US LLC Owned by a UK Resident: What the October 2026 Credit Plan Changes

US LLC owned by a UK resident: an introduction

A US LLC owned by a UK resident is usually taxed in the US on its profit as it arises, then in the UK when the profit is distributed. That is the core mismatch. The US normally looks through the company to you. HMRC normally treats the company as a separate owner of its profit. Consequently, relief for the US tax is often unavailable today.

This article supports our guide for US and UK founders and executives. It focuses on a recent change: on 28 October 2026 the government published its summary of responses on LLC members. Many older guides still describe the abandoned proposal.

Why a US LLC owned by a UK resident is a special case

A limited liability company, or LLC, is a US entity formed under state law. Its members have limited liability, much like shareholders. However, its US tax treatment is usually set by default rules, not by its legal form. A UK company owner never meets this problem, because both countries see a UK company as a company.

What this article does not cover

We assume you are an individual, UK resident, and not a US citizen or green card holder. A US citizen faces different treaty questions, and we cover those on the US-UK double taxation treaty page. Corporate members also sit outside this article, because the new proposal is aimed at individuals.

How does the US tax a US LLC owned by a UK resident?

By default, the US ignores a single-member LLC and treats a multi-member LLC as a partnership. The tax then falls on the owners, not the company. Two filing questions follow from that one rule.

The default classification

The rule sits in Treasury Regulation 301.7701-3. A domestic eligible entity with one owner is disregarded unless it elects otherwise. With two or more members, it is a partnership. An election can make it a corporation instead, and that choice changes the UK analysis too.

When US tax is actually due

A US LLC owned by a UK resident does not by itself mean US income tax is due. The usual test is whether the profit is connected with a trade or business in the US. If it is, you normally file Form 1040-NR as a nonresident. Where the work is done from Britain with no US presence, the answer may be different. Therefore, this question deserves a proper review before anything else.

The Form 5472 filing that catches founders

A foreign-owned single-member LLC has its own filing duty, even with no tax to pay. According to the Form 5472 instructions, it must file a pro forma Form 1120 with Form 5472 attached. The penalty for failing to file is $25,000. A further $25,000 can apply if the failure continues more than 90 days after IRS notification. Forming the company through an online agent does not remove this duty.

How does HMRC tax a US LLC owned by a UK resident today?

HMRC generally treats the LLC as opaque, so you pay UK tax on distributions at dividend rates. It generally gives no credit for the US tax you paid on the underlying profit. That is the double charge in one sentence.

The opaque view in HMRC's manuals

HMRC's list of foreign entity classifications shows the US LLC as opaque. Opaque means that members are taxed on distributions rather than on the profit as it arises. Its guidance on Delaware LLCs adds that individuals generally cannot claim double tax relief where the LLC is a partnership or disregarded for US tax.

What the Anson case did and did not settle

In 2015 the Supreme Court decided Anson v HMRC in favour of a UK-resident member of a Delaware LLC. He obtained double tax relief because the profits were found to belong to the members as they arose. However, HMRC responded in Revenue and Customs Brief 15 (2015) that the decision was specific to its facts. Claims relying on it are considered case by case.

This remains contested ground. HMRC's manual says it will consider enquiries or discovery assessments where a member has claimed relief on LLC profits. A cautious filer therefore treats an Anson claim as a position to be disclosed and defended, not a routine entry.

The risk of running the company from Britain

There is a separate trap for owner-managers. A company not incorporated in the UK can still be UK resident if its central management and control is here. HMRC's manual on company residence sets out that test. If you make the real decisions from Britain, Corporation Tax may come into question as well. The treaty may then be relevant to any dual residence.

What did the government decide in October 2026?

The government will not make LLCs transparent for UK members. Instead, it plans a new elective foreign tax credit for individuals, with claims possible from early 2028. Nothing has been enacted yet.

From transparency to credit

The June 2026 consultation proposed taxing members on their share of profit as it arose. It also accepted that a member could suffer an effective rate as high as 75%. After responses, the government concluded that transparency would need too much new technical architecture.

Under the new plan, distributions stay chargeable at dividend rates. You could then claim credit for foreign tax you paid personally. The credit would use an average rate of foreign tax under mechanical rules, rather than tracing each dollar. Federal, state and local taxes would all be eligible.

Three questions that remain open

First, a technical consultation must settle how the average rate works across several income sources. Second, it must deal with timing, because US tax can arise years before a distribution. Third, the summary does not expressly say how single-member companies will fare. It does record that the earlier exclusions would have denied relief to many working founders.

Prior years and live disputes

No interim position exists. The government says only that it understands the significance of prior periods and ongoing disputes, and that it is considering practical options. Consequently, today's return should follow today's law. You should not assume that a future credit will reach back to earlier distributions.

What does the double charge look like in real numbers?

The cost depends on your other income and on when cash leaves the company. The example below uses a modest profit, and the rate is already close to 40%.

A worked example

Consider a typical case. Priya, a fictional British citizen living in Bristol, earns a £40,000 salary. She also owns a single-member LLC with $60,000 of profit from a US trade in 2026. We assume $1.30 to the pound for simplicity, and we ignore state tax, deductions and National Insurance. Using the 2026 US rate thresholds, her federal tax is $7,912. That leaves $52,088, or about £40,068, which she distributes in full.

Using the 2026 to 2027 dividend rates and income tax bands, £10,270 of basic rate band remains after her salary. The first £500 falls in the dividend allowance, and £9,770 is taxed at 10.75%. The remaining £29,798 is taxed at 35.75%. Her UK tax is about £11,703, or $15,214. In total, she pays about $23,126, which is 38.5% of the profit.

Three outcomes side by side

Today, with no relief, the total is 38.5%. Next, suppose an Anson analysis succeeded. The profit would be taxed as trading income, about £16,408 in total after credit, so roughly 35.5%. Finally, suppose the new credit removed all the US tax from her dividend tax bill. The total would then be about $15,214, or 25.4%. That last figure is only an illustration, because the design and its limits are not yet known.

The ordering is the interesting part. Dividend treatment with a credit could beat the Anson result, because dividend rates are lower than the 40% income tax rate at this level. Thus, an old Anson claim is not automatically the better goal for a US LLC owned by a UK resident. We model these outcomes for each year separately.

What should you check before the next distribution?

Use these checks to prepare your papers. They are about getting the filings right, and any commercial decision stays with you.

Step one: confirm the facts

Start with the US classification, the number of members and any election ever made. Next, read the operating agreement, including how profit reaches a member's capital account. Those terms were central in Anson. Finally, record where the company's real decisions are made.

Step two: reconcile the US filings

For a US LLC owned by a UK resident, check that every year's Form 5472 and pro forma return was filed, if they were due. Also check any Form 1040-NR and state filings. A UK resident who formed a company through an online agent often has no such records. If so, fix those gaps before dealing with the UK side.

Step three: record distributions by date

Keep a dated schedule of every payment from the LLC, in dollars and sterling, along with the US tax paid for each year. The credit will need a way to handle timing, so this ledger may well matter later. It costs little to keep now, and it is hard to rebuild afterwards.

Step four: watch for the technical consultation

The government says it will publish this shortly, with legislation in a future Finance Bill. Single-member owners should read it closely, because they have the most to learn from it. Until then, describe any relief in your planning papers as a proposal, not as law.

Does a corporate election change the UK answer?

It can. If a US LLC owned by a UK resident has elected corporate status for US tax, the US tax falls on the company itself. HMRC's manual then says members may be able to claim credit for US tax on distributions. So the election changes the shape of the problem, though not necessarily the total cost.

What the election does in the US

An election moves the LLC from the default rules into the corporate rules. The company then files and pays its own federal income tax. A later distribution raises separate US questions, including withholding and treaty rates. Therefore, you should compare the combined figure for both routes, not the US figure alone.

Why this is not a simple fix

An election has its own limits, and an existing company may have past years to consider. Furthermore, the proposed credit is aimed at the mismatch affecting transparent entities. A company that elects now might end up outside the very relief being designed. We set out each option in figures, and the choice remains yours.

Does it matter how many members the company has?

Yes, mainly for US filings and for access to information. A single owner and a minority investor can hold the same type of entity, yet face very different practical problems. Consider which of the two describes your own position.

The sole owner

A sole owner has full access to the records, but also carries the Form 5472 duty and the UK residence risk. The earlier consultation would have excluded many such founders. That is why the shift to a credit interests them most. A US LLC owned by a UK resident in this way needs the technical consultation read closely.

The minority investor

A minority investor usually receives a Schedule K-1 and has little say over distributions. Respondents to the consultation raised exactly this concern, along with tiered structures. If you hold such an interest, ask the company now what yearly tax information it can supply. Our article on Schedule K-1 for UK residents explains the form.

How US UK Tax Experts can help

US UK Tax Experts prepares the US and UK returns from one file, so that the two agree. For a US LLC owned by a UK resident, that means working out the US filing position, then the UK treatment of each distribution. We can also model the outcomes side by side for you. See our US federal returns service and our UK Self Assessment service. If you also hold a UK company, read our article on a US UK tax accountant for founders.

Conclusion

The law has not changed yet, but its direction has. HMRC still treats most LLCs as opaque, and relief under Anson remains narrow and open to challenge. The proposed credit may narrow the gap from early 2028. Until then, accurate US filings and a clean distribution ledger are the practical priorities for any US LLC owned by a UK resident.

Contact us

If you own an LLC and live in Britain, email hello@usuktaxexperts.com or use our contact page. Tell us the state of formation, the number of members and the years you have filed. We reply within one working day.