Important changes have been introduced by HMRC from 6 April 2026 which impact the UK Tax On Dividends From Ltd Companies For Non-Residents, including how they are taxed in the UK while you are abroad and additional tax that may be due following your return to the UK.
This article explains the Disregarded Income rules and Temporary Non-Residence rules (which changed from 6 April 2026) and how they affect the UK Tax On Dividends From Ltd Companies For Non-Residents.
This is particularly important for directors of owner-managed companies and the changes could be the difference between paying no UK tax on your dividend income and paying UK tax on all dividend income received while non-resident.
If you would like advice on the UK tax treatment of dividends from your UK company while living abroad, please see our UK tax planning service page and contact us at Expat Tax Solutions.
Who Is Affected?
These rules will affect full-year non-residents under the Statutory Residence Test who are in receipt of dividend income from a UK company.
UK tax residence is determined by the Statutory Residence Test which is a series of tests considering your time spent in the UK, the locations of your homes and family, and other factors.
Further details can be found at our guide here; however, we recommend that a tax residence assessment is performed by a qualified tax professional to confirm your UK tax residence status.
It is worth noting that the Disregarded Income Rules below only apply to full-year non-residents and the rules will not apply to those in the overseas part of a split year.
The Disregarded Income Rules
UK tax non-resident individuals are taxable in the UK on their UK sourced income and UK property disposals only. While UK sourced income does include dividends from UK companies, the Disregarded Income rules can reduce the UK tax payable on UK company dividends to zero in some cases.
The Disregarded Income rules allow full-year non-residents to limit their total UK tax liability to the lower of:
- The tax due on all of their UK taxable income calculated with inclusion of the personal allowance to the extent that they are entitled to it; or
- The UK tax due on their income other than their ‘disregarded income’ however not allowing for the personal allowance.
Disregarded income is, broadly speaking, UK investment income and therefore includes interest and dividends.
The taxpayer may elect for the lower of the above two figures and limit their UK tax liability accordingly.
Therefore, where a UK tax non-resident’s income consists solely of UK dividend income, they can limit their total UK tax liability to zero. These rules have not changed from 6 April 2026 and non-residents can continue to benefit from limiting the UK tax due on their UK dividend income.
This is highlighted in the following examples:
Example 1 – Dividend Income Only
Individual A is UK tax non-resident in 2026/27 and receives £30,000 of dividend income. Under the default method of taxation, total UK tax on this income would be £1,820 calculated as follows:
– £12,570 personal allowance taxed at 0%
– £500 dividend allowance taxed at 0%
– Remaining £16,930 taxed at 10.75%
However, using the Disregarded Income rules the taxpayer can limit the UK taxation to the lower of this figure and the tax due on non-disregarded income (their income excluding dividends) without including the personal allowance. As the individual has no other income, the liability on their non-disregarded income is £0 and so their total UK tax liability is zero.
Example 2 – Dividend and Other Income
Individual B is UK tax non-resident in 2026/27 and receives £20,000 of dividend income and £30,000 of rental income. Under the default method of taxation, total UK tax on this income would be £5,582 calculated as follows:
– £12,570 personal allowance taxed at 0%
– £17,430 taxed at 20%
– £500 dividend allowance taxed at 0%
– Remaining £19,500 taxed at 10.75%
As above, the Disregarded Income rules allow the taxpayer to limit their tax to the lower of this amount and the non-disregarded income (£30,000 of rental income) without using the personal allowance i.e. £30,000 @ 20% = £6,000.
As such, in this scenario it is not beneficial to be taxed on the disregarded income basis and the default method will apply.
The Temporary Non-Residence Rules
The Temporary Non-Residence rules impose a tax charge on certain types of income arising in a period of UK tax non-residence that lasts for fewer than five years. Affected individuals will be taxable on the income/gains arising while non-resident in the year they resume UK tax residence.
The Temporary Non-Residence rules generally apply where:
- You were UK tax resident in at least 4 of the 7 years preceding your departure; and
- You are then non-resident for less than five years.
Temporary non-residence may start or end during a tax year if the individual is subject to the split year rules. Periods of ‘treaty non-residence’ under a Double Taxation Agreement are also considered as non-residence for the purposes of the Temporary Non-Residence rules.
What Has Changed From 6 April 2026?
Prior to 6 April 2026, dividends from UK companies were only subject to the temporary non-residence rules if they were paid from pre-departure profits. In these scenarios, individuals would be able to benefit from the Disregarded Income rules to exclude dividends from pre-departure profits however had to be mindful of returning to the UK within 5 years as the dividends may become taxable under the Disregarded Income rules. Dividends paid from profits relating to the non-resident period were not subject to the Temporary Non-Residence rules and could therefore be fully excluded from UK tax.
From 6 April 2026, all dividends from close companies are subject to the Temporary Non-Residence rules and therefore participators in close companies (typically owner-managed companies) should be mindful of returning to the UK as their previously excluded dividend income may become taxable in the UK in their year of return if the Temporary Non-Residence rules apply.
HMRC defines a close company as a company which is under the control of five or fewer participators, or any number of participators all of whom are directors. These rules will therefore primarily affect owner-managed companies with a sole shareholder/director.
Owners of Ltd companies have greater control over when dividends are paid and are therefore able to manage their UK tax affairs in line with their residence status to optimise their tax position, and HMRC have therefore updated the rules to restrict this.
How Can I Reduce UK Tax On My UK Company Dividends?
By being aware of the Temporary Non-Residence rules, participators in UK Ltd companies can manage their UK tax residence position or treaty residence status to maintain their non-residence for at least five years thereby not being subject to the Temporary Non-Residence rules.
Furthermore, the Temporary Non-Residence rules only apply to individuals who were UK tax resident in at least 4 of the 7 years prior to their departure and who were a ‘material participator’ (owning at least 5% of the share capital) in the year of departure or one of the preceding 3 years.
It is therefore important to assess whether the Temporary Non-Residence rules apply to you and the steps required to minimise or eliminate UK tax on your dividend income.
How Do I Claim To Reduce The UK Tax On Dividends From Ltd Companies For Non-Residents
Your UK tax liability should be calculated under the default method and under the Disregarded Income rules when preparing and submitting your Self-Assessment tax return. A claim can then be made under the Disregarded Income rules to restrict your UK tax liability to the lower of the two calculations.
Self-assessment tax returns are due for submission by 31 January following the end of the tax year i.e. the deadline to file your 2026/27 UK tax return is 31 January 2028.
Should you require support preparing and filing your non-resident tax return including a claim to reduce the UK tax on dividends from Ltd companies for non-residents, please contact us at Expat Tax Solutions.
FAQs About UK Dividend Tax For Non-Residents
Do the UK tax on dividends from Ltd companies for non-residents rules apply to me?
If you are a full-year UK tax non-resident receiving dividend income from a UK company, you should be aware of the Disregarded Income rules and Temporary Non-Residence rules which impact your UK taxation.
Can I reduce the UK tax I pay on dividends from a UK company?
Yes. It may be possible to fully exempt your UK dividend income from UK tax however you should be mindful of the Temporary Non-Residence rules which may result in a tax liability if you return to the UK within five years.
Do I pay UK tax on my non-UK dividend income?
If you are UK tax non-resident, you are only subject to UK tax on your UK sourced income and UK property gains. As such, your non-UK dividend income is not taxable or reportable in the UK.
Can I set up a UK Ltd company while non-resident?
Yes, it is possible to create a UK Ltd company while UK tax non-resident. In this case you should not be subject to the Temporary Non-Residence rules. Additional considerations should be taken regarding your home country and the treatment of the UK company there.