UK taxation of startup gain due to IP


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I learnt today that if an author assigns copyright of his book to a publisher for a fee, the net revenue is taxed as income, not as capital gains.

On the other hand, one would normally think "Capital Gains" when writing software for "Startup Ltd." with sale or IPO of the company as the exit plan.

What is it that differentiates the author and the startup in the eyes of HMRC? Surely not just the corporate shell?

UK Tax Copyright Intellectual Property Capital Gains

asked May 11 '11 at 02:15
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Paperjam
394 points

1 Answer


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A capital gain is usually generated upon disposal of an asset like shares or a property. The difference between the price the asset was bought and sold is the capital gain, upon which captial gains tax is levied.

On the other hand, one would normally think "Capital Gains" when writing software for "Startup Ltd." with sale or IPO of the company as the exit plan.

Yes, capital gains are generated when shares in a company are sold but this is unrelated to the revenue the business earns. Shareholders will pay capital gains tax when they dispose of shares, not the business.

I learnt today that if an author assigns copyright of his book to a publisher for a fee, the net revenue is taxed as income, not as capital gains.

This is just revenue for the business or him/her, so yes, if the author is self-employed then this will just be part of his/her regular income, and taxed as such. There is no asset that has been disposed where a capital gain is realised.
What is it that differentiates the author and the startup in the eyes of HMRC? Surely not just the corporate shell?

A startup doesn't pay capital gains taxes... it doesn't pay any taxes until it is profitable, and then it's corporation tax.

As you mentioned the HMRC I'm assuming you're in the UK - so here is some relevant information about capital gains.

answered May 11 '11 at 02:44
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Edralph
2,333 points
  • Yes, that confirms my understanding but what is to stop the author avoiding the higher income tax rates by incorporating and selling his company to the publisher? – Paperjam 9 years ago
  • It's an awfully longwinded way to avoid tax. More common is to form a company, pay yourself a lower tax rate salary and take further remuneration via company dividends from the profits. No need to sell the company. Selling a company isn't without its pain, red-tape and cost. – Edralph 9 years ago

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UK Tax Copyright Intellectual Property Capital Gains