Founder Tax for a US/UK Startup: Starting a Company With Ties to Both Countries

Founder tax for a US/UK startup turns on three early choices: where the company is incorporated, where it is actually managed, and how the founder shares are issued. A US citizen with a UK Ltd owns a controlled foreign corporation; a UK founder running a Delaware C-corp from London may have created a UK-resident company. Both can be managed, but the cheap moment to do it is before the shares are issued, not at the first funding round.

This guide is general information. US/UK Cross Border Tax — US CPAs and UK tax advisers working as one team; London, Manchester, New York, San Francisco — handles founder tax for a US/UK startup, and the right structure depends on your facts.

What does founder tax look like for a US/UK startup?

The United States taxes its citizens and green card holders on worldwide income wherever they live. The UK taxes its residents, and it taxes companies that are UK resident. A startup with ties to both countries can therefore have four taxpayers: the founder and the company, in each system. The saving clause in the US/UK treaty means a US citizen cannot use the treaty to switch off US tax on their own income.

Who you are and where the company is: the filings it triggers

Founder and company	US side	UK side
US citizen living in the UK, owns a UK Ltd	Form 1040 with Form 5471; Form 8992 for the section 951A inclusion; Form 1118 if a section 962 election is made; FBAR checks on company accounts	Company Tax Return (CT600); PAYE if a salary is paid; Self Assessment; section 431 election on restricted shares
UK founder (not a US person) living in the UK, owns a Delaware C-corp	Form 1120; Form 5472 if 25% foreign-owned with reportable related-party transactions; 83(b) election commonly filed on vesting shares	CT600 if central management and control is in the UK; PAYE; Self Assessment; section 431 election; employment related securities return
US citizen living in the UK, owns a Delaware C-corp	Form 1120; no Form 5471 (the company is domestic); 83(b) election; QSBS conditions tracked from day one	Same UK residence risk for the company; founder taxed in the UK on salary, dividends and the eventual gain
Delaware parent with a UK Ltd subsidiary	Form 1120 with Form 5471 for the subsidiary; section 951A applied at corporate level	CT600 for the subsidiary; EMI, SEIS and EIS conditions checked against the group

A US citizen founding a UK Ltd: CFC rules, Form 5471 and net CFC tested income

The Form 5471 instructions (revised December 2025) define a controlled foreign corporation, or CFC, as a foreign corporation in which US shareholders own more than 50% of the voting power or value. A US shareholder is a US person owning 10% or more. A US citizen who owns most of a UK Ltd therefore owns a CFC from the day of incorporation.

Form 5471

Form 5471 is attached to the founder's income tax return and filed by that return's due date, including extensions. The instructions set a $10,000 penalty for each annual accounting period of each foreign corporation for failure to file, plus $10,000 for each 30-day period the failure continues after the IRS gives notice, up to a further $50,000.

Subpart F and net CFC tested income

Two regimes can tax the founder personally on profit that stays in the company. Subpart F picks up mainly passive income and some related-party sales and services income. Section 951A picks up most of the rest. Until 2025 that second regime was called global intangible low-taxed income, or GILTI. Public Law 119-21, signed on 4 July 2025, renamed it net CFC tested income for tax years beginning after 31 December 2025 and removed the old allowance for a deemed return on tangible assets. IRS guidance now uses the new name (see Internal Revenue Bulletin 2026-40), although the IRS page for Form 8992 still carried the GILTI title on 1 October 2026.

The favourable machinery was written for corporations. Under the amended section 250 a US corporation deducts 40% of its net CFC tested income, and under section 960(d) it is deemed to have paid 90% of the foreign tax on that income. An individual gets neither by default and is taxed at ordinary rates with no credit for the UK Corporation Tax the company paid.

Planning options, described generally

• Section 962 election. An individual US shareholder can elect each year to be taxed on these inclusions at corporate rates and to claim the deemed-paid credit; the Form 1118 instructions require the form to be attached. With the 21% US corporate rate and the 40% deduction, the US rate on the inclusion is about 12.6% before credits, so UK Corporation Tax at the current 19% to 25% rates will often cover it. The trade-off is that later dividends can be taxed again to the extent they exceed the US tax already paid.
• Check-the-box election on Form 8832. A UK public limited company is on the IRS list of entities that must be treated as corporations. A private limited company is not, so it can elect to be disregarded or treated as a partnership for US purposes. The Form 8832 instructions say the election cannot take effect more than 75 days before it is filed or more than 12 months after, and the classification generally cannot be changed again for 60 months. The founder is then taxed directly on the profits, with UK Corporation Tax available as a credit on their own return, and Form 8858 replaces Form 5471.

Neither is right for every founder, and salary planning (below) is a third lever. Our business tax returns service prepares the Form 5471 package alongside the UK accounts so the two sets of figures agree.

A UK founder with a Delaware C-corp: is the company UK resident?

Often it is. A Delaware C-corp files Form 1120 whatever happens, but HMRC applies its own test to companies incorporated abroad. Its International Manual at INTM120060 quotes the case-law rule that a company resides "where the central management and control actually abides", and calls this primarily a question of fact.

If the only directors live in the UK and take the strategic decisions there, the Delaware company is UK resident and within UK Corporation Tax on its worldwide profits. It is then resident in both countries, and unlike the treaty tie-breaker rule for individuals, there is no ladder of tests for companies. Article 4(5) says the competent authorities "shall endeavour to determine by mutual agreement" how the treaty applies, and if they do not agree the company cannot claim treaty benefits apart from a short list that includes relief from double taxation and the mutual agreement procedure.

The general options are to hold real board control in the US, to accept UK residence and plan for credit relief, or to put a UK subsidiary under the Delaware parent. A Delaware corporation that is at least 25% foreign-owned must also file Form 5472 for reportable transactions with related parties, and the Form 5472 instructions set a $25,000 penalty for failing to file. Our business incorporation service looks at residence before the entity is formed.

Founder shares: the 83(b) election and the UK section 431 election

Founder shares usually vest or carry restrictions. Both countries can tax restricted shares later, when the restrictions lift and the shares are worth far more, and both offer an election to be taxed up front while the value is low.

1. US: section 83(b). IRS Form 15620 states that the election must be filed no later than 30 days after the date the property was transferred. It goes to the IRS, with a copy to the company.
2. UK: section 431 ITEPA 2003. HMRC's manual at ERSM30450 says the election is made jointly by employer and employee, in a form approved by HMRC, not more than 14 days from the acquisition. Its effect is to ignore the restrictions, tax the full unrestricted value at acquisition and remove the later charge.
3. UK reporting. Share acquisitions by directors and employees are reported on an employment related securities return, due by 6 July after the end of the tax year.

A founder exposed to both systems needs both elections, and the UK deadline falls first. A UK-resident founder of a Delaware company who is not yet a US taxpayer often files an 83(b) election anyway, in case a later move to the US brings unvested shares into US tax.

EMI, SEIS and EIS: UK reliefs the US does not recognise

EMI options

GOV.UK describes Enterprise Management Incentives as share options worth up to £250,000 in a three-year period, with no Income Tax or National Insurance if you buy the shares for at least their market value at grant. From April 2026 the company limits are assets of £120 million or less and fewer than 500 full-time employees. The IRS has no category for EMI. Unless the option also meets the US incentive stock option rules, IRS Topic 427 treats it as a nonstatutory option, taxed on the market value of the stock received less the amount paid, when the option is exercised.

SEIS and EIS for investors

For UK investors, GOV.UK gives Income Tax relief of 50% on up to £200,000 a year under SEIS and 30% on up to £1 million under EIS, plus a Capital Gains Tax exemption on shares held for the minimum period of at least three years. The relief can only be set against Income Tax payable in the UK. The issuing company needs a UK permanent establishment.

A US-citizen investor gets the UK relief if they have UK Income Tax to reduce, and nothing from the US, which still taxes the eventual gain. The Form 8621 instructions treat a foreign corporation as a passive foreign investment company, or PFIC, if 75% or more of its gross income is passive or at least 50% of its assets produce passive income. A pre-revenue company sitting on investors' cash can drift towards those tests. Our PFIC guide explains why that status is expensive.

Does the exit relief follow you? QSBS and Business Asset Disposal Relief

No. Each relief works only in the country that grants it, so a founder taxed in both countries in effect pays the higher of the two bills on the same gain.

QSBS (section 1202). Qualified small business stock must be issued by a US domestic C corporation, acquired at original issue, in a company that meets an active business test. The 2025 Act changed the terms for stock acquired after 4 July 2025: 50% of the gain is excluded after three years, 75% after four and 100% after five; the per-company cap is the greater of $15 million or ten times basis; and the gross assets ceiling is $75 million. Stock acquired on or before that date stays on the earlier terms, with a five-year holding period and a $10 million cap. A UK Ltd cannot issue QSBS. The UK does not recognise the exclusion, so a UK-resident seller is charged Capital Gains Tax at the 2026/27 rates of 18% or 24%.

Business Asset Disposal Relief. GOV.UK sets the rate at 18% on qualifying gains disposed of from 6 April 2026, and HMRC's Capital Gains Manual gives a £1 million lifetime limit. For shares you generally need at least 5% of the shares and voting rights, to be an employee or office holder, and to have met the conditions for two years. The US ignores the relief and taxes a US citizen's gain at US rates, with a foreign tax credit for the UK tax actually paid. Our guide to double taxation relief between the US and UK explains how that credit is claimed.

Illustrative example: a US citizen living in Manchester incorporates a UK Ltd in January 2027 and owns 80% of it, with shares that vest over four years. She signs a section 431 election within 14 days and files an 83(b) election within 30 days. For 2027 the company makes a profit of £120,000 after her salary. Her US return includes Form 5471 and a section 951A inclusion on her share of that profit, although no dividend was paid, so a section 962 election is modelled against a higher salary. On a sale in 2032 the UK may apply the Business Asset Disposal Relief rate, the US taxes the gain with a credit for the UK tax, and QSBS does not apply because the company is not a US corporation. This is illustrative only.

Salary or dividends: how should a cross-border founder be paid?

There is no single answer, because each form of pay is treated differently in each system. As a starting point:

• Salary from a UK Ltd goes through PAYE with employee and employer National Insurance. It is deductible for Corporation Tax and reduces the profit the US CFC rules can reach. On the US return it is foreign earned income, relieved by the foreign tax credit or the foreign earned income exclusion.
• Dividends carry no National Insurance. For 2026/27 GOV.UK gives a £500 dividend allowance and rates of 10.75%, 35.75% and 39.35% above it. They are not deductible for the company, and the US taxes them too, with credit for the UK tax and an adjustment where the profit was already taxed under the CFC rules.

The UK-optimal mix of low salary and high dividends is often the wrong answer once US rules are added, because it leaves more undistributed profit inside the CFC.

Social security: the totalisation agreement

The US/UK social security agreement, which the US calls a totalization agreement, is designed so that a worker pays into one system at a time. A founder employed by their own UK company and working in the UK pays UK National Insurance. An employee sent temporarily by an employer in one country to the other can stay in the home system for a posting expected to last no more than five years, with a certificate of coverage as proof. A self-employed person is covered where they live. Our post on contractor tax for US/UK remote work walks through the certificate process.

What founders get wrong

• Treating the 83(b) and section 431 deadlines as paperwork for later. Thirty days and fourteen days pass quickly, and a missed election is hard or impossible to repair.
• Assuming a Delaware company is only a US taxpayer. Where the board decides, not where the certificate was issued, settles UK residence.
• Forgetting the company bank account. A US founder who owns or can sign on a UK company account may have FBAR reporting to do.

The bottom line

Decide the structure before the shares are issued. Work out who the US taxpayers are, where the board will really sit, and whether the reliefs founders and investors expect exist on both sides. Diarise both election deadlines. If you are forming a company with ties to both countries, talk to us before you sign the incorporation documents.