Intellectual Property in Pensions

Intellectual Property (IP) is an intangible, potentially highly valuable business asset. Common types of IP include patents, trademarks, designs, copyright, databases and trade secrets.

The Finance Act 2004 recognised IP as an intangible business asset which led to more lenders accepting these assets as collateral and perhaps their increase in value. The World Bank in 2010, estimated that royalty and licence fees alone would generated £5.25 billion in the UK conflicting research conducted by Clifton Asset Management that found 84% of UK businesses valued their IP at nil. So, that begs the question, are you maximising the value of your IP?

Specified IP rights recognised and protected under UK law are a legally acceptable asset which can be used in pension-led funding and is something overlooked by many. Common types of IP held within pensions are trademarks, brand and company logos. These are valued using stringent methods by independent valuation, assessing the cost (and how much of IP is still valid), the market (at what price other similar IP has sold) and the income (what can the IP earn in the future).

IP can either be purchased by the pension fund from the business or be used as security for a loan by the pension fund to the company. Both methods have the benefit of releasing cash into the business that can be used for future development, research & design, stock or other methods of generating more profit. It is an extremely innovative method of funding for many businesses (SMEs mainly) with the advantage that their IP will be protected from any business creditors once placed inside a pension.

Unlike traditional pensions, there are other cost considerations such as accounting and valuations but it could be argued that these are mitigated by the tax benefits alone. Not to mention other benefits such as improving cash flow; any income or growth in value of the IP is free from direct taxation. Naturally like all assets, there is always the danger that values could fall, meaning that the pension value would also fall but accurate valuations and proper business practice should help prevent this.

In the event of the business being sold, there is no need for the pension scheme to follow suit. In fact, the holding can be retained like any other investment until such times the members felt it was appropriate to sell. Ultimately, unlocking growth in the UK's small and medium sized businesses, making finance more accessible and controlled, at a time when Banks are either too nervous to lend or charge uncompetitive rates, can only lead to growth in the UK's economy, stabilising jobs and improving both the reputation of pensions and their value.

This is a complex area and specialist tax and financial advice should be sought before entering into any arrangement.

At Nurture Financial Planning, we have experts, qualified and able to assist you and your other professional advisers in your goal to combine your business and retirement planning ensuring you meet all of the legislative responsibilities placed on you, you take full advantage of any tax benefits and that your investment has the maximum potential to be a success.

Carl Rich BA (Hons) Dip PFA, Dip PFS Independent Financial Adviser

This article does not constitute financial advice but is for information only.

Carl Rich featured as a guest blogger for IP Twenty One