Entity Setup
Entity Setup & Tax Structuring: UK Treatment of LLCs, Reverse Hybrids & Overseas Entities
Recent consultations propose changes to how the UK taxes US LLCs and other reverse hybrids. If you hold or plan to invest via such entities, here's what you need to plan for.
By NomadicTax Research Team • 5-8 min read • August 24, 2026
## What are reverse hybrids & LLCs in UK tax law?
Reverse hybrids are overseas entities treated differently both in the UK and abroad, often leading to **double taxation**. One example is a US LLC where the UK treats it as a company, but the US treats it as transparent. This mismatch can lead to high effective tax rates.([gov.uk](https://www.gov.uk/government/publications/summary-of-tax-update-2026-simplification-modernisation-and-fairness/tax-update-2026-simplification-modernisation-and-fairness-summary?utm_source=openai))
## What’s changing: consultations and proposals
- On **10 June 2026**, the government published a consultation on **UK resident individual members of LLCs & other reverse hybrids**, aiming to **remove double taxation** and align the tax treatment to avoid unfair burdens.([gov.uk](https://www.gov.uk/government/collections/taxupdate-2026-simplification-modernisation-and-fairness?utm_source=openai))
- Draft legislation was included in the Tax Update 2026 package titled *Capital Gains Tax relief on gifts of business assets*; while not specific to hybrid mismatches, it reflects broader efforts to correct long-standing distortions.([gov.uk](https://www.gov.uk/government/collections/taxupdate-2026-simplification-modernisation-and-fairness?utm_source=openai))
## Practical implications for structuring:
- If you have interests in US LLCs, or operate through entities overseas that the UK treats as reverse hybrids, you may face **excessive tax burdens** unless rules are updated.
- The consultation may lead to new rules clarifying how distributions, profits, and capital gains are taxed, potentially altering both compliance and planning options for cross-border structures.
## What you can do now:
- Review existing entity structures. Are you using an LLC or reverse hybrid? Consult tax advisors familiar with UK tax and international double tax treaties.
- Assess whether existing cross-border payments/dispositions could trigger double taxation under current rules.
- Monitor the policy process: the feedback period, draft legislation, and eventual enactment may allow stakeholders to input their experiences.
## Example scenario:
> Maria, a UK resident, invests in a US LLC carrying on business. Under US law, she looks through to profits; under UK law, the LLC is treated as a company with corporation tax, and further tax on distributions. The proposed consultation aims to reduce the extra layers or future mismatches.
**Bottom line**: For those using overseas entities or US LLC-style vehicles, the consultation signals potential for reform—this is an area to watch closely, review current structures, and plan ahead for change.