Are US profits taxed twice on the way back to a UK company?

What is the claim, and what is actually true?

A paid ad doing the rounds on Instagram asks UK founders: you are selling in the US, so how does your money get back to the UK company without being taxed twice? It is a good hook, because it plants a premise without ever stating it, namely that being taxed twice is what happens by default. It generally is not. There is a real double taxation problem in UK-to-US structuring, it is severe, and it is a different one from the one the ad is pointing at.

The ad is a question rather than an assertion, which is what makes it effective. Nothing there is technically false. The work is done by the word "without", which quietly establishes that double taxation is the starting position and that avoiding it takes something clever.

The short answer is that this is what the system is built to prevent, and for most UK companies it does. Where a UK company receives distributions from an overseas subsidiary, those distributions will frequently fall within the exemption in CTA 2009 Part 9A and not be chargeable to UK corporation tax at all. Where relief runs by credit instead, the machinery in TIOPA 2010 exists to stop the same profits bearing tax twice. Neither is automatic, both have conditions, and there is one trap that catches smaller companies specifically, covered later in this briefing. But "US corporation tax, then UK corporation tax on the same profits" is not the default outcome for a UK company with a US subsidiary, and a founder should be sceptical of anyone who implies that it is.

So the honest answer to the ad's question is mostly undramatic. Structure it properly, meet the conditions, and the money comes home once-taxed.

The reason this briefing is not two paragraphs long is that there is a genuine double taxation problem sitting nearby, and it is worse than the one being insinuated. It has little to do with repatriating profits to a UK company. It arises where a UK resident holds a US LLC personally, and it is caused by the two countries disagreeing about what an LLC is. The government opened a formal consultation on it in June 2026, and HMRC's own document accepts that UK-resident individual members of LLCs can face effective rates approaching 75% [1].

That is the real risk, and the framing in the ad points away from it. A founder who reads the question as "I need a clever structure to get my money home" is looking in the wrong place. A founder who set up a US LLC in their own name, on US advice that was perfectly sound as US advice, has the actual problem and may well not know it.

The accurate framing is narrower and more useful than either the ad's question or a blanket warning about LLCs: the risk depends on who holds the interest, not on whether US money is coming back to the UK. A UK company bringing profits home from a US subsidiary is ordinary international structuring with relief mechanisms built for it. A UK individual holding a US LLC is in a different position entirely, and the danger is choosing that structure because a US adviser says it is tax-efficient, without anyone checking what the UK sees when it looks at the same entity.

"LLCs cause double tax" is too blunt. What is true is that the US and the UK look at the same company and see two different things, and when they do, the relief that is supposed to stop you being taxed twice may not work. Whether that hits you depends on whether you own the LLC personally or through a company.

Why do the two countries disagree about what an LLC is?

Because they classify entities using different tests, and neither is obliged to respect the other's answer.

The US position. A US LLC is a creature of state law that is not itself a category in the federal tax code. Federal classification runs through the check-the-box regulations. By default, a domestic LLC with a single member is disregarded as an entity separate from its owner, and one with two or more members is treated as a partnership. Either way the entity is transparent: the profits are taxed in the hands of the members as they arise. An LLC can elect to be treated as a corporation instead, which is a deliberate act with its own consequences and is often unattractive for US members.

The UK position. The UK has no domestic LLC and no equivalent statutory classification regime. Classification is decided by examining the entity's legal characteristics under its governing law, and asking whether the profits belong to the entity in the first instance or to the members directly. HMRC's long-standing published view, at INTM180050, is that most US LLCs are opaque for UK tax purposes, so profits belong to the LLC and the UK taxable event is the distribution, characterised as a dividend.

And the case that did not settle it. In Anson v HMRC [2015] UKSC 44 the Supreme Court found that, on the facts of that Delaware LLC and the specific terms of its operating agreement, the profits belonged to the member directly, so the same income was being taxed in both countries and treaty relief was available. HMRC's response was to maintain its general position, taking the view that Anson turned on its own facts and that LLC profits will generally belong to the LLC in the first instance.

That leaves the classification analysis genuinely fact-sensitive, dependent on the operating agreement and the governing state law, while the practical default in most cases follows HMRC's published view. The consultation document itself acknowledges that the position is not free from uncertainty [1].

The US decides what a company is by letting you tick a box. The UK decides by reading the constitutional documents and forming a view. When the two answers differ, the tax treaty struggles, because a treaty can only stop you being taxed twice on the same income if both countries agree what the income is and whose it is.

Where does the mismatch actually bite?

The damaging case is a UK-resident individual holding an interest in a US LLC.

Start with an important qualification. An LLC being transparent does not by itself mean a UK member owes US tax. Transparency determines who the profits belong to for US purposes; whether there is a US charge at all depends on whether those underlying profits are within the US tax net in the first place, for instance because they are effectively connected with a US trade or business or otherwise US-source.

Where they are, the mechanism runs as follows. Take an LLC earning 100 within the US tax charge. The US treats the entity as transparent and taxes the UK individual on their share of the profits as they arise, whether or not anything is distributed. The UK does not regard that individual as having received those profits, because it sees an opaque entity. When the LLC later distributes, the UK taxes the distribution as a dividend.

The result is US tax on the underlying profit and UK tax on the distribution of that same economic profit. Because the two charges are on a different basis, arising at different times on differently characterised amounts, the double tax relief provisions do not achieve what they exist to achieve. HMRC's consultation puts the effective rate potentially as high as 75% [1].

Two groups meet this most often. The first is a US citizen or long-term US taxpayer who moves to the UK holding interests in profitable LLCs, which is why the government frames the issue partly as a barrier to attracting globally mobile individuals [1]. The second, and the one that matters for readers of this briefing, is a UK founder who set up a US LLC personally, usually on advice that was perfectly sound as US advice and never tested against the UK side.

The timing point deserves emphasis. Because the US charge arises on profits as they arise, a UK individual member can face a US liability on money that has not been distributed and may never be, while the UK charge waits for a distribution that may come years later or in a different tax year. Even where reliefs are argued for, mismatched timing undermines them.

What if a UK company owns the LLC instead?

This is where the online version goes wrong, and the correction is worth stating cleanly before the qualifications arrive.

A UK company holding a US LLC is not in the punitive case. The sequence "US corporation tax at 21%, then UK corporation tax at 25% on the same profits" is not a fair description of the general position, because the UK has specific machinery aimed at that outcome. Two mechanisms can do the work that the treaty cannot do for an individual: the distribution exemption in CTA 2009 Part 9A, which takes the distribution out of charge to UK corporation tax altogether, and underlying tax credit relief, which gives credit for the US tax on the LLC's profits.

That is the headline, and it is the part the diagram gets backwards. Now the conditions, because neither mechanism is automatic and one of them has a trap in it specifically for smaller companies.

• The distribution exemption has conditions and anti-avoidance rules, and it is not a blanket exemption. The difficulty for smaller groups is pointed: the exemption available to small companies can fail where the LLC is transparent in the US, because the conditions attaching to it are not satisfied in the way they would be for a conventional foreign company. A small UK company can find the exemption it expected to rely on unavailable for the very reason this article is about.
• Underlying tax credit relief needs a 10% voting interest. A UK corporate member may claim credit for US tax on the LLC's profits where it holds at least 10% of the voting power, subject to the treaty and the domestic conditions in TIOPA 2010. Below that threshold the relief is not available in the same way, so minority corporate holdings can still be exposed.
• Classification uncertainty does not disappear for companies. The residual question of how a particular LLC should be treated for UK purposes after Anson applies to corporate members as much as to individuals.
• The UK analysis does not settle the US one. Holding US operations through a UK company, whether by way of an LLC or a branch, carries its own US considerations that have to be worked through on their own terms.

So: better placed, not automatically clear. The corporate case is usually more manageable than the individual one, and a small company relying on an exemption it turns out not to have is the exception that matters most to the readers of this briefing.

Owning a US LLC personally, as a UK resident, is the structure that produces the alarming numbers. Owning a US business through a UK company is ordinary, and there is machinery designed to stop the same profits being taxed twice, though it has conditions and it does not always apply. The advice going around treats the second case as the dangerous one, which is the wrong way round.

What is HMRC proposing to change?

On 10 June 2026 the government published a consultation on the taxation of UK-resident members of LLCs and other reverse hybrids. It closed on 31 July 2026 [1][2].

A reverse hybrid, for these purposes, is an entity treated as transparent in the jurisdiction where it is established and opaque in the UK. US LLCs are the headline example and the focus of the document, but the scope is not limited to them.

The proposal is that UK-resident individual members of eligible reverse hybrids treat their holding as transparent for UK income tax and capital gains tax, automatically rather than by choice. The individual would be taxed on the underlying profits, income and gains of the entity as they arise, and would not be chargeable to income tax on distributions, aligning the UK basis of charge with the foreign one so that double tax relief can actually operate. Where a treaty is in place, as with the US, the practical effect should be to bring the combined rate down to the higher of the two countries' rates rather than something approaching their sum.

Points of design still open at the close of the consultation:

• Whether an irrevocable election should be offered as an alternative to automatic treatment, which the consultation raised as a question rather than as the intended design.
• What the eligibility conditions for a qualifying reverse hybrid would be.
• Whether an alternative approach, giving relief by credit or by deduction for the foreign tax, would be preferable to transparency.
• How income and gains of a foreign entity should be computed and reported for UK purposes, which respondents including ICAEW have identified as needing clear rules and guidance [3].

What has not been said is when any of this takes effect. The consultation gave no implementation date. This will require primary legislation, which means a consultation response, draft legislation, technical consultation, and a Finance Bill. Anyone planning on the basis that the problem is solved is planning on a proposal, not a rule.

What would the proposal not fix?

Four gaps are worth holding in mind, because they determine whether the reform helps a given founder at all.

Corporate members are excluded. The consultation is explicit that no equivalent change is proposed for UK-resident corporate members. The reasoning is that companies typically do not suffer the same double tax problem, which is broadly right. It leaves the residual corporate issues, including sub-10% holdings and classification uncertainty, unaddressed.

UK-resident entities and UK permanent establishments look to be outside it. Commentary on the consultation indicates the proposed treatment would not apply where the entity is UK resident or trading through a UK permanent establishment [4]. Those are two distinct tests, easily blurred and turning on different facts: residence follows where central management and control is exercised, meaning where strategic decisions are actually taken, while a permanent establishment turns on having a fixed place of business or a dependent agent here. Either can arise for a US LLC connected to a UK founder. The structures most exposed to the underlying mismatch may therefore be the ones any fix does not reach, and establishing whether that is so takes a specific analysis rather than an assumption either way.

Mixed-member entities get more complicated, not less. If individuals treat an LLC as transparent while corporate members continue to treat it as opaque, the same entity is being viewed two ways by two of its own members, with consequences for computation, group tracing and share capital tests.

Nothing is retrospective. The mismatch applies to periods already closed and to the current year. A founder with an LLC today has a present problem, not a future one.

What else does an LLC bring with it?

Classification is the headline, but a UK founder choosing between an LLC and a C-corporation for their US operations should have four other things in view. None of these is a reason to avoid an LLC. They are the questions that ought to be answered before the entity is formed rather than after.

• Filing obligations that come with foreign ownership. A US LLC that is wholly owned by a foreign person and treated as a disregarded entity is subject to information reporting requirements, including Form 5472, with substantial penalties for failure. A structure chosen for simplicity can carry a compliance obligation the founder does not know exists.
• What the investors will want. US venture funds are built around Delaware C-corporations, and the tax treatment their investors care about attaches to stock in a US corporation, not to LLC units. An LLC that suits a bootstrapped services business may need converting before a priced US round, and conversion is not free.
• What happens on an exit. As covered in the companion briefing on selling a UK company to a US buyer, a rollover into LLC units is not the same transaction for UK purposes as a rollover into corporate stock, and the availability of share-for-share treatment under TCGA 1992 s 135 depends on the entity and interests satisfying the relevant UK concepts. This is the same classification question arriving at the worst possible moment.
• State-level tax. Federal classification says nothing about state income tax, franchise tax or economic nexus for sales tax purposes, all of which apply on their own terms.

What should a founder do now?

The failure mode here is the one that runs through most UK-to-US work. A US adviser optimises the US position, a UK adviser optimises the UK position, and the entity classification question sits precisely in the gap between them, where it belongs to nobody.

• Establish who actually holds the interest. Individual or company. This single fact determines whether you are in the punitive case or the manageable one, and it is the first question to answer before any analysis is worth doing.
• If you hold a US LLC personally as a UK resident, get the position reviewed now. Do not wait for the reform. There is no implementation date, it will need primary legislation, and it would not be retrospective.
• Get the operating agreement read for UK purposes. Classification turns on the entity's legal characteristics and its constitutional documents. Anson was decided on the specific terms of that operating agreement. This is a document review, not a general rule.
• Ask two separate questions about UK presence. Where is central management and control exercised, meaning where the strategic decisions are actually taken, which goes to whether the entity is UK tax resident. And separately, is there a fixed place of business or a dependent agent in the UK, which goes to whether there is a UK permanent establishment. Both affect the current analysis and whether any future reform would reach you.
• Do not restructure on the strength of an ad. There is no single correct holding structure here. A UK company, a US corporation and an LLC each carry different UK and US consequences, and the right answer depends on who the owners are, where the operations sit and what is planned next. What is clear is that the wrong reaction, holding US operations personally as a UK resident to avoid a corporate layer, moves towards the problem rather than away from it.

The right move in the wrong order still breaks. Here the wrong order is the one where the US entity is formed on US advice and the UK consequences are discovered at the first distribution.

For a founder deciding how to hold a US operation, or unwinding one that was set up without the UK side being tested, the Structure Review works through this on your own facts, and the free Exposure Score is a reasonable first pass on where the structural pressure sits.

This article is general commentary and not advice, and no action should be taken on it without advice on the specific facts. Rates, thresholds and statutory references should be confirmed against enacted legislation and current HMRC and IRS guidance. Entity classification is unusually fact-sensitive: the UK treatment of a particular US LLC depends on its governing state law and its operating agreement, and the availability of the distribution exemption, underlying tax credit relief and treaty benefits depends on the taxpayer's own circumstances. Whether a US charge arises at all depends on whether the underlying profits are within the US tax net, which is a separate question from how the entity is classified. UK residence and UK permanent establishment are also distinct tests turning on different facts. The reform described here is a consultation proposal, not enacted law, and no implementation date has been announced.

Sources

1. HM Revenue & Customs, Consultation on reform to taxation of UK-resident members of LLCs and other reverse hybrids, published 10 June 2026, closed 31 July 2026: sets out that individual UK-resident members can face effective rates potentially as high as 75%, being chargeable on profits as they arise in the US and again in the UK on distributions, and that HMRC has historically found most US LLCs to be opaque for UK purposes notwithstanding Anson. https://www.gov.uk/government/consultations/uk-residentindividualmembers-of-llcs-and-otherreversehybrids/consultation-on-reform-to-taxation-of-uk-resident-members-of-us-llcs
2. Travers Smith, UK government proposes reform of taxation of LLC members (June 2026): transparency treatment proposed to be mandatory rather than by election, with alternatives of relief by credit or deduction also under consideration. https://www.traverssmith.com/knowledge/knowledge-container/uk-government-proposes-reform-of-taxation-of-llc-members/ · See also Simmons & Simmons on HMRC's position at INTM180050. https://www.simmons-simmons.com/en/publications/cmq9isse700c0vek0p32pubj7/uk-tax-treatment-of-us-llcs-consultation
3. ICAEW, ICAEW welcomes tax reforms for members of reverse hybrids (Representation 47/26): support for alignment, subject to the regime being clear and certain, with rules needed on how income and gains of foreign entities are computed and reported in the UK. https://www.icaew.com/insights/tax-news/2026/aug-2026/icaew-welcomes-tax-reforms-for-members-of-reverse-hybrids
4. Morgan Lewis, UK Government Consults on Tax Treatment for Individual Members of US LLCs (June 2026): corporate members excluded; corporate double taxation often mitigated through the corporation tax exemption for distributions or credit for US withholding tax; residual uncertainty following Anson. https://www.morganlewis.com/pubs/2026/06/uk-government-consults-on-tax-treatment-for-individual-members-of-us-llcs · On the proposed exclusion for UK-resident entities and those trading through a UK permanent establishment, and the mixed-member point, see Frontier Group's summary of the consultation. https://frontier-fs.com/hmrc-publishes-consultation-on-reform-of-taxation-of-us-llcs/

UK statutory, case and guidance references cited above: CTA 2009 Part 9A; TIOPA 2010 (double taxation relief, including underlying tax credit and the 10% voting power condition); TCGA 1992 s 135; Anson v HMRC [2015] UKSC 44; HMRC International Manual INTM180050. US references: Treasury Regulations §301.7701-1 to -3 (entity classification, default rules and elections); IRC §6038A and Form 5472; US/UK Double Taxation Convention.