Income Tax Act 2007 section 195

Excluded activities: receipt of royalties and licence fees

Section 195 sets out when a trade that receives royalties or licence fees can still qualify under the Enterprise Investment Scheme, provided those royalties derive from intangible assets created by the company or its qualifying subsidiary.

• A trade is not automatically excluded from EIS merely because it receives substantial royalties or licence fees, provided those fees are largely attributable to "relevant intangible assets"
• A relevant intangible asset is one where the whole or greater part of its value was created by the issuing company itself, or by a company that was a qualifying subsidiary throughout the period of creation
• For intellectual property, the creating company must hold the right to exploit the asset (whether alone or jointly with others) — intellectual property includes patents, trade marks, registered designs, copyrights, design rights, performer's rights, plant breeder's rights, and equivalent rights under non-UK law
• Where the issuing company acquired all shares in another company solely by issuing its own shares at a time when only subscriber shares existed, the "old company" is treated as if it were the issuing company for these purposes