The US treats most LLCs as transparent; HMRC treats them as companies. That mismatch can break double tax relief. What Anson decided, what HMRC says, and the reform now consulted on.
If you are UK resident and own a US LLC, you are probably being taxed by two countries on two different things. The United States usually treats an LLC as fiscally transparent, so you are taxed on your share of its profits as they arise; HMRC's long-standing position is that a US LLC is opaque — a company — so you are taxed in the UK on distributions instead. Because the two charges are not on "the same profits", double tax relief can fail, and the combined effective rate can become punitive.
An LLC is a creature of state law. It gives its members limited liability but, for federal tax purposes, it has no fixed identity of its own — the owner chooses. That flexibility is precisely what causes trouble once a member becomes UK resident, because the UK does not adopt the American choice.
By default, the IRS treats an LLC with a single member as "an entity disregarded as separate from its owner, unless it files Form 8832 and affirmatively elects to be treated as a corporation" (IRS, single member limited liability companies). An LLC with two or more members defaults to partnership treatment: the LLC files Form 1065 and issues each member a Schedule K-1 showing their distributive share of income, losses, deductions and credits.
In both default cases the entity pays no federal income tax of its own. Profits are allocated to the members and taxed in their hands, whether or not a dollar is actually distributed.
HMRC does not ask which box the LLC ticked in the United States. It asks a UK question: can the member be regarded as receiving, or being entitled to, the profits? The International Manual is explicit that "transparent" and "opaque" are "informal labels which we use in this guidance to describe who is liable to UK tax on what profits, income or gains".
Applied to US LLCs, HMRC's answer has been consistent. INTM180050 describes "members of Delaware LLCs as not being in receipt of or entitled to the profits of the LLC". The profits belong to the LLC; the member is taxed when a distribution is made. In UK terms the LLC behaves like a company, and the member's receipt like a dividend.
George Anson was UK resident and non-UK domiciled, and a member of a Delaware LLC that carried on a trade. The LLC was treated as a partnership in the United States, so he paid US federal and state tax on his share of its profits. HMRC then taxed him in the UK on what he received, refusing credit on the basis that the two charges were not on the same income. The Supreme Court disagreed and allowed his claim.
The decisive point was narrow. On the First-tier Tribunal's findings of fact about that particular LLC agreement — under which the members had an interest in the profits as they arose — he was liable to tax in both countries on the same income, so credit was due.
HMRC's response was immediate and has not shifted. Revenue and Customs Brief 15 (2015) states that "where US LLCs have been treated as companies within a group structure HMRC will continue to treat the US LLCs as companies, and where a US LLC has itself been treated as carrying on a trade or business, HMRC will continue to treat the US LLC as carrying on a trade or business". Individuals relying on Anson are considered case by case.
The practical translation: Anson is not authority that US LLCs are transparent for UK purposes. It is an evidential route whose availability depends on your specific operating agreement and the state law under which the LLC was formed — a question about documents, not categories.
> ⚠ Escalate this one. The double tax relief position for a UK resident LLC member is contentious, fact-specific, and currently under government review. It should not be settled from an article. Any credit claim needs the operating agreement read in full and the position reviewed and signed off by a qualified professional before it reaches a return.
Article 24(4)(a) of the US-UK double taxation convention allows US tax as a credit "against any United Kingdom tax computed by reference to the same profits, income or chargeable gains by reference to which the United States tax is computed".
That phrase is the whole problem. If the United States taxes you on profits allocated in one year and the United Kingdom taxes you on a distribution paid in another, the two charges are computed by reference to different things at different times. The government put it plainly in its 2026 consultation: "Where an individual is taxed in relation to business profits, income and gains in one state, but in relation to distributions in the other state, this does not meet the 'same profits, income or chargeable gains' requirement for relief."
Article 1(8) does not rescue you either. It provides that an item derived through a person that is fiscally transparent is treated as derived by a resident "to the extent that the item is treated for the purposes of the taxation law of such Contracting State as the income, profit or gain of a resident" — which sends you straight back to each country's own classification, and therefore straight back to the mismatch. Article 7 allocates business profits, and Article 10 dividends; neither helps while the two states disagree about whose profits they are.
Two further wrinkles matter. Timing: profits taxed in one year and distributed in another can leave credits stranded even where relief is available in principle. And retained profits: if the LLC keeps its cash to fund growth, you may face a full US tax bill with no UK-taxable distribution at all, then a UK charge years later on money already taxed. Our guide to how the US-UK treaty prevents double taxation covers the general machinery; the LLC is where it grinds.
Assume a UK resident individual is the sole member of a Delaware LLC that is disregarded for US purposes and carries on a US trade. The LLC makes a trading profit of $200,000 and distributes all of it. Assume the member is already at top rates in both countries, and ignore allowances, state taxes and exchange-rate movements. These figures are illustrative, not a projection of anyone's liability.
That is not exaggeration for effect. The consultation records that "a member could end up suffering an effective tax rate in excess of 75%", adding that rates are often lower in practice "but are nevertheless still substantial — stakeholders have shared experiences of rates in excess of 60%".
| LLC type | Default US treatment | Likely HMRC treatment | Main risk to manage |
|---|---|---|---|
| Single member, UK resident individual owner | Disregarded entity; profits taxed on the owner | Opaque; owner taxed on distributions | Credit mismatch; Form 5472 with pro forma Form 1120; LLC may itself become UK resident |
| Two or more members | Partnership; Form 1065 and Schedule K-1 | Opaque; member taxed on distributions | Credit mismatch; section 1446 withholding on a foreign member; K-1 income with no matching UK charge |
| LLC that has filed Form 8832 to be taxed as a corporation | Corporation; entity-level US tax; distributions are dividends | Opaque — the two classifications now align | Two layers of tax; 60-month lock-in; US withholding on dividends |
| LLC seeking S corporation status with a non-US member | Not available: an S corporation "may not have... non-resident alien shareholders" (IRS) | Not applicable | An ineligible shareholder invalidates or terminates the election |
Whatever HMRC concludes about classification, the IRS side runs on its own rules.
Single member, foreign owner. For tax years beginning on or after 1 January 2017, a foreign-owned US disregarded entity is treated as a corporation for the limited purposes of the section 6038A reporting rules. It has no income tax return to file, but it must file a pro forma Form 1120 with Form 5472 attached by the due date, including extensions. The Instructions for Form 5472 set the penalty for failure to file when due, or to maintain records, at $25,000, with a further $25,000 for each 30-day period the failure continues after 90 days from IRS notification. Our guide to foreign-owned US LLCs and Form 5472 covers the mechanics.
Two or more members. The LLC files Form 1065 — for a calendar-year partnership, by the fifteenth day of the third month after the year end — and issues Schedule K-1s. Where the partnership has taxable income effectively connected with a US trade or business allocable to a foreign partner, section 1446 requires withholding whether or not any distribution is made. The IRS states the rate is 37% for non-corporate foreign partners and 21% for corporate foreign partners, reported on Forms 8804 and 8805 with payments on Form 8813.
States. State filing and franchise obligations are separate from the federal ones and vary widely. Some states levy an annual LLC or franchise charge whether or not the business made a profit; others impose income tax, gross receipts tax or registration fees. Check the position for every state in which the LLC is formed or does business.
If your structure also includes a non-US company, the reporting web widens again — see our overview of Form 5471 obligations.
There is no single right answer. Each route has consequences on both sides of the Atlantic, and each should be modelled before you act.
1. Keep the LLC and manage the credit position. Read the operating agreement against the Anson findings, document how profits accrue to members, and be ready to defend the claim case by case.
2. Elect corporate treatment by filing Form 8832. This aligns the two systems — both countries then see a company — at the cost of an entity-level US charge and, generally, withholding on dividends paid to you. The election cannot take effect more than 75 days before, or 12 months after, the date it is filed, and once made you generally cannot change classification again for 60 months.
3. Convert or restructure into a corporation. A cleaner long-term fix where substantial US operations will continue, but conversions can trigger US tax on the way through.
4. Wind up the LLC and trade through a UK company or as a sole trader. Often sensible where the US customer base has gone, but liquidation carries its own consequences in both countries.
Before choosing, check a fifth issue owners routinely miss: UK corporate residence. HMRC's International Manual confirms that a company not incorporated in the UK is nonetheless UK resident where "the central management and control of its business is in the UK". Run the LLC from a desk in Surrey and the LLC itself may have become UK resident and within the charge to corporation tax — a considerably larger problem than the credit question.
On 10 June 2026 the government published a consultation on the taxation of UK resident individual members of reverse hybrids. It proposes to allow "UK resident individual members in specific eligible reverse hybrids to treat their holding on a transparent basis for the purposes of Income Tax and Capital Gains Tax".
The entities in scope would be those "taxed on a transparent basis in their jurisdiction of establishment, but which are treated as opaque for UK tax purposes", excluding entities resident in the UK or trading here through a permanent establishment. No equivalent legislation is proposed for UK resident companies.
Three cautions. The consultation ran for seven weeks and closed on 31 July 2026. It is a consultation, not legislation — nothing has been enacted and no government response has been published at the time of writing. And any change would apply "prospectively for tax years following the date of introduction of new legislation", so it would not repair historic years. Plan on today's law, and watch the autumn fiscal events.
This is general information rather than advice, and the LLC question turns almost entirely on documents: your operating agreement, the state statute behind it, and the pattern of allocations and distributions across the years still open to enquiry. If you have moved to the UK with an LLC, or are about to, have both sides reviewed together rather than sequentially — a licensed CPA or Enrolled Agent on the US filings and an ACCA-qualified accountant on the UK return, working from one shared set of facts. That is how we approach US-UK cross-border business tax and expatriate tax work: one analysis, with licensed professionals reviewing and signing everything filed. To have your structure looked at before the next filing season, book a consultation.