Cross-Border Structures in the Spotlight: What Budget 2026 Changes for the Internationally Mobile

For many internationally mobile individuals, investments held through US LLCs and similar structures can create an unexpected problem: the same income may be taxed differently in different countries, sometimes leading to double taxation. The Autumn Budget 2026 includes a number of measures aimed at addressing these issues and improving the UK's attractiveness as a place to live and invest.

Earlier this year, HMRC announced a seven-week consultation to clarify the position for UK-resident individual members of such structures, with a view to addressing mismatches between the UK and other jurisdictions.

The Autumn Budget 2026 and the subsequent consultation outcome set out a welcome direction of travel, outlining how the government intends to relieve double taxation for UK-resident individual members of US LLCs and similar hybrid vehicles such as US S-Corps, Jersey LLCs and French SCIs. This appears to be heavily driven by the government's motivation to encourage internationally mobile individuals to consider the UK an attractive destination for residence and investment.

This article outlines the key findings from HMRC’s consultation, as well as other key issues addressed in the Autumn Budget 2026, including adjustments to the taxation of protected cell companies and an update on reporting requirements for overseas close companies.

Why do LLCs and similar structures cause tax problems?

The key issue for UK-resident members of these offshore structures is simple: the same entity can be classified differently by two jurisdictions.

A US LLC, for example, is typically treated as transparent for US tax purposes (taxing the member on underlying profits as they arise) but is often treated as opaque for UK tax purposes (where you are only taxed when distributions are made). This results in mismatches in both the character and timing of the income, creating double tax problems.

What is HMRC’s solution?

The detailed mechanics of HMRC’s solution remain unclear, but the consultation response shows encouraging signs that this issue is being addressed.

Rather than changing the UK classification of LLCs, the government intends to introduce a new domestic foreign tax credit mechanism to help relieve double taxation. While the current focus appears to be on US LLCs, the relief may also extend to certain other reverse hybrid entities. Further consultation on the detailed design is expected before legislation is introduced.

This is a positive step forward but comes with clear limitations. The proposed credit mechanism will only apply to UK-resident individuals, leaving corporate members and non-resident or UK-resident trust structures outside the scope of the relief.

The treatment of historic periods remains uncertain. While the consultation highlighted cases of historic double taxation, the government's immediate focus appears to be implementing a prospective solution.

What happens next?

The government has indicated that claims under the new credit mechanism should be possible from early 2028.

Draft legislation and technical details will follow, which will confirm how the credit mechanism interacts with treaties and whether it comprehensively resolves this long-standing issue.

Individuals with interests in US LLCs, S-Corps, Jersey LLCs or similar structures should consider:

• reviewing whether double taxation currently arises within their structure;
• assessing how future relief may affect their UK tax position; and
• seeking advice before restructuring existing arrangements.

What else should international clients take from the 2026 Budget?

While the US LLC consultation is grabbing headlines, this is not the only significant change that may impact internationally mobile individuals.

1. Protected Cell Companies

   Capital gains realised by a non-UK resident close company can be attributed to and taxed on UK-resident participators with an interest exceeding 25%.

   The Autumn Budget 2026 introduces a targeted change to these rules for Protected Cell Companies (PCCs).  A PCC is a corporate structure comprising a core company and a number of legally segregated cells whose assets and liabilities are ring-fenced from one another.  

   Under the revised rules, the 25% participator test will be applied by reference to an individual cell, rather than the PCC as a whole.  This change is designed to ensure that UK-resident investors cannot fall outside the rules simply because their investment sits within a wider PCC structure.

   The measure applies to gains accruing on or after 28 October 2026 and may warrant a review of existing PCC structures where UK-resident participators are involved.

2. Consultation: Close Company Loan Participators

   On 19 March 2026, the government published an official consultation on modernising the reporting framework for company payments to participators.

   This consultation proposed a framework for close company participators to disclose:

   • Direct cash advances, bank transfers, and loans.
   • Asset purchases from and asset sales to the company.
   • Dividends and distribution payments.
   • Any other non-cash transfers of value

   Following extensive representations from professional bodies and practitioners regarding administrative complexity and commercial burdens, the government announced at the Autumn Budget 2026 that it will not proceed with the proposed reporting requirements at this time.

3. Consultation: Reform of Behavioural Penalties

   With one consultation closing, another is still very much ongoing.

   The Autumn Budget 2026 saw the announcement of an extensive review of HMRC’s offshore penalty regime, which currently escalates financial penalties up to 200% of potential lost revenue.

   This review builds on earlier consultations and seeks to address concerns that penalties for offshore matters are disproportionate in an era of automatic cross-border exchange of information under the OECD Common Reporting Standard.

   Greater alignment between offshore and domestic penalty regimes is therefore being considered. However, it is also being considered that additional sanctions may be implemented for serious and deliberate non-compliance.

   The overarching direction of the review aims to align penalties for unprompted, non-deliberate errors with domestic standards while retaining severe sanctions for deliberate and concealed offshore evasion.

Taken together, these announcements demonstrate the government's continuing focus on international tax structures and compliance. While many of the proposals remain subject to consultation, internationally mobile individuals and internationally connected families should review their arrangements now to understand how the changes may affect them in the coming years.