The UK government enforces stringent Temporary Non-Residence (TNR) rules to prevent taxpayers from leaving the country for short periods purely to extract wealth or realise capital gains tax-free. If an individual triggers the TNR rules, specific income and gains that accrued during their time abroad become fully chargeable to UK tax in the year they return.
With the abolition of the remittance basis and sweeping changes to close company dividend rules taking effect in 2026, advisors must meticulously evaluate how the TNR provisions apply to returning expatriates.
Defining “Temporary Non-Residence”
The foundational definitions underpinning the Temporary Non-Residence rules reside in Part 4 of Schedule 45 to the Finance Act 2013 (the Statutory Residence Test).
Under these statutory provisions, an individual is temporarily non-resident if they meet two strict temporal conditions:
- Prior UK Residence: They were UK tax resident for at least four of the seven tax years immediately preceding the tax year of departure.
- Duration of Absence: Their temporary period of non-residence (the time spent non-UK tax resident) did not exceed five years in length.
If the individual returns to the UK and becomes resident again within this five-year window, HMRC applies the TNR charging provisions in the “period of return”.
Capital Gains Tax in the Period of Return
For capital gains, section 1M of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) drives the tax charge. If a temporarily non-resident individual disposes of an asset, any gain or loss that accrues during the temporary period of non-residence is treated as accruing in the period of return.
“(1) If, in the case of the disposal of an asset by an individual who is temporarily non-resident— (a) a gain or loss accrues to the individual in the temporary period of non-residence… the gain or loss is treated instead as accruing to the individual in the period of return.”
Section 3E of TCGA 1992 extends this matching rule to gains attributed to the individual from non-resident companies during their absence.
2026/27 Legislative Shock: Close Company Dividends
Historically, business owners relied on a specific carve-out within the TNR legislation to extract dividends tax-free while living abroad. Section 812A of the Income Tax Act 2007 (ITA 2007) taxes “relevant investment income” received during a temporary period of non-residence in the year of return. This specifically targets dividends from close companies where the individual was a material participator.
However, before 6 April 2026, subsection 812A(5) exempted dividends paid out of “post-departure trade profits”—profits generated by the company after the individual left the UK.
The 2026/27 Change: The government definitively closed this loophole. For individuals returning to the UK on or after 6 April 2026, the Finance Act 2026 abolishes the post-departure trade profits exemption entirely. All dividends received from a close company while temporarily non-resident are now strictly chargeable to UK income tax upon return, regardless of when the company generated the underlying profits.
Advisors must note that these TNR dividends will be taxed at the newly elevated 2026/27 dividend rates: 10.75% (ordinary rate), 35.75% (upper rate), and 39.35% (additional rate).
Summary of Targeted Income and Gains
| Income / Gain Type | Governing Legislation | TNR Treatment |
|---|---|---|
| Capital Gains | TCGA 1992 s 1M | Treated as accruing in the period of return. |
| Close Company Dividends | ITA 2007 s 812A | Taxed in the period of return (exemption for post-departure profits abolished from April 2026). |
| Pension Withdrawals | ITEPA 2003 s 576A | Relevant withdrawals exceeding £100,000 from registered schemes or RNUKS are taxed in the period of return. |
| Remitted Foreign Income | ITTOIA 2005 s 832A | Relevant foreign income remitted during the temporary absence is treated as remitted in the period of return. |
Interaction with the Foreign Income and Gains (FIG) Regime
The Finance Act 2025 replaced the remittance basis with a residence-based 4-year Foreign Income and Gains (FIG) regime. If a new arrival qualifies, they receive 100% relief on foreign income and gains for their first four years of UK residence.
However, HMRC explicitly warns that if a taxpayer becomes temporarily non-resident during their 4-year FIG period, they cannot claim the FIG regime for the non-resident years. The statutory clock does not pause; the individual loses those eligible years and can only qualify for the FIG regime again after completing a further 10 consecutive years of non-UK residence.
The Double Taxation Treaty Override
Taxpayers frequently attempt to use Double Taxation Agreements (DTAs) to shield income caught by the Temporary Non-Residence rules. The UK legislation anticipates and explicitly prevents this.
Across every primary taxing statute governing TNR (including TCGA 1992, ITA 2007, and ITTOIA 2005), Parliament inserted an overriding clause stipulating that nothing in any double taxation relief arrangements prevents the individual from being chargeable to UK tax under the TNR provisions.
Consider researching the precise interaction between the Temporary Repatriation Facility (TRF) and the TNR rules for returning individuals who previously claimed the remittance basis.
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