Mereo BioPharma Group plc Income Taxes Disclosure

14. Income taxes

The Company operates in the U.K. and in the U.S. and is subject to income taxes in those countries. The U.K corporation tax rate applied for the years ended December 31, 2025 and 2024 was 25%. U.K. deferred tax assets and liabilities have been measured at the enacted rate of 25%. The U.S federal income tax rate for the year ended December 31, 2025 and 2024 was 21%. U.S. deferred tax assets and liabilities are calculated at the enacted rate of 21%.

Both current and deferred income tax benefits are $nil for the years ended December 31, 2025 and 2024.

The comparative information in the reconciliation above have been reclassified to conform with current year presentation following the adoption of ASU 2023-09.

Following the implementation of the Merged scheme effective for accounting period on or after April 1, 2024, the U.K. R&D tax credits are taxable at the applicable corporation tax rate (see Note 2) and therefore no longer result in a reconciling item in the table above. The corporation tax arising on these U.K. R&D tax credits (the "RDEC Step 2 restriction") has been recognized as a deferred tax asset in the table below.

Following review of the cumulative tax losses and projections of future taxable losses, it was determined that it is not more likely than not that they will be realized. Accordingly, valuation allowances have been provided over deferred tax assets.

As of December 31, 2025, the Company had (i) U.K. net operating loss carryforwards of $64.1 million that can be carried forward indefinitely; (ii) U.S. federal tax losses to be carried forward of $67.0 million, of which $20.5 million can be carried forward indefinitely and $46.5 million begin to expire in 2026; (iii) U.S. federal R&D tax credits of $13.7 million that begin to expire in 2027 and less than $0.1 million of state R&D tax credits that do not expire; and (iv) U.S. state tax losses to be carried forward of less than $0.1 million which begin to expire in 2027.

As of December 31, 2024 the Company had (i) U.K. net operating loss carryforwards of $36.6 million that can be carried forward indefinitely; (ii) U.S. federal tax losses to be carried forward of $66.3 million, of which $19.5 million can be carried forward indefinitely and $46.8 million that began to expire in 2025; (iii) U.S. federal R&D tax credits of $13.9 million that began to expire in 2025 and less than $0.1 million of state R&D tax credits that do not expire; and (iv) U.S. state tax losses to be carried forward of less than $0.1 million which begin to expire in 2027.

The Company files separate income tax returns in the U.K. and the U.S. All necessary income tax filings have been completed for all years up to and including December 31, 2024, and there are no ongoing tax examinations in any jurisdiction. There were no federal (national), state or local income tax expense (or benefit) and no federal (national), state or local income tax has been paid in any jurisdiction for the years ended December 31, 2025 and 2024.

As of December 31, 2025, the Company has a cumulative uncertain tax position of $3.8 million. The uncertain tax position relates to U.S. R&D tax credits. The total amount of unrecognized tax benefits, if recognized, would affect the effective tax rate. As of December 31, 2025, the Company had no accrued interest or penalties related to uncertain tax positions.

For Mereo BioPharma 5, Inc., with respect to accumulated tax losses carried forward prior to its acquisition by the Company of $18.2 million, there is a change of control restriction which will limit the amount available in any one year to $0.3 million per year.