Budget 2026: welcome changes for Americans with US trusts and LLCs

Neither change resolves all of the difficulties that can arise when the US and UK tax systems interact. However, both address practical problems that can produce particularly difficult outcomes for US-connected individuals and families.

US individuals commonly arrive in the UK with existing US estate-planning structures, including revocable or living trusts. The interaction of these arrangements with the UK tax system can be complex, and their US description does not necessarily determine their treatment for UK tax purposes.

One particular problem can arise where an existing trust becomes UK resident because one of its trustees moves to the UK. If the position is subsequently corrected and the trust ceases to be UK resident, the existing rules can impose a capital gains tax exit charge.

This can leave families in an uncomfortable position: they may discover that an existing trust has been brought within UK residence, but moving it back out of the UK tax net may itself have significant tax consequences.

The Budget proposes an important new easement. An exit charge will not apply where a trust becomes UK resident because one of its trustees moved to the UK and it ceases to be UK resident later in that tax year or the following tax year.

The Government states that the change will take effect from 28 October 2026, and legislated for in Finance Bill 2026–27.

For US individuals moving to the UK with existing trusts, this could be a significant change. It potentially provides a window in which an inadvertent UK onshoring can be identified and corrected without the CGT exit charge that could previously have crystallised on the trust ceasing to be UK resident.

It is important, however, not to overstate the relief. It does not solve all the UK tax issues associated with a US trust. Questions around the UK characterisation and taxation of US revocable and living trusts will remain important, and the precise terms of the trust and the applicable US law may still need careful consideration.

The second important development concerns US limited liability companies (LLCs), which are widely used in the US for businesses, investments and holding assets.

The difficulty arises because the US and UK can look at the same LLC differently for tax purposes. An LLC may be treated as transparent in the US, so that its members are taxed personally on their share of the LLC's underlying profits as those profits arise. The UK may instead treat the LLC as a separate entity, with the UK-resident member taxed when profits are subsequently distributed.

That difference can mean that US tax is charged on the underlying profits while UK tax is charged on a later distribution, with the normal foreign tax credit rules not necessarily providing effective relief. The result can be genuine economic double taxation. The Government's consultation records examples of effective tax rates exceeding 75% and, in some cases, 90%.

The Government has now decided against introducing a new transparency regime. Instead, it proposes an elective domestic foreign tax credit mechanism. The intention is that specified entities, including US LLCs and S-Corps, will remain opaque for UK purposes, but qualifying individual members will be able to claim credit for eligible foreign taxes they have personally suffered, including US federal, state and local taxes.

This is a potentially major improvement, but important questions remain to be resolved in the further technical consultation. These include how the credit will deal with timing differences between US taxation of the underlying profits and a later UK-taxable distribution, the interaction with the UK-US double tax treaty and existing credit-relief rules, the treatment of more complex or tiered structures, and precisely how the amount of available credit will be calculated.

Nor will the reform remove every difficulty associated with LLCs. For example, where a personally owned LLC is managed from the UK, the separate question of whether the LLC itself could become UK tax resident will still need to be considered.

The timing is also less immediate than the Budget's trust-relief announcement. The Government intends claims under the new regime to become possible only from early 2028. That leaves an important question for taxpayers already suffering double taxation, although the Government has said that it is considering practical options for historic periods and ongoing disputes.

Overall, the direction of travel is very welcome. The proposal addresses one of the most difficult US/UK tax mismatches without attempting to rewrite the UK's approach to entity classification more generally. But the technical detail will determine how comprehensive the solution really is.

This article is intended as a general overview only. The UK treatment of US trusts and LLCs is highly fact-sensitive and specific UK and US tax advice should be taken.

Matthew Radcliffe is a partner in the private client team, advising US-connected and internationally mobile clients – including families, trustees and family offices – on UK tax and estate planning. His work spans succession planning, cross-border structuring, pre-immigration planning, and UK residence and domicile issues. He has particular expertise in US-UK matters, including trusts, estate tax exposure and the UK treatment of US entities, and regularly speaks on these topics.