UK-resident individuals who invest through US limited liability companies (LLCs) can currently face combined UK and US tax of more than 75% on the same profits, because the two countries tax LLC members differently — the US treats LLCs as transparent (members taxed as profits arise), while HMRC generally treats them as opaque (members taxed only when profits are distributed, at dividend rates). Consultation respondents reported effective rates commonly in the 55-75% range, and above 80% once US state and local taxes are included, according to a legal update from Katten Muchin Rosenman published via the National Law Review.
Following a June 2026 consultation that proposed treating these entities as transparent, the government changed course in its response published alongside the 28 October Budget: it will instead introduce an elective foreign tax credit, available to individual members of specified entities — expected to include US LLCs, US S-Corps, Jersey LLCs and French SCIs. The entities stay taxed as opaque, but eligible members can elect a credit for US federal, state and local taxes they have personally paid, calculated using the investor’s average foreign tax rate rather than tracing specific profits.
The government says the issue has previously deterred some individuals from moving to the UK or made firms base LLC staff elsewhere. A further technical consultation on the credit mechanism is expected shortly, with legislation planned for Finance Bill 2027-28 and claims possible from early 2028. The reforms apply to individual members only; no change has been proposed for corporate members.
