Commentary on Sections Structure of Chapters Overview Section 587: Charge to tax on income from sales of patent rights
2283.Sections 587 to 599 deal with sales of patent rights. Section 587 charges to tax capital sums from the sale of patent rights. It is based on section 524 of ICTA. The charge under this section applies equally to both traders and non-traders.
2284.Section 529 of ICTA, which categorises certain income patent rights as “earned income”, is repealed by this Act and replaced by new section 833(5B) to (5E) of ICTA (see paragraph 338(5) of Schedule 1 to this Act).
2285.Subsection (1) taxes “profits” from sales of patent rights. The word “profits” has been used here as it more accurately describes the sum which, after deduction of certain expenditure, is chargeable to tax.
2286.Subsection (2) contains a special rule providing that non-UK residents are taxed only on profits from the sale of UK patent rights. UK residents are taxed on profits from the sale of patent rights granted under the laws of the United Kingdom or any other country or territory.
2287.Subsection (3) provides that tax is not charged where the seller is a non-UK resident company chargeable to corporation tax (for example, trading in the United Kingdom through a permanent establishment). Section 524(5) of ICTA sets out which persons are chargeable to income tax and which to corporation tax under section 524(3) of ICTA. This is necessary because sections 6 and 11 of ICTA, which generally deal with the income tax/corporation tax split, are drafted in terms of “income”. Section 524(5) of ICTA explains how the split is to work in the case of the capital sums charged to tax under section 524(3) of ICTA. Subsection (3) of this section makes it clear that a non-UK resident company chargeable to corporation tax is not chargeable to income tax in respect of capital sums from the sale of patent rights.