HMRC publish consultation on the UK tax treatment of interests in LLCs

On Wednesday 10 June 2026, HMRC published a new consultation, UK resident individual members of LLCs and other reverse hybrids. The consultation considers solutions for UK resident individuals who may face double taxation due to holdings in entities that are treated differently for tax purposes in different jurisdictions, namely “hybrid” entities and in particular “reverse hybrid” entities which are transparent in their local jurisdiction but opaque in the investors own jurisdiction.

Proposals under consideration include: 

1. The UK matching the foreign tax treatment of the hybrid entity:

• The government sets out that its starting solution is to legislate that reverse hybrids are treated as transparent for the purposes of income and capital gains taxes. However, transparency would cease if the entity was to become opaque under foreign law.
• This would mean that individuals would be taxed on their share of the underlying profits of the foreign entity and effectively be treated as a partner in a partnership.
• In the example of a transparent US LLC, such treatment should remove the mismatch between the profits taxed in the US and those taxed in the UK, such that double tax relief should be available.
• However, it is noted that the profits of the reverse hybrid would need to be calculated under UK tax principles, including the application of SPD12 for capital gains purposes. This of course could add some complexity, particularly where there are tiers of entities in the structure.
• The government is seeking input on complexities that could arise from the transition into, and out of, transparent treatment. It will be important for responses to highlight unintended consequences.
• While the consultation does not specifically outline a solution that involves an elective approach to the treatment of reverse hybrids, but rather one that is automatic, this is something that will no doubt be considered in responses that the government receive.

2. Providing for a deduction for foreign tax against the amount of any distribution received that is subject to UK tax i.e. taxing distributions net of the foreign tax suffered. While somewhat helpful, this would not be as effective as treating an LLC (or other reverse hybrid) as transparent for UK purposes. 

3. Allowing credit for foreign tax against the individuals UK tax liability (even though the character/source of what is taxed in the UK differs from what is taxed in the underlying jurisdiction). 

Consultation responses are due by 31 July 2026. Please speak to your usual Deloitte contact, or any of the people below, if you have any questions or comments.