A UK limited liability partnership is not a partnership for US tax purposes unless it chooses to be. Every member of an LLP has limited liability, so the US entity classification rules treat it as a corporation by default. An LLP can file Form 8832 (opens the official IRS page in a new tab) to be treated as a partnership instead, and the answer to that one question decides which US forms a US member files, when US tax arises and how UK tax is credited.
This post is for US citizens and green card holders who are members of a UK LLP, typically at a law firm, an accountancy practice or a fund manager. It goes further than the partnership section of our guide to US-UK tax for founders, fund managers and executives. It covers the default classification, how to find out whether the LLP has elected, when Form 8865 is due, what stands in for a Schedule K-1, social security on both sides, and how the two tax years line up.
How does the IRS classify a UK LLP by default
As a corporation. A UK LLP is not on the list of foreign entities that are always corporations, so it is an eligible entity. Under the regulations, a foreign eligible entity whose members all have limited liability is an association taxable as a corporation unless it elects otherwise, and an LLP's members have limited liability under UK law.
The list of entities that can never elect names one UK form of business, the public limited company. An LLP is absent from it, as is a private limited company. The default test then looks at the law the entity is formed under. A member has limited liability if they are not personally liable for the entity's debts by reason of being a member, and that describes a member of a UK LLP.
The name therefore misleads. HMRC taxes an LLP as a partnership, and the US starts from the opposite position. A foreign entity where at least one member lacks limited liability, such as an English general partnership, is a partnership by default. An LLP is not, so US partnership treatment comes only from an election.
- UK public limited company: always a corporation, no election possible
- UK LLP with no election: a corporation by default
- UK LLP that has elected: a partnership for US purposes
- English general partnership: a partnership by default
How can a member find out whether the LLP has elected
By asking the firm. The election is made by the entity on Form 8832, filed with the IRS, and it is not recorded at Companies House or with HMRC. A firm with US members will often know its US classification.
The questions for the finance team are short: whether a Form 8832 has been filed, the effective date shown on it, and whether the firm files a US partnership return on Form 1065 (opens the official IRS page in a new tab) or prepares US information for its US members. After an elective change, the regulations generally bar another for sixty months.
The default classification brings a different set of questions. A US member of an LLP that has not elected holds what the US treats as shares in a foreign corporation. Depending on how much of the firm US persons own, Form 5471 and the controlled foreign corporation rules can apply. The UK still taxes the member on a share of profit as it arises, so the US income and the UK tax can fall into different categories and years.
When does a member of a UK LLP have to file Form 8865
Only where the member falls into one of four categories of filer in the instructions. For a member with a small share of a large firm, the categories based on control often do not apply. A cash capital contribution or a change in the member's share can still bring a filing obligation, so each year needs checking.
The Form 8865 (opens the official IRS page in a new tab) instructions set the categories in terms of ownership, contributions and changes in interest. Interests held by family members and related entities can count. Where several US persons are Category 1 filers, one can file and the others attach a statement, and there is a similar exception for those who are filers only by constructive ownership.
The form is attached to the member's own income tax return and is due when that return is due, including extensions. For the control categories, a missed form brings a fixed penalty for each partnership and year, more if the failure continues after notice, and a cut in foreign tax credits. A missed Category 3 filing is charged by reference to the value contributed. Our Form 8865 page sets out each category.
- Category 1: a US person who controls the partnership, meaning more than half of capital, profits or losses
- Category 2: a US person with an interest of ten per cent or more while US persons with ten per cent or more control it
- Category 3: a US person who contributes property, including cash, above the ownership or value tests in the instructions
- Category 4: a US person who acquires or disposes of an interest that crosses, or changes by, ten per cent
What replaces a Schedule K-1 for a UK LLP member
Usually the member's own computation, built from the LLP's accounts. A foreign partnership files a US partnership return, and issues Schedules K-1 and K-3, only where it has US income or a US business and does not fall within an exception. A UK firm with no US business may have nothing to issue.
The Form 1065 (opens the official IRS page in a new tab) instructions excuse a foreign partnership with no income connected with a US business, modest US-source income and less than one per cent of any item allocable to direct US partners, among other conditions. The member's share has to be recast under US rules from the UK accounts and the firm's UK tax computations. Category 1 and 2 filers complete a Schedule K-1 (Form 8865) for themselves, which serves the same purpose.
A partner is taxed on a share of profit whether or not it is drawn, and the share is included for the partnership tax year that ends with or within the member's own tax year. Drawings and tax reserves held back by the firm do not change the share. Where a US fund or firm does issue a K-1 late in the year, our post on a K-1 that arrives in September covers extensions and estimates. Our business tax returns service prepares the member computation and Form 8865 together.
Does a US member owe self-employment tax on LLP profits
Potentially, but a UK resident member is usually covered by UK National Insurance instead. Where the LLP is a partnership for US purposes, the member's share of trading profit is a starting point for US self-employment tax. The totalization agreement generally means a self-employed person pays social security only in the country of residence.
The Schedule SE (opens the official IRS page in a new tab) instructions include a general partner's distributive share in net earnings from self-employment, while a limited partner includes only guaranteed payments for services. How a working member of a UK LLP fits those labels is not settled, and the US charge at 15.3% would otherwise apply. The same instructions explain that, under a social security agreement, a self-employed person generally pays only to the country where they live, supported by a statement from that country.
Under the totalization agreement (opens the official SSA page in a new tab), the statement for a UK resident comes from HMRC. Our post on being self-employed in the UK as a US citizen explains the certificate of coverage and how it supports the US return. A member who moves to the US needs a fresh look, because the residence rule then points the other way.
How does the UK tax a member of an LLP
As a self-employed partner, in most cases. HMRC's partnership manual treats the activities of an LLP carrying on a business with a view to profit as carried on in partnership by its members. Each member is taxed on a share of profit through Self Assessment (opens the official GOV.UK page in a new tab), and the LLP itself is not charged.
HMRC's manual also states that LLP members are in the same National Insurance position as partners in an ordinary partnership, liable to Class 2 and Class 4 contributions as appropriate, set out on GOV.UK's page on self-employed National Insurance rates (opens the official GOV.UK page in a new tab). The salaried member rules, in force since 6 April 2014, are the exception. A member who meets their conditions, broadly one who looks more like an employee than a partner, is taxed as an employee of the LLP.
Basis period reform changed the timing. From the 2024 to 2025 tax year, a partner is taxed on the profit arising in the tax year, whatever the firm's accounting date. Where the firm's year does not end between 31 March and 5 April, profits are apportioned across two accounting periods, and a member may file on provisional figures and amend once the accounts are final. Our UK Self Assessment service prepares the partnership pages on that basis.
- Most members: taxed as self-employed partners on a share of profit
- National Insurance: Class 2 and Class 4 as appropriate, as for ordinary partners
- Salaried members: treated as employees of the LLP, with PAYE
How do the US and UK tax years line up for the credit
Imperfectly. The UK taxes profit arising in a year to 5 April, and the US taxes the member's share for the partnership year ending in the calendar year. The UK tax then has to be credited in the US year to which it belongs, which depends on the member's method for claiming the credit.
Publication 514 (opens the official IRS page in a new tab) says a cash-method taxpayer claims the credit in the year the foreign tax is paid, and an accrual-method taxpayer in the year it accrues, generally the last day of the foreign tax year. A cash-method taxpayer can elect to claim on an accrual basis on a timely original return, and that choice then binds later years. Unused credits carry ${FACTS.ftcCarry.v} within the same category on Form 1116.
Consider a US citizen resident in London who is a member of a law firm LLP with an April accounting date. The firm elected partnership status some years ago and files no US return. She is not a Category 1 or 2 filer, but her cash capital contribution on admission is tested under Category 3. Her UK return reports profit by tax year, with Class 4 National Insurance, and a certificate covers her US self-employment position. She claims credits on the accrual basis, so UK tax for the year to 5 April is matched to that calendar year. Our treaty relief service reconciles the two years before her US return is due on 15 June.
The same election for companies is covered in our post on the check-the-box election for a UK limited company, and the guide to US-UK tax for founders, fund managers and executives covers carried interest and fund interests.
General information, not advice. The right answer depends on your circumstances and the tax year concerned.
