Jun 29
HMRC opened a consultation on 10 June 2026 that could ease a long-running double taxation problem for UK-resident individuals who own interests in US LLCs and other reverse hybrid entities. The consultation closes at 11:59am on 31 July 2026, so nothing has changed in law yet.
The issue matters because some UK-resident LLC members can face very high effective tax rates. HMRC’s consultation says the rate can exceed 75 per cent in some cases, because the US and UK may tax the same economic profit in different ways and at different times.
Here is the root of the problem. The clash is one of classification, the same kind of mismatch that can catch people who hold income across multiple countries.
A reverse hybrid is an entity treated as transparent in the country where it is established, but opaque in another country. A US LLC is the common example. For US federal tax purposes, many LLCs are treated transparently, so profits are taxed in the members’ hands as they arise. HMRC has generally treated most US LLCs as opaque for UK tax purposes since 1997.
That means the UK often taxes the distributions you receive from the LLC, rather than your share of the underlying profits as they arise. Reporting those flows is already fiddly, as our guide to [reporting foreign dividends and interest in the UK the underlying profits as they arise. Reporting those flows is already fiddly, as our guide to reporting foreign dividends and interest in the UK explains.
Because the 2 tax systems are not taxing the same legal item, double tax relief may not apply. You can face US federal tax on the profits as they arise, state tax on top, and then UK income tax on the later distribution. HMRC’s own consultation accepts that, in some marginal-rate cases, the combined effective rate can exceed 75 per cent.
The 2015 Supreme Court case Anson v HMRC added to the uncertainty. On the specific facts of that Delaware LLC, the taxpayer was treated as entitled to the profits as they arose and was allowed double tax relief. HMRC, however, has continued to say that most LLCs are opaque for UK tax purposes. This is exactly the sort of trap covered in our piece on common tax mistakes across the UK and Ireland.
The government’s preferred approach is to legislate so that UK-resident individual members of eligible reverse hybrids are treated transparently for UK income tax and capital gains tax. HMRC is consulting on whether this should apply automatically, rather than by irrevocable election.
| Feature | Current position | Under HMRC’s proposed approach |
|---|---|---|
| UK treatment of most US LLCs | Usually opaque | Transparent for eligible individual members |
| What the UK taxes | Distributions received | Share of profits, income and gains as they arise |
| US treatment | Often transparent | Usually unchanged |
| Double tax relief | Often unavailable | More likely, because both countries tax the same profits |
| Effective tax rate | Can exceed 75 per cent in some cases | Intended to reduce to the higher domestic rate |
| Corporate members | Not the focus of the reform | No equivalent change currently proposed |
The proposed treatment would apply only prospectively, for tax years after the introduction of new legislation. It would also be limited to entities that are transparent in their home jurisdiction but opaque for UK tax purposes, and which are not themselves UK resident or trading in the UK through a permanent establishment.
That limit matters. The consultation is aimed at individuals, not companies. UK corporates can often already manage the issue differently, for example through the distribution exemption or other reliefs. The same care over structure matters when planning an overseas expansion.
This is a UK tax matter, so it can affect UK-resident individuals, including those in Northern Ireland. If you are resident in the Republic of Ireland and hold a US LLC, your position falls under Irish tax rules instead.
For any cross-border holder, our cross-border tax planning team can tell you where you stand, and a clear-eyed due diligence review of your structure is a sensible first step.
Check how your LLC is currently treated for UK tax. Many holders assume they are getting relief that may not actually be available. Gather your US tax filings, LLC operating agreement, distribution records and UK returns so you can model the real combined rate.
Avoid rushing into restructuring solely because of the consultation, unless there is another pressing reason. If your LLC also holds US assets or property, our guide to managing overseas property is worth a look, and any change to the vehicle may need restructuring and recovery support. Where HMRC questions a historic position, our forensic investigations team can help evidence it. Restructuring your entity choice is a common response here, much as it is in mergers and acquisitions work.
You can read the proposals on GOV.UK’s consultation page.
HMRC generally treats most US LLCs as opaque, though the answer can depend on the entity’s documents and the relevant US state law.
The US may tax profits as they arise, while the UK taxes later distributions. Because the taxable item is not the same, relief may not apply.
No equivalent change is currently proposed for UK-resident corporate members.
No date has been set. The consultation closes on 31 July 2026 and any legislation would follow later.
If you are a UK resident with a stake in a US LLC, check your exposure now and plan your response before the rules are finalised. SCC can review your current treatment, model the real cost, and position you for the change ahead. Get in touch for a straight answer.
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