Temporary non-residence rules – what is changing?

The temporary non-residence rules are anti-avoidance rules that apply when someone leaves the UK for a short period, becomes non-resident, and then returns, after having been UK resident for at least four of the seven tax years before departure. These rules can tax certain income and gains that arise while you are abroad, treating them as if they arose when you come back to the UK.​

Up to now, dividends and other distributions from a close company could escape this charge if they were linked to profits earned by the company after you left the UK (often called “post departure trade profits”). Going forward, this distinction will be removed, so all dividends and distributions from close companies received while you are temporarily non-resident can be brought into UK tax if the temporary non-residence rules apply to you.​

When do the temporary non-residence rules start?

The change will apply to people who return to the UK on or after 6 April 2026. The basic test of who is temporarily non-resident does not change, but the way dividends and distributions from close companies are taxed when you return will be stricter from that date.​

Who is likely to be affected by the temporary non-residence rules?

This will mainly affect individuals who:​

• Were UK resident for at least four of the seven tax years before leaving.
• Become non-UK resident and receive dividends or other distributions from a close company while abroad.
• Then return to the UK within five tax years of leaving.

In practice, this will affect individuals who own shares in their own companies and who spend only a few years outside the UK before coming back.​ It is highly unlikely to impact investors in listed entities.

Why are the temporary non-residence rules being changed?

The aim is to close a loophole that allowed individuals to move abroad for a short period, take profits out of their company while non-resident, and then return to the UK without a UK tax charge on those profits under the temporary non-residence rules. By removing the special treatment for profits earned after departure, the government wants to ensure that short-term periods of non-residence cannot be used to avoid UK income tax on company profits.​

Foreign tax, double tax relief and the temporary non-residence rules

If you pay tax on these dividends or distributions in the country where you live while you are non-resident, you could face tax again in the UK when you return. New provisions will allow relief to reduce cases of double taxation where this is not already covered by a tax treaty or existing unilateral relief.​

To benefit from this, you will need to keep good records of any foreign tax paid on relevant distributions, as this information will be needed on your UK tax return when you come back.​

Impact on reporting and administration

You will continue to report relevant dividends and distributions through the Self Assessment tax return as you do now. However, you will now also need to provide details of any foreign tax suffered on these amounts, so that the UK tax position and any relief can be worked out correctly.​

HMRC expects only a small number of individuals to be affected, and there is no significant change to how businesses deal with HMRC, since the measure focuses on the tax position of individuals rather than companies.​

Temporary non-residence rules – key action points for clients

• Review any plans to extract profits from a close company while living abroad if you expect to return to the UK within five years.​
• Consider the timing of your departure from, and return to, the UK, as well as the timing of dividends and other distributions.​
• Keep detailed records of foreign tax paid on any dividends or distributions received while non-resident.​
• Seek tailored professional advice before leaving the UK or before paying significant dividends from a close company while you are non-resident, especially if you intend to return within a relatively short period.

You might also find this article on the Temporary Repatriation Facility of interest. 

If you would like to speak to a member of our team regarding the temporary non-residence rules, or indeed any area of personal or business tax, tax compliance or tax planning, contact us on 020 7870 9050 where a member of our team is waiting to assist you.