What changed?
Characterisation mismatches can leave UK-resident individuals taxed in the US on profits and in the UK on later distributions without effective credit relief.
The government plans a domestic foreign tax credit mechanism after technical consultation and future Finance Bill legislation, with claims intended from early 2028.
Practical consequence: Affected individuals should trace profits, distributions and foreign tax paid, but should not claim a credit that is not yet in force.
What happened?
The government has responded to consultation on double-tax exposure for some UK-resident individual members of US LLCs and other reverse hybrids.
Key details
Different entity characterisations can cause US tax on underlying profits and UK tax on later distributions. The government intends a domestic foreign tax credit rather than asserting existing treaty relief.
Who is affected?
The announced scope concerns UK-resident individual members of US LLCs and other reverse-hybrid entities, not a blanket rule for corporate members.
Effective date / timing
A technical consultation and future Finance Bill are planned. Claims are intended to become available from early 2028; the credit is not currently operative.
Why it matters
The proposal could mitigate double taxation where the two countries characterise the entity and income differently.
Business impact
Individuals and advisers should document entity classification, ownership, foreign tax paid and the link between profits and distributions. Existing law still governs current filings.