When a non-UK resident sells a UK property for a profit, UK tax must be paid on the profit. That seems unsurprising but what is more surprising is how long it took the UK to introduce this charge. The gain on residential properties was only generally made subject to UK tax for non-residents from April 2013 or April 2015 (depending on the circumstances of the property) while the gain on commercial properties was only made subject to UK tax for non-residents from April 2019. Prior to those dates, the UK generally allowed non-residents to make gains from investing in UK property free of tax.

Until April 2019, non-resident companies were generally subject to capital gains tax (CGT) on their gains from UK residential properties. Now the charge is to corporation tax. Likewise, gains of non-resident companies from UK commercial properties are subject to corporation tax from April 2019. Although the introduction of the charge to tax may be unsurprising, some of the effects of that change are more so.

For instance, the introduction of corporation tax for residential properties will result in less tax being paid by non-resident companies. Until April 2019, non-resident companies owning residential property generally paid UK CGT at the rate of either 20% or 28% (depending on the circumstances of the property). From this April the corporation tax rate will apply – this is currently 19% but is expected to fall to 17% from April 2020.

Also, the increase in value of a residential property from April 2013 to April 2015 is generally removed from tax for non-UK resident companies by the April 2019 changes. Only increases in value of residential properties after April 2015 are generally subject to the new corporation tax charge.

Bringing non-resident companies into the charge to corporation tax has also had a surprising effect on the date that any tax has to be paid. Companies normally pay corporation tax nine months and a day after the end of their accounting period. However, large companies generally have to pay the tax quarterly starting six months and 13 days from the beginning of the relevant accounting period. And very large companies have to start their quarterly payments two months and 13 days from the beginning of the relevant accounting period.

This is where the main surprise begins. A large company is generally one with more than £10m of profits in the relevant accounting period while very large companies are those with more than £20m of profits. A non-resident company is deemed to start an accounting period for tax purposes when it sells a UK property and deemed to end the accounting period on the same day – ie it has a deemed one-day accounting period.

Where a company has a one-day accounting period, the above limits have to be divided by 365. Therefore, a large company is one which has profits of more than £27,397 in that accounting period and a very large company is one which has profits of more than £54,794!

This means that virtually all non-UK resident companies selling UK properties will be very large companies that have to pay corporation tax early. But even that is not the main surprise. A very large company with a one-day accounting period has to pay all its corporation tax on that very day - three months before it is required to register for corporation tax. Now that is a surprise!

To cater for this situation HMRC has said that it will, by concession, allow payment of the corporation tax three months and 14 days after the end of the one-day accounting period. So a non-UK resident company will be able to register for corporation tax before it has to pay it, which seems the right way round.

It is not clear whether further legislation will be introduced to make this concession statutory but, in any event, the problem should ease from April 2020. From that date, non-UK resident companies will have to pay corporation tax on their UK rental income. (At the moment they pay income tax on this income.) This means that, when they sell a UK property after that date, they will already be within the UK corporation tax charge and will not have a deemed one-day accounting period.

Depending on when the sale occurs in their accounting period, regardless of whether they own other UK properties and how much profit they make, they may not be a large or very large company for tax purposes so may have much longer to pay their tax bill.

One final thought. The way these rules operate makes it likely that non-UK resident companies will have to pay corporation tax before a UK resident company would have to. On the face of it, that sounds contrary to EU law where the company is an EU company. That may not matter in the future but for now it still does.