In this episode of US-UK Tax Talk, host Aidan Grant is joined by colleagues James Austen, Partner, and Henry Lopes, Associate in the Tax & Estate Planning team at Collyer Bristow, for a deep and detailed exploration of one of the most challenging areas of US-UK personal taxation: how the UK treats US Limited Liability Companies (LLCs) and why this continues to create double, and sometimes triple, taxation for American taxpayers living in the UK.
While LLCs are a common planning tool in the United States and are generally treated as tax-transparent, the UK often takes the opposite approach, treating them as opaque corporate entities. This mismatch leads to substantial tax exposure for UK-resident members. Aidan, James, and Henry walk listeners through the legal characterisation issues, the risk of UK corporation tax, the complexities of the Anson Supreme Court case, and HMRC’s increasingly aggressive stance in the years since.
Americans living in the UK face one of the most complex cross-border tax environments in the world, and when an LLC enters the picture, that complexity multiplies. Together, the team break down how differing legal systems, conflicting tax treatments, and HMRC’s updated 2023 guidance collide to create one of the most problematic issues in the US-UK tax world.
LLCs may look simple on paper, but in the cross-border context, every structural detail from operating agreements to state-level LLC statutes, can carry long-term consequences. Aidan, James, and Henry stress that taxpayers should seek specialist advice early, disclose fully in white space, and avoid assumptions based on US tax treatment alone. Ultimately, a well-structured and well-advised filing position not only reduces risk but gives individuals the clarity needed to make informed decisions about their income and investments.
Join us on the first Wednesday of every month for a new episode of the US-UK Tax Talk podcast, brought to you by Collyer Bristow. Watch recent episodes on Collyer Bristow’s YouTube channel, and connect with our Tax & Estate Planning team.
Key Take Aways
Understanding the US-UK LLC Mismatch: In the US, LLCs are generally treated as tax-transparent, with profits flowing directly to their members. The UK, however, often treats LLCs as opaque corporate bodies, taxing the entity rather than the individual. This creates a fundamental mismatch, meaning income taxed once in the US may be taxed again in the UK without relief.
Why Characterisation Matters: The UK must decide how to classify foreign entities that don’t have clear UK equivalents. LLCs sit at the centre of this problem. HMRC frequently argues that LLC income belongs first to the company, not the member, leading to double taxation regardless of how the US treats the same income. This characterisation question is central to every LLC case.
The Risk of Triple Taxation: Where a UK-resident individual manages or controls an LLC from within the UK, HMRC may consider the entity UK-tax resident, exposing it to UK corporation tax. In these situations, income can be taxed in the US, taxed on the member’s UK tax return, and taxed corporately in the UK. Without careful planning, this results in extremely high effective rates.
Why Anson Doesn’t “Fix” the Problem: The 2015 Anson v HMRC Supreme Court case initially appeared to resolve the issue in favour of transparency. However, HMRC now argues that Anson was decided on narrow findings of fact and does not apply broadly. Updated 2023 guidance makes clear that HMRC considers most LLCs to be opaque, and the department is openly seeking a new “Anson 2” case to challenge taxpayers. The
Importance of White Space Disclosure: Because HMRC disagrees with the Anson interpretation, taxpayers must explain any reliance on the case when submitting returns. Failure to disclose properly may expose individuals to penalties and extend HMRC’s ability to challenge the return from 1 year to up to 12 years. Clear, well-supported disclosure significantly reduces the risk of inquiry.
Legal Analysis Is Essential: Successful reliance on Anson requires a two-part legal analysis: 1) State Law Review: Does the LLC’s governing state law allocate profits directly to the members? 2) Operating Agreement Review: Do the specific terms mimic transparency or suggest corporate-style decision-making? Even small wording differences in an operating agreement can fundamentally change the tax outcome.
Plan Before You File: Taxpayers are far better protected when they seek advice before filing their UK return. Legal opinions, proper documentation, and clear disclosure place taxpayers in the strongest possible position against HMRC challenges. Those who delay often face higher costs, greater risk, and the possibility of becoming HMRC’s next test case.
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