NON-RESIDENT DIVIDEND TAX CREDIT ABOLISHED: WHAT IT MEANS FROM APRIL 2026

Introduction

One of the less widely trailed but practically important changes in the 2025 Budget affects non-UK residents who receive dividends from UK companies. The government has announced that, from 6 April 2026, the “notional dividend tax credit” that non-resident individuals (and certain trusts) currently enjoy will be abolished. In effect, this removes a longstanding anomaly, and in many cases increases the UK tax burden on UK-source dividends for non-residents. If you or your clients are non-UK resident but receive UK dividend income (or consider doing so), this change is likely to matter.

What’s changing - abolition of the non-resident dividend tax credit

Under current law (section 399 of the Income Tax (Trading and Other Income) Act 2005), non-UK residents receiving dividends from UK companies, when they also have UK rental or UK partnership income, can elect to have all their UK income assessed, claim the personal allowance, and treat the UK dividends as having a notional tax credit at the ordinary rate.

From 6 April 2026:

• That notional dividend tax credit is abolished. The relevant legislative reference (s.399) will be repealed, and consequential amendments made to related legislation (Income Tax Act 2007, TMA 1970, etc.). 
• Non-UK residents receiving UK dividends will therefore no longer get the “credit” for the notion of tax paid on those dividends. This aligns their treatment with UK residents, under the broader dividend tax regime.
• The change applies to dividends paid (or treated as paid) on or after 6 April 2026. According to the government, this measure affects a small number of individuals, fewer than 1,000 non-UK resident non-domiciled taxpayers a year (for those also receiving UK rental or partnership income). 

Who is likely to be affected

This change primarily impacts:

• Non-UK resident individuals receiving dividends from UK companies (particularly if they also have UK rental or partnership income). 
• Non-UK resident trusts, life-interest trusts or other entities that previously benefited from the notional credit, receiving UK dividend income. 
• Advisers and trustees arranging distributions to non-resident beneficiaries who expect the “old” credit.

In short, while this change affects a relatively small population compared with mainstream resident taxpayers, it removes a valuable dividend-credit benefit for a niche but often sophisticated group of non-resident investors or beneficiaries.

Planning & Practical Implications - What Non-Resident Investors Should Do

For non-resident individuals, trustees, and advisers receiving or expecting UK dividend income, the following practical actions should be considered:

• Re-assess dividend-income forecasts for 2026/27 and beyond: previously, the notional credit reduced net tax; now, dividends will be taxed without credit, likely increasing UK tax liability.
• Review structures and beneficiaries: where offshore trusts or non-resident beneficiaries were used to benefit from the credit, consider whether alternative planning (e.g. use of UK pension wrappers, or different ownership locations) makes sense.
• Adjust timing of dividend distributions if possible: if dividends are due near the 6 April 2026 cut off, it may be worth considering accelerating to before that date (though the benefit may be marginal and the window narrow).
• Assess whether the UK personal allowance utilises any benefit: but bear in mind that, for non-residents with only dividend income, allowance usage may be limited.
• Update tax-reporting and modelling for UK rental/partnership income: since dividend credit abolition may affect the overall UK tax position for non-resident individuals with mixed UK-source income (dividends + rental/partnership).

Conclusion

The abolition of the non-resident dividend tax credit from 6 April 2026 removes a longstanding quirk in UK dividend taxation, but makes life harder, tax-wise, for non-UK resident individuals and trusts receiving UK dividends. While the number of people affected is small, for those in scope the change is real and material. As always, if you, or your clients, have UK-source dividends and live or are resident outside the UK, it would be prudent to review dividend-planning strategies and assess the impact under the new rules. 

Feel free to get in touch via our contact page at Mosaic Chambers if you’d like to run through specific cases or modelling scenarios.