The budget small print that may affect tax for British expats

Now the dust has settled on UK Chancellor Rachel Reeves's second budget, financial experts have had time to pore over the finer details to work out its real impact.

Ms Reeves opted to avoid big-ticket changes to shore up the UK finances, instead introducing a string of smaller measures.

Freezing income tax, changes to child benefit, property levies and limits for salary sacrifice made the headlines as part of a £26 billion ($34.7 billion) tax-raising package.

For those living abroad, or planning to head to sunnier climes, there was relief that the Chancellor decided not to introduce an exit tax. But there were still some changes of which non-UK residents need to be aware.

Last year, more than a quarter of a million British taxpayers relocated abroad, with many choosing the UAE due to its favourable tax-free status.

Thousands of British citizens have swapped their UK lives for a new experience in Dubai

Temporary non-resident

Expats who are intending to be away from Britain for only a few years, rather than a permanent relocation, need to be aware of a change to rules regarding income from company ownership.

To ensure there was no quick financial win from moving abroad for a short time, in 2013 the government updated the temporary non-residents rule. It meant that if someone who left the UK returned within five years, certain types of income and gains they might have expected to be tax-free were pulled back into charges.

At the time this affected owners of UK businesses receiving dividends or payments known as distributions for pre-departure profits. Any post-departure profits were exempt from tax.

Essentially, it stopped people with significant amounts of money in their UK company from upping sticks, becoming non-UK resident, receiving a handsome dividend then returning.

Claire Spinks, global head of tax at international financial advisory firm Hoxton Wealth, said: “The government recognised that from an anti-tax avoidance perspective, it didn’t want people building up lots of cash reserves in their company, leaving the UK then pulling them out quickly with little to no tax consequences.”

You can see the “mischief” they were trying to outlaw, she said. “But if somebody left the UK, their company did well after that point, it seemed fair that they could have the tax benefit of being non UK resident.”

However, from April 6, 2026, that tax exemption is being removed.

“If somebody comes back to the UK after that point and they trigger the temporary non-resident rule, then all the distributions for their own companies come back into charge.” She cited the example of someone who runs a company in the UK, moves to Dubai and is able to remain in control due to remote working, then decides to return home after a few years.

“They would always have been taxed on dividends related to profits from before they left, now they will also be taxed on any dividends arising from profits after they left.”

She said people may consider other ways of extracting that cash, either through bonuses or salary, in which case the tax rules of where they are resident would apply.

British Chancellor of the Exchequer Rachel Reeves can expect to raise an extra £26 billion ($34.7 bn)in tax from her budget. Reuters

Deemed tax credit

Britons living abroad may have been of the mindset that dividend income, from owning shares in a UK company, was tax-free.

Actually what was happening is that they were able to place their dividend payouts into a category known as “disregarded income”, a tax-exempt status for certain types