Roughly once a quarter, someone emails me a version of the same question. They have read that a US LLC is cheap to form, light on filing, and "tax transparent". They have set one up in Delaware or Wyoming for the consultancy or the e-commerce side. And they want to know how to drop the profits onto their Self Assessment. Then I have to explain the landmine they have already stepped on.
I have been quietly steering UK-resident clients away from US LLCs for years, so it is satisfying to see HMRC finally consult on fixing the worst of it. On 10 June 2026 the government published a consultation proposing to reform how UK-resident members of US LLCs, and of "reverse hybrid" entities more broadly, are taxed (GOV.UK, 2026). ICAEW flagged it to practitioners on 17 June. It is good news. It is also not law, and the gap between those two things is the point of this post.
TL;DR: A US LLC is one of the easiest traps a UK resident can walk into. The US taxes you on the profits as they arise; the UK taxes you on the distributions; the double-tax relief meant to stop you paying twice never engages. HMRC's June 2026 consultation proposes letting individuals treat these structures as transparent so the two systems line up. Treat it as a prompt to get your structure reviewed, not an all-clear.
What is a reverse hybrid, and why does a US LLC cause a double-tax problem?
Because the US and the UK disagree about what a US LLC actually is. The US treats it as transparent: the member is taxed on their share of the underlying profits as those profits arise, as if they earned them directly. The UK generally treats the same LLC as opaque, like a company, and taxes the UK member only when profits are distributed.
That disagreement has a name in the consultation. An entity that is transparent where it is established but opaque in another country is a "reverse hybrid", a structure two tax systems read in opposite directions. A US LLC owned by a UK resident is the textbook example.
The mismatch is not a planning quirk. It is structural, and it quietly punishes exactly the globally-minded owner the UK says it wants to attract: the founder who took US setup advice that ignored their UK residence.
Why doesn't double-tax relief just fix it on its own?
Because relief only works when both countries are taxing the same income. They aren't. The US charges tax on the LLC's profits in the year they arise. The UK charges tax on a distribution that might land in a different year, or never. As HMRC's own document puts it, "tax is not calculated by reference to the same profits, income or gains in both states", so the credit that should offset one charge against the other cannot engage.
The numbers are not theoretical. The consultation states a member "could end up suffering an effective tax rate in excess of 75%", and notes that stakeholders have shared real experiences of rates "in excess of 60%" (GOV.UK, 2026). A structure marketed as cheap and simple becomes the most expensive entity you could own.
Anson promised clarity in 2015. It didn't last.
You would think the Supreme Court had settled this. In Anson v HMRC [2015] UKSC 44, the court found a member of a Delaware LLC was taxed on the profits as they arose, treating the LLC as transparent and, on those facts, letting the double-tax problem fall away (Supreme Court via Ross Martin, 2015).
HMRC's response neutered it. In Revenue and Customs Brief 15/2015, HMRC said the Anson facts were unique and that it would carry on treating most US LLCs as opaque, deciding transparency case by case (HMRC, 2015). So for a decade the position has been a fog: a win on paper few advisers could safely rely on, and owners left guessing which side of the line they sit. The June consultation is the first serious attempt to clear that by statute rather than litigation.
What is HMRC actually proposing in the June 2026 consultation?
It proposes to let UK-resident individual members of eligible reverse hybrids treat their holding as transparent for income tax and capital gains tax. Line the UK up with the US, and the relief flows. That is the obvious fix, and it is the right one.
Two details matter for clients. First, the preferred option is for transparent treatment to apply automatically rather than by election, though HMRC asks whether an irrevocable election would be better. Second, the reform is aimed at individuals only: no equivalent change is proposed for corporate members, so a company sitting in a US LLC stays where it is. The consultation runs seven weeks, from 10 June to 31 July 2026, with responses to entityclassificationmailbox@hmrc.gov.uk. What it does not do is change anything today.
Who is actually exposed to this right now?
More people than you would expect. Anyone UK-resident holding a member interest in a US LLC is in scope, and that population is wide: the Amazon FBA seller incorporated in Wyoming for the US marketplace, the SaaS founder who set up a Delaware entity on a US accelerator's advice, the consultant billing American clients through a single-member LLC, the expat who came home with a structure still running.
It reaches beyond trading too, into US funds, carried-interest vehicles and investment platforms where UK-resident individuals hold through reverse hybrids (Tax Advisory Partnership, 2026). If your American adviser calls a US entity "pass-through", that is the word that should make you check your UK position.
What I tell clients while this is only a consultation
The same three things every time. One: the exposure is real today, the proposed fix is not law, and nothing about your current return changes because a consultation opened. Two: if you are mid-stream, the position needs modelling, not assuming; I would rather quantify the UK charge against the US tax you already pay than hope the credit engages, because for most structures it won't. Three: this is the cleanest illustration I know of a principle I keep returning to in cross-border work, that the cheapest entity to form is rarely the cheapest to own once two tax systems read it differently.
There is a documentation point too. If you rely on a particular UK treatment of a US LLC, that needs a defensible file behind it, not a forum post. The reverse-hybrid question sits beside the close-company transparency and credible-basis themes I keep returning to: HMRC is closing the gaps where a UK position used to be invisible, and "I read it was transparent" does not survive an enquiry.
So where does that leave a US LLC owner? If you live in the UK, this consultation is the first good news in a decade. Read it as a reason to get your structure reviewed now, while you can still plan around it.
Frequently Asked Questions
What is a "reverse hybrid", and why does a US LLC cause double tax for UK residents?
A reverse hybrid is an entity treated as tax-transparent where it is set up but tax-opaque in another country. A US LLC is the classic case: the US taxes a UK-resident member on the LLC's profits as they arise, while the UK taxes that member only on distributions. Because the two charges fall on different income at different times, double-tax relief cannot offset one against the other.
I'm a UK resident with a US LLC. Am I being taxed twice, and will the 2026 consultation fix it?
Quite possibly, yes, today. HMRC's own consultation says the effective rate can exceed 75%, with stakeholders reporting real rates above 60%. The 2026 proposal would let individuals treat eligible reverse hybrids as transparent so the relief works, but it is a proposal, not law. Your exposure is unchanged until legislation is enacted, so the position should be modelled now rather than assumed away.
Should I set up a US LLC if I live in the UK?
For most UK-resident owner-managers, I would not reach for one without a clear, modelled reason. The classification mismatch can turn a cheap-to-form entity into an expensive-to-own one, and the reform is not yet in force. If a US presence is genuinely needed, get the entity choice and tax position right before you incorporate, not at the first HMRC enquiry.
When does the HMRC consultation close, and is anything law yet?
The consultation opened on 10 June 2026 and closes on 31 July 2026. Nothing is law yet. Any change would need to be legislated after the government reviews responses, so treat the proposal as direction of travel, not a rule you can rely on for a current return.
If you hold a US LLC and you are UK-resident, this is the moment to get the position modelled rather than guessed. Get in touch and I'll run through where your structure actually lands across both tax systems, and what the proposed reform would change for you.