Key UK tax changes for expats: What you need to know for 2026

The UK's recent 2025 Autumn Budget, delivered by Chancellor Rachel Reeves on 26 November, confirmed that voluntary Class 2 National Insurance contributions for expats will end from April 2026, marking a major shift for UK nationals living abroad who rely on these lower-cost payments to maintain their State Pension record.

Two further changes that will affect non-UK residents are the removal of the notional tax credit on UK dividends and an extension of the Temporary Non-Residence Rules.

These reforms tighten eligibility, align non-resident treatment more closely with UK rules and reduce access to tax advantages that are no longer available to people living in the UK.

The following overview outlines what these measures mean for individuals living overseas and how they may influence future tax and pension planning.

End of voluntary Class 2 National Insurance contributions

A major shift for expats maintaining their State Pension record

From 6 April 2026, expats will no longer be able to pay voluntary Class 2 National Insurance (NI) contributions. This closes the long-standing lower-cost route many people abroad have used to maintain their UK State Pension record.

See also: How to top up your UK state pension

Why the change is happening

Class 2 contributions allowed eligible expats to build qualifying years at a low annual cost. The government argues that this gave people with limited UK ties access to State Pension benefits at a rate that was too low compared with the value provided. Removing Class 2 is intended to ensure that only those with a stronger link to the UK can build entitlement from overseas.

Higher annual costs under Class 3

After April 2026, only the more expensive Class 3 contributions will be available. In today’s terms:

• Class 2 costs roughly £3.50 per week
• Class 3 costs about £17.75 per week

This raises the yearly cost from around £182 to approximately £923.

New 10-year eligibility requirement

The minimum UK residence or contribution history needed to pay voluntary NI from overseas will rise from three years to 10. Individuals who have spent limited time living or working in the UK may no longer qualify to pay voluntary contributions.

Impact on State Pension planning

Qualifying for the full State Pension requires 35 years of NI contributions, while at least 10 years are needed to receive any entitlement. With voluntary Class 2 contributions ending in April 2026, many expats will need to reassess whether continuing contributions from overseas remains viable or whether topping up before the deadline offers better value. At present, the full State Pension pays £230.25 per week, which amounts to £11,973 a year.

Abolition of the notional tax credit on UK dividends

Aligning non-resident and UK-resident tax treatment

The government will abolish the notional tax credit available to certain non-UK residents who receive both UK dividends and UK rental or partnership income. The change applies to dividends paid on or after 6 April 2026.

What the reform does

Currently, non-residents can be assessed using whichever method gives them the lower tax bill, which can include a notional dividend tax credit. This credit was kept for non-residents even though the equivalent UK relief was withdrawn years ago. Removing it aligns the treatment of non-residents with the rules that already apply to UK taxpayers.

Filing requirements will stay the same, and affected taxpayers will continue to use Self-Assessment in the usual way.

It’s important to note that the disregarded income rule will continue to apply. Under this rule, certain types of UK investment income (including dividends and interest) are treated as “disregarded income” for non-residents, meaning that the overall UK tax liability is limited to the tax already deducted at source on that income (if any) plus tax on other UK-sourced income, calculated without personal allowances.

In practice, this can significantly reduce the UK tax payable on dividend income for some non-residents, although it may result in the loss of entitlement to a personal allowance if they choose that method of calculation.

Extension of the temporary non-residence rules

New scope for company profits earned after departure

The temporary non-residence rules (TNR) will be extended so they also apply to distributions and dividends paid from “post-departure profits”, meaning profits generated after an individual leaves the UK.

Purpose of the extension

The TNR regime prevents individuals from avoiding UK tax by leaving the country for a short period, receiving certain income or gains and returning within a set timeframe. Extending the rules ensures:

• Profits accumulated while a person is overseas for a temporary period remain within the UK tax scope
• Distributions linked to post-departure profits cannot be taken tax-free on return
• The UK regime more effectively addresses avoidance involving close companies

What these changes mean for UK expats

From April 2026, UK nationals living overseas will see meaningful shifts in how they maintain their pension record and how certain types of income are taxed. The end of Class 2 contributions increases the cost of building State Pension entitlement, and tighter eligibility rules may restrict access entirely.

At the same time, the removal of the notional dividend tax credit and the broader reach of the TNR rules will bring non-resident tax treatment more closely in line with that of UK residents.

Understanding your NI record, residency pattern and income sources is essential to assess how these changes may affect you.

Early planning gives you the best chance of safeguarding your pension contributions and maintaining a tax position that stays efficient under the 2026 reforms. Get in touch with our expert advisers today on +44 (0) 20 7759 7553 or email [email protected].