The unequal single-phase load distribution in three-phase (3P) four-wire (4W) low-voltage (LV) networks can cause significant neutral current and neutral to ground voltage rise problems at both customer and distribution transformer terminals. High neutral current can overload the neutral conductors and can cause electrical safety concerns to the users. To mitigate the high neutral current problem in an unbalanced residential LV network, a multifunctional 3P four-leg (4L) rooftop photovoltaic (PV) smart voltage source inverter (SVSI) is designed with improved active neutral current compensation along with active power export and point of common coupling (PCC) voltage regulation. A novel dynamic capacity distribution (DCD) method is proposed using the available SVSI capacity after active and reactive power operations to achieve higher capacity neutral compensation at the PCC. The performance of the designed 3P-4L PV-SVSI with the DCD method is compared with a traditional 4L SVSI with fixed unbalanced compensation capacity and a passive unbalance compensator, such as a zig-zag transformer, in PSCAD/EMTDC software. Several case studies, such as balanced and unbalanced load changing effects, are presented with actual residential loads connected to an Australian 3P-4W LV network. A Semikron Semiteach modified inverter and a real-time TMSF28335 DSP microcontroller are also used to provide experimental verification on the improvement of the proposed neutral current compensation with the DCD method. Detailed simulations and experimental studies are presented to verify the robustness and efficacy of the proposed control strategy with the designed 3P-4L PV-SVSI.