On 10 June 2026, HMRC published a consultation detailing the current tax position, and proposed solutions for UK resident individuals investing in so-called reverse hybrids, being entities which are tax transparent under local law but opaque from a UK tax perspective. UK-resident individuals investing in reverse hybrid entities can suffer high effective tax rates due to the lack of double tax relief under either treaties or UK domestic law. The consultation uses the example of US Limited Liability Companies (LLCs) – these are usually tax transparent for US tax purposes, but HMRC’s view is that they are almost always opaque for UK tax purposes – despite the outcome of Anson v Commissioners for HM Revenue and Customs [2015] UKSC 44. This can have a particular impact on US citizens resident in the UK (or considering a relocation to the UK) as well as non-US citizens holding an interest, or making an investment, in such an entity. The main option under consideration is to treat reverse hybrid entities which meet certain conditions as being tax transparent for UK capital gains tax and income tax purposes. The aim would be to charge UK resident individual members of the LLC to UK tax on the underlying profits, income and gains of the foreign entity in a way that matches the tax treatment in the relevant foreign jurisdiction, thereby enabling double tax relief. The consultation specifically states that no equivalent changes would be introduced for UK-resident corporate members. HMRC are also seeking views on whether the transparent treatment should apply automatically or via election and on alternative forms of relief, such as giving a deduction or credit for foreign tax paid. Comments on the proposals are invited by 31 July 2026. KPMG will be preparing a response to the consultation.
