The unified power flow controller (UPFC) can beapplied in the four-wire low voltage (LV) distribution networks for voltage regulation and phase current balancing. Instantaneous reactive power theory shows that DC-bus capacitor power will fluctuate at twice mains frequency during any unbalanced operation. The DC bus voltage fluctuation is controlled by forcing the power balance between series and shunt converters of UPFC to reduce the DC bus capacitance. This reduction of DC bus capacitance allows long life ceramic or polypropylene capacitors to replace electrolytic capacitors. This paper aims to explore the active filtering capability of a reduced DC bus capacitance UPFC with an appropriate control strategy.A simulation study of the proposed topology is carried out and the results are presented in this paper. Simulation results confirm that the proposed device is capable of effectively removing harmonics from the PCC. In addition to this, it is capable of reactive power compensation, zero sequence or neutral current compensation and a degree of negative sequence current compensation.