M&A Tax
Form 5471, Form 5472, Form 8833, Form W-8BEN-E
Tax structuring and due diligence for US/UK acquisitions and disposals of companies, shares and trades, for buyers and for sellers.
What does M&A Tax involve?
A cross-border deal is taxed under two sets of rules that can treat the same transaction differently. A share purchase in the UK can be an asset purchase for US purposes after an election, and a gain that is exempt in one country can be taxable in the other. We structure the deal and review the target with both countries in view.
Forms and filings involved
- Form 5471
The information return a US citizen or green card holder files for a UK limited company they own, control or have acquired an interest in.
- Form 5472
Reporting for US corporations with a significant foreign owner, and for single-member US LLCs owned by someone outside the US.
- Form 8833
The disclosure required when a US return relies on the US-UK treaty to override or modify the ordinary US tax rules.
- Form W-8BEN-E
The certificate a non-US entity gives a US payer to confirm its foreign status, FATCA classification and any treaty claim.
Buying and selling across the Atlantic
A US buyer of a UK company usually acquires shares, because UK sellers generally prefer to sell them.
The buyer can often make a section 338(g) election to treat the purchase as an acquisition of assets, which resets the target's tax history and asset basis for US purposes without affecting the UK. The election affects earnings and profits, future inclusions under the controlled foreign corporation rules and, for any US sellers, their own result, so it is modelled before signing.
A UK buyer of a US business meets different constraints. An S corporation's election ends when a foreign or corporate shareholder acquires its shares, so such deals are often structured through a pre-sale reorganisation or an election that treats the share purchase as an asset purchase. Where the target holds significant US real property, FIRPTA may apply to later disposals. Buying through a new US holding company lets the target join a US consolidated return, which a UK parent holding the shares directly cannot achieve.
Sellers face their own mismatches. A UK-resident individual selling shares generally pays UK capital gains tax, and a US citizen seller pays US tax on the same gain with credit for the UK tax. A US shareholder selling stock in a controlled foreign corporation can find part of the gain treated as a dividend. UK corporate sellers may qualify for the substantial shareholding exemption. Earn-outs and deferred consideration can be taxed in different years in each country, which can strand credits.
Deal work on both sides
- 01
- Share or asset structure compared on after-tax proceeds in both countries
- 02
- Section 338 elections and entity classification choices modelled before signing
- 03
- Due diligence for missed Forms 5471 and 5472 and state filings in the target
- 04
- Seller gains computed in sterling and dollars, with credit timing checked
- 05
- Earn-out and deferred consideration terms reviewed against both tax years
Who this is for
US companies acquiring a UK limited company or its trade
- UK groups buying a US company or its trade and assets
- Founders selling a company with shareholders in both countries
- Private equity funds and family offices investing across the two markets
Why US UK Tax Returns
Each return is prepared with the other country's return open beside it, so a credit, election or disclosure on one is supported by the other.
One File
US and UK returns prepared in the same engagement and reconciled line by line.
Primary Sources
Every position traced to the Code, the treaty, IRS instructions or HMRC guidance.
Scope First
Returns, forms, years and fee agreed in writing before work begins.
The Same People
The team that files this year carries the elections and credits into the next.
Questions we are asked
We are buying a UK company. What should US due diligence look for?
Alongside the usual commercial and UK tax review, check whether any US persons own shares and filed Forms 5471, whether the target has US subsidiaries, customers or staff that create US filing duties, and whether any entity classification elections were made in the past. Missing US filings rarely stop a deal, but they affect warranties, indemnities and price. The earlier they are found, the more options there are.
I am a US citizen living in the UK and selling my company. Which country taxes the gain?
Generally both. As a UK resident you pay UK capital gains tax on the disposal, possibly at a reduced rate if a relief applies, and as a US citizen you report the same gain on Form 1040 and claim a foreign tax credit for the UK tax. If the company is a controlled foreign corporation, part of the gain may be taxed as a dividend. The two countries can also recognise deferred consideration in different years.
Is a UK seller taxed in the US on selling shares in a US company?
Usually not. A non-resident alien's gain on selling shares in a US company is generally not subject to US tax, and the treaty allocates such gains to the country of residence. The main exception is a company whose value lies mainly in US real property, where FIRPTA can apply and the buyer may have to withhold. The UK taxes a UK-resident seller on the gain in the ordinary way.
Primary sources
What this page says is drawn from the official material below. Read it yourself; we would rather be checked than trusted.
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