Corporation Tax Act 2009 section 1271

Sale of patent rights: effect of partnership changes

Section 1271 deals with how the tax charge on the sale of patent rights is reallocated when there is a change in the membership of a partnership carrying on the trade during the period over which the tax is being spread.

• When patent rights are sold as part of a trade and the resulting tax charge is spread over several periods, a change in partnership membership triggers a reallocation of the remaining charge to the new partners
• The section applies only where a partnership condition (the trader is or becomes a firm) and a continuity condition (at least one partner continues after the change) are both satisfied
• If the change occurs part-way through a tax charge period, the company's charge for that period is time-apportioned: the pre-change portion is taxed on the original basis and the post-change balance is spread evenly over the remainder of the relevant period
• After the change, the remaining amounts are treated as patent rights sale proceeds arising at a constant daily rate and, where the trade continues in partnership, are shared among the partners according to their profit-sharing arrangements