A US person owning more than 50% of a UK limited company generally holds a controlled foreign corporation, requiring Form 5471 with the return. Since 1 January 2026 the NCTI regime has replaced GILTI: the section 250 deduction fell from 50% to 40%, the QBAI exclusion was repealed, and the deemed-paid credit haircut narrowed from 20% to 10%. Penalties start at $10,000 per form per year.
Setting up a limited company is routine in Britain. Contractors do it, consultants do it, and most accountants recommend it without a second thought. For an American owner it starts a US reporting regime that is entirely invisible from the British side.
The penalty structure is what makes this urgent rather than academic. Form 5471 penalties are fixed dollar amounts that apply whether or not any tax is due — and a company making modest profits can accumulate them for years while the owner believes everything is in order.
A foreign corporation is a controlled foreign corporation if US shareholders — each owning 10% or more — together own more than 50% of it by vote or value. A sole American owner of a British company is comfortably inside that definition.
Attribution rules matter more than people expect. Shares held by a spouse, by other family members or by related entities can be attributed to you, so a company you own only part of on paper may still be controlled for US purposes. A UK spouse's shareholding is a recurring source of surprise filing obligations.
The sole American owner of a small British consultancy is normally in Categories 4 and 5a together, which means filing very close to the complete form — Schedules E, G-1, H, I-1, J, M, P, Q and R — not a simplified version.
| Category | Who it catches | Typical schedules |
|---|---|---|
| 1 | US shareholders of a specified foreign corporation | Limited |
| 2 | Officers or directors on a US person's acquisition | Limited |
| 3 | Acquisition or disposal crossing ownership thresholds | Moderate |
| 4 | US person with control during the year | Close to the full set |
| 5a / 5b | US shareholder of a CFC (unrelated / related) | Close to the full set, including Schedule Q |
The penalty is $10,000 per form per year, with further penalties for continued failure after IRS notice, and a separate reduction of foreign tax credits under section 6038(c). It applies to a dormant company with no profit.
For tax years beginning after 31 December 2025, the inclusion formerly called global intangible low-taxed income became net CFC tested income, and the changes are substantive.
An individual US shareholder is normally denied the deemed-paid foreign tax credit that a corporate shareholder receives. A section 962 election allows the individual to be taxed on the inclusion as if they were a domestic corporation, accessing the section 250 deduction and the deemed-paid credit.
It is often the difference between a large US charge and none at all where the UK company has paid meaningful corporation tax. It is also an annual election with consequences on eventual distribution, so it is modelled rather than defaulted to.
Almost certainly, if you are a US person owning or controlling it. A sole American owner of a British company is normally a Category 4 and Category 5a filer at the same time, which means filing close to the complete form rather than a short version. The obligation exists even if the company made no profit.
$10,000 per form per year, with additional penalties for continued failure after the IRS issues notice, plus a separate reduction of your foreign tax credits under section 6038(c). It applies regardless of whether any tax is due, which is why dormant and small companies generate such large exposures over several years.
Net CFC tested income, or NCTI, for tax years beginning after 31 December 2025. The QBAI exclusion was repealed outright, the section 250 deduction fell from 50% to 40%, and the section 960(d) foreign tax credit haircut narrowed from 20% to 10% so that 90% of the underlying UK corporation tax now flows through.
It is often decisive where the UK company has paid real corporation tax, because it lets an individual access the section 250 deduction and the deemed-paid foreign tax credit that would otherwise be available only to a corporate shareholder. It is an annual election with consequences when profits are eventually distributed, so it should be modelled rather than assumed.
It can. The constructive ownership and attribution rules can attribute shares held by a spouse, other family members or related entities to you, so a company you appear to own only partly may be controlled for US purposes. This is one of the most common ways a filing obligation arises without the owner realising.
The exposure is real but usually resolvable. Where the failure was non-willful, the streamlined foreign offshore procedures cover the delinquent information returns alongside the returns themselves, with no penalty for qualifying filers. Establish the disclosure route before preparing anything — it determines how many years you file.
We will tell you which categories you file under and what the exposure looks like before you commit to anything.
Start a conversation Price my engagement