As explained in a consultation document published on 10 June 2026, the government is concerned that high effective tax rates may be deterring “talented globally mobile individuals” from relocating to the UK and is committed to resolving the issue.

High effective tax rates 

Continuing with the example of the US LLC, HMRC explains how a UK-resident member can suffer “an unintended high effective tax rate”. Depending on the circumstances, the member may face: 

• US federal income tax on the LLC’s underlying profits (plus further taxes at a state level); and
• UK income tax on amounts distributed to them by the LLC.  

Further, double tax relief is not available in the UK to reduce the member’s tax burden as tax is not calculated by reference to the same profits, income or gains in both jurisdictions. 

The government reports that, as a result of the above tax treatment, a UK-resident member of a US LLC can suffer an effective tax rate in excess of 75%.  

Proposed changes 

The government’s preferred option is to introduce legislation to allow UK-resident individual members in specific eligible reverse hybrids to treat their holding on a transparent basis for the purposes of income tax and capital gains tax.  

The tax treatment in the UK would then match the tax treatment in the entity’s jurisdiction of establishment, reducing the member’s effective tax rate to the higher of the rate of tax on the underlying profits in the UK and the entity’s jurisdiction of establishment. No equivalent legislation would be introduced for UK resident corporates. 

Alternative forms of relief include providing: 

• a deduction for foreign tax, reducing the amount of the distribution that it is liable to UK income tax; or
• a form of credit for foreign tax on underlying profits against the individual’s income tax liability on distributions.