The UK drops transparency for US LLC members and promises a foreign tax credit from 2028
HMRC's response to the summer consultation on US LLCs and other reverse hybrids, published with the Budget on 28 October 2026, replaces the transparency model with an elective credit for foreign tax paid on the entity's profits. Claims open in early 2028.
On 28 October 2026, alongside the Budget, HM Revenue and Customs published its summary of responses to the summer consultation on how the UK taxes resident individuals who are members of US limited liability companies and other “reverse hybrid” entities. The government has set aside the transparency model it consulted on in June. It will instead introduce an elective foreign tax credit, with claims possible from early 2028, after a further technical consultation and legislation in a future Finance Bill.
The double charge
The US generally taxes an LLC’s members directly on the entity’s profits. In the UK, HMRC’s guidance treats such entities as companies and taxes UK-resident members when profits are distributed, so the US tax and the UK tax fall on different people at different times and the US tax cannot be credited. The Supreme Court’s Anson decision gave some members a route to transparent treatment, but respondents described its application as marginal and fact-specific.
HMRC received 64 written responses. Respondents reported effective tax rates commonly between 55% and 75%, with several above 80% and some above 90% once US state and local taxes were added. Around a third of the firms and individuals answering the relevant question described decisions not to move to the UK, to decline assignments here, to limit time spent in the country or to plan a departure.
What the government has decided
Legislation will list eligible entities, which will be treated as opaque for the UK tax purposes of an individual member. The list includes US LLCs, US S-Corps, Jersey LLCs and French sociétés civiles immobilières (SCIs). Distributions will be charged at dividend rates of income tax. The member can then elect to take credit for eligible foreign taxes paid personally on the entity’s profits, income and gains, including federal, state and local taxes. The credit will use the investor’s average foreign tax rate under mechanical rules, without tracing each distribution back to the tax on the underlying profits.
The government explained why it dropped transparency. That model would have needed “a significant amount of new technical architecture”. Its exclusions for single-member entities and for entities with UK owner-management or a UK permanent establishment would have denied relief to many working founders and family businesses. Minority investors who receive only US tax reporting would often have been unable to produce UK computations. Questions left for the technical consultation include how to set the foreign rate when an entity has mixed income, how to handle timing gaps between US tax and UK distributions, and how to deal with the difference between dividend rates and other income tax rates. On earlier years and open enquiries, HMRC says only that it is “considering practical options”.
Bloomberg Tax reported the change the same day. Private client lawyers quoted by Spear’s welcomed it, although one, Will Ford of Womble Bond Dickinson, said the Chancellor had “missed an opportunity” by leaving it until 2028.
What it means for families and their advisers
For American families living in the UK, the four-year foreign income and gains regime has deferred the problem rather than solved it. Anyone whose four years end before claims open in early 2028 still faces the existing mismatch, so restructuring decisions (check-the-box elections, corporate blockers, deferred distributions) remain live for that group and should be weighed against a relief whose detail is not yet drafted. The inclusion of French SCIs and Jersey LLCs widens the measure beyond Americans to European families holding property or investments through those vehicles. Members who filed on an Anson basis in past years have no answer yet on those periods, and should keep their existing positions documented until HMRC sets out its approach.
The same Budget also changed two trust rules, covered in our note on trustee liabilities and migrated trusts.
Sources: HMRC, UK resident individual members of LLCs and other reverse hybrids: summary of responses (28 October 2026); Bloomberg Tax, UK Offers New Tax Credit to Ease Double Tax Burden on US LLCs (28 October 2026); Spear’s, Buried in the Budget: a ‘big green flag’ for HNW Americans (29 October 2026).