In this special bonus episode of US-UK Tax Talk, Aidan Grant t is joined by James Austen and Henry Lopes, Partners in the Private Wealth team at Collyer Bristow, to discuss HMRC’s consultation on the UK tax treatment of US LLCs.

Aidan, James and Henry revisit the Anson case and explore why US LLC owners living in the UK can face economic double taxation. They discuss HMRC’s historic approach to LLCs, the new consultation on “reverse hybrids”, and why the consultation may offer cautious cause for optimism for US taxpayers.

The conversation also considers how any future reform could work in practice. James and Henry discuss the risks and benefits of an elective versus automatic system, the importance of avoiding unintended tax outcomes, and how the UK Government’s approach to consultation could shape the final result.

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Key Takeaways

What is HMRC consulting on?

HMRC is consulting on the tax treatment of “reverse hybrids”, including US LLCs. These are entities that may be treated as transparent for US tax purposes but opaque for UK tax purposes.

Why does this matter for US LLC owners in the UK?

The mismatch in tax treatment can mean that an individual pays US tax on LLC profits as they arise, while the UK taxes them only when funds are distributed. This can create economic double taxation where foreign tax credit relief is unavailable.

What was the Anson case?

In the Anson case, the Supreme Court found that, on the specific facts, a US LLC’s profits belonged to the taxpayer as they arose. The decision supported relief from double taxation, but HMRC has taken a narrow view of when the case applies.

Why is this consultation encouraging?

The consultation signals that the Government is actively considering reform. Its objective appears to be addressing the unfairness created by double taxation, while ensuring that any new rules do not create opportunities for unintended tax advantages.

Could taxpayers choose how their LLC is treated?

One key question is whether any new regime would be automatic or elective. An election could give taxpayers flexibility, but it would need careful design to prevent mismatches or inconsistent treatment between the UK and US.

Is reform guaranteed?

No. A consultation does not guarantee a particular outcome or a change in the law. However, the Government must fairly consider responses and publish its response in due course.

What should US LLC owners do now?

US taxpayers in the UK who own or are considering using an LLC should seek advice on their existing UK and US tax position, and keep an eye on the outcome of the consultation.