IHT on Intellectual Property UK: Inheritance Tax on Copyright, Patents, Royalties, and Creative Estates (2026)
Copyright, patents, trade marks, and royalty streams are personal property included in the IHT estate at market value on death. Copyright lasts 70 years post-death — the estate may generate royalties for decades. BPR does not apply to passively held IP. Creators and inventors need specific will provisions and lifetime planning to manage the IP tax burden.
| IP Type | IHT Estate Asset? | BPR Available? | Duration |
|---|---|---|---|
| Copyright (literary, artistic, musical) | Yes — OMV | No (passive royalties) | Life + 70 years |
| Copyright held in trading company | Via company shares | Yes (s105(1)(bb) — trading co.) | Life + 70 years |
| Patent | Yes — OMV | No (passive licence fees) | Up to 20 years from filing |
| Trade mark (registered) | Yes — OMV | No (investment-type) | 10yr renewable indefinitely |
| Goodwill (sole trader business) | Yes — OMV | Yes — s105(1)(a) (2yr, mainly trading) | N/A (indefinite business value) |
| Royalty stream (publishing/music) | Yes — capitalised OMV | No (passive income) | Remaining contract term |
Intellectual Property and IHT: What You Need to Know
What intellectual property rights are included in the IHT estate?
All forms of intellectual property owned at death are included in the IHT estate as property (s5 IHTA 1984). The main categories are: (1) Copyright (Copyright, Designs and Patents Act 1988 — CDPA 1988): the right to authorise reproduction, distribution, adaptation, and other acts in relation to original literary, dramatic, musical, or artistic works. Copyright vests automatically on creation — no registration needed. Duration: author's life plus 70 years. Copyright is personal property that can be owned, transferred, licensed, and inherited. (2) Patents (Patents Act 1977): the exclusive right to exploit an invention for up to 20 years. Patents are registered and can be assigned or licensed. (3) Trade marks (Trade Marks Act 1994): registered marks, including brand names and logos. An estate may hold valuable registered trade marks in a trading name, brand, or product. (4) Design rights: registered and unregistered design rights in the appearance of products. (5) Goodwill and know-how: where a sole trader or partnership has an unincorporated business, the goodwill (the value of established relationships and reputation) is an asset in the IHT estate — potentially qualifying for BPR as part of a business property (s105(1)(a) IHTA 1984). (6) Royalty streams and licensing income: the contractual right to receive ongoing royalty payments (e.g. publishing royalties, music royalties, patent licence fees) is a chose-in-action included in the estate at the capitalised value of future payments.
Valuing intellectual property for IHT: the income capitalisation approach
The IHT valuation of IP rights uses the open market value of the right to the future income stream the IP will generate (s160 IHTA 1984 — the price the property would fetch if sold in the open market). The income capitalisation approach: (1) Project the future royalties or licence fees the IP is expected to generate; (2) Adjust for the probability of generating those royalties (success-weighted); (3) Discount the future income stream to a present value using an appropriate discount rate reflecting the risk and timing of the income. For copyright in works by a well-known living author (or recently deceased): the income stream may be substantial and well-documented (published books with established sales history). The copyright can be valued by reference to recent comparable IP transactions or by discounting projected future royalty income. Mortality contingency: for rights that depend on the ongoing commercial exploitation of the deceased's name and reputation (e.g. a celebrity's image rights), the value may decline after death — this contingency can be taken into account in the valuation. HMRC SAV will examine IP valuations carefully where the IP is valuable. For complex valuations (pharmaceutical patents, established literary estates), a specialist IP valuer or chartered accountant with IP experience should prepare the valuation.
Copyright in the estate: practical considerations
For authors, composers, artists, and other creators, copyright in their works is a significant estate asset. Key practical points: (1) Duration: copyright in a literary, dramatic, musical, or artistic work lasts for the author's life plus 70 years (s12 CDPA 1988). This means the estate may hold copyright for decades after death, generating royalty income through the literary estate. (2) Moral rights: an author's moral rights (the right to be identified as author; the right to object to derogatory treatment) are personal rights that cannot be transferred — but they can be waived. The economic rights (to authorise copying, distribution, adaptations) are transferable and are the estate asset. (3) Administration: executors should identify all copyright works and contracts (publisher agreements, music publishing agreements, licensing deals) at the outset of estate administration. Royalty agreements with publishers must continue to be administered. (4) Literary estate management: a trust or specialist literary estate manager is often appointed to manage the IP in the estate over the long-term copyright period. The will should appoint trustees and give them clear powers to exploit copyright commercially. (5) Jointly owned copyright: where a work was co-authored, ownership may be shared — the estate owns only the deceased's share. For works written with a living co-author, the IHT value reflects the probability of the co-author's cooperation in future commercial exploitation.
BPR and intellectual property: does it apply?
Business Property Relief (BPR) is NOT generally available on intellectual property held as a standalone investment asset. HMRC's position (confirmed in case law) is that IP rights held passively — receiving royalties without active management — constitute 'investment' rather than 'trading' activity and therefore do not qualify under the wholly/mainly trading test (s105(3) IHTA 1984). BPR IS available on IP in certain circumstances: (1) Where the IP is actively exploited within a qualifying trading business — for example, a software company whose primary asset is its proprietary software code. The business as a whole (including the IP) may qualify for BPR under s105(1)(bb) if it is an unquoted trading company. The IP itself does not get BPR in isolation — the company (or business) as a whole must qualify. (2) A sole trader who actively exploits IP as part of their business (a musician who actively performs and licenses their catalogue, rather than passively receiving royalties) may argue their business qualifies under s105(1)(a) — though HMRC scrutinises these claims. (3) Active licensing businesses: where a business employs people to develop and exploit IP (a technology licensing company, a brand management company), the whole/mainly trading test becomes fact-specific and requires careful analysis. The safest route to BPR on IP-intensive businesses is to hold the IP through a qualifying unquoted trading company structure.
Patents: IHT on inventions and licence fees
A patent in force at death is included in the estate at the market value of the remaining patent monopoly (typically the capitalised future licence fees or royalties, discounted to present value, over the remaining patent term — up to 20 years from filing). For pharmaceutical or technology patents with substantial licence income, the value can be enormous. Points specific to patents: (1) A granted patent that has not yet been commercialised may have low or nominal value in the estate — based on future commercialisation probability rather than peak commercial value. (2) Patent licences: where a patent is licensed to a third party (pharmaceutical company, manufacturer), the value of the licence agreement (the right to receive future licence fees) is in the estate. (3) UK patent box regime: the UK Patent Box regime reduces the corporation tax rate on profits from UK patents. This regime benefits a company owning the patent — not an individual IP owner. Estate planning via a company holding the patent can access both patent box advantages and BPR (if the company qualifies as a trading company). (4) Employee inventions: where the deceased was an employee-inventor with rights to compensation under s40 Patents Act 1977, the right to future compensation payments is an estate asset. The valuation is complex and depends on the commercial success of the employer's use of the invention.
Planning: gifting, assigning, and structuring IP before death
Estate planning for creators and inventors with significant IP involves choices between: (1) Lifetime gift: a gift of copyright, patent, or trade mark is a CGT disposal at market value (gain = market value at gift date minus base cost, often nil for self-created IP — so the entire market value is the gain). The gift is also an IHT PET — seven-year clock. For self-created IP, the CGT base cost is typically zero (IP created by the author's own effort has no acquisition cost) — meaning the entire market value is potentially subject to CGT. (2) Assignment to a company: assigning IP to a company in which the creator holds shares: CGT on the assignment (or potentially deferral under roll-over/incorporation relief in some circumstances); the company holds the IP and the creator's estate holds the company shares (potentially qualifying for BPR if the company is an unquoted trading company). This can convert non-BPR IP into BPR-eligible company shares. (3) Trust: assigning IP to a trust for beneficiaries — CGT on assignment; CLT for IHT (immediate 20% charge above NRB); periodic and exit charges apply. Complex but allows long-term management of literary estates. (4) Will: leaving IP to beneficiaries directly. No CGT on death (rebase to probate value). Beneficiaries can then exploit or sell the IP from a higher base cost. If the IP has low immediate value but potential future value, this avoids locking in a CGT liability during the creator's lifetime.
Frequently Asked Questions
Is copyright included in the IHT estate in the UK?
Yes. Copyright is personal property included in the IHT estate at its open market value on the date of death. Copyright in literary, dramatic, musical, and artistic works lasts for the author's life plus 70 years (s12 CDPA 1988) — so the estate holds copyright for decades after death. The value is assessed on the income capitalisation basis: the discounted present value of expected future royalties. Authors and creators with established works may have substantial copyright values in their estates requiring specialist valuation.
Does Business Property Relief apply to intellectual property?
Not generally to standalone IP held passively. HMRC's position is that passively receiving royalties is an investment activity, not a trading activity — so BPR does not apply (s105(3) IHTA 1984). BPR may be available where IP is held within a qualifying unquoted trading company (s105(1)(bb)) — the company as a whole must pass the wholly/mainly trading test. Active exploitation of IP as part of a trading business (not passive receipt of royalties) may support a BPR claim, but these are fact-specific and often challenged by HMRC.
What happens to royalties when an author dies?
The right to receive ongoing royalties passes to the estate as part of the literary estate. The royalty-generating copyright vests in the estate (and beneficiaries or trustees under the will). Executors must continue to administer publishing and licensing agreements. The value of the copyright at death is included in the IHT estate — based on projected future royalties. The will should appoint trustees with clear powers to manage and exploit copyright commercially over the long copyright period (life + 70 years).
Is there CGT if you give away your copyright or patent?
Yes. A gift of copyright or patent is a CGT disposal at market value. For self-created IP (a novel, a piece of music, an invention), the base cost is typically nil — meaning the entire market value is a capital gain. Current CGT rates: 18%/24% depending on the asset type and whether it is a wasting asset. Annual CGT exempt amount (£3,000) can offset small gains. Gift relief (s165 TCGA) may be available if the IP is a business asset used in the donor's trading business — allowing CGT to be deferred to the recipient.
How is the value of an intellectual property right calculated for IHT?
IP is valued at the open market value of the right on the date of death (s160 IHTA 1984): the price a willing buyer would pay a willing seller in the open market. The primary method is income capitalisation — projecting future royalties or licence fees, risk-weighting for commercial uncertainty, and discounting to present value at an appropriate rate. For actively traded patents or well-established copyright (bestselling books, well-known music), comparable transaction data may also be used. HMRC SAV reviews significant IP valuations and can instruct independent experts.
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