HMRC consults on tax reform for UK-resident US LLC and reverse hybrid members (10 Jun 2026)

On 10 June 2026 HM Revenue & Customs (HMRC) published «Consultation on reform to taxation of UK-resident members of US LLCs». It is the freshest UK tax development on transatlantic structures. The consultation runs for 7 weeks until 31 July 2026. Responses can be sent to entityclassificationmailbox@hmrc.gov.uk. It matters for double taxation, investors, individual LLC members, tax advisers and businesses with USA–UK structures.

An entity is transparent if tax falls on members (look-through) and opaque if the entity is taxed and members are taxed on distributions. A reverse hybrid is transparent where it is formed but opaque elsewhere. US LLCs are typically transparent in the US (unless a ‘check-the-box’ corporate election is made with the IRS), but HMRC generally treats most LLCs as opaque in the UK (guidance INTM180030). That mismatch drives a heavy double tax charge that is hard to relieve.

In the US, a UK-resident member of a transparent LLC pays federal tax on arising profits (up to ~37% marginal plus state taxes). In the UK, HMRC treats the LLC as opaque: the resident is taxed on distributions as dividends from a non-UK company (top rate ~39.35%). Because the bases differ, the UK/US double taxation convention (Article 24) does not give credit: there are not the ‘same profits, income or chargeable gains’ in both states. HMRC illustrates a potential effective rate above 75%; in practice many taxpayers report over 60%.

The Supreme Court in Anson (2015) allowed transparent UK taxation and double tax relief on specific facts. HMRC maintains that most LLCs remain opaque (INTM180050, 2023). Many taxpayers try to apply Anson to their LLC and clash with HMRC. The consultation acknowledges that uncertainty and aims for a legislative fix for individuals.

HMRC is minded to let UK-resident individuals in eligible reverse hybrids treat holdings as transparent for Income Tax and Capital Gains Tax. Corporates would not be in scope. The member would be taxed in the UK on underlying profits (as in the US), not on distributions, enabling treaty credit. The effective rate would be the higher of domestic rates (consultation example: 37% US + relief → ~45% UK). Treatment would apply automatically (not by irrevocable election) and prospectively from commencement.

Views are also sought on foreign tax deduction or underlying tax credit on distributions without full look-through. The consultation includes 24 questions on residency and investment decisions, transitions and international comparison. After close, the government will publish a response listing respondents.

Especially relevant for: individual LLC members, family offices, globally mobile earners with US income, tax and legal advisers, funds using LLC vehicles and businesses recruiting international talent. If you are considering moving to the UK or already live there with LLCs, model scenarios before 31 July 2026.

This is not rumour: it is an official HMRC consultation published on 10 June 2026. The aim is to cut punishing effective rates for UK residents in US-transparent LLCs and provide certainty after years of post-Anson debate. Source: GOV.UK — Consultation on reform to taxation of UK-resident members of US LLCs.