amount of the reduction falling to be made under this subsection in respect of the subsequent sale shall be itself reduced by the amount of that sum;

(b) nothing in this subsection shall affect the amount of income tax which is to be deducted and assessed under section 53 of this Act by virtue of subsection (2) of this section, and, where any sum is deducted under that section, any adjustment necessary to give effect to the provisions of this subsection shall be made by way of repayment of tax.

(5) A claim for relief under this section shall be made to the Board.