Form 5471 December 2025 Revision: UK Owner's Checklist

The December 2025 revision of Form 5471 changes five things: Schedule G question 3b on functional-currency QBUs, new Schedule G line 21 on section 304 E&P changes, new question 22b on the OBBBA transition rule, a new statement at Schedule E column (j), and new line 46 on Schedule I, Worksheet A. Most single-shareholder UK companies answer all five in minutes.

This guide assumes you already file. It does not re-explain the filer categories or the penalty regime, which are covered in our categories and penalties reference. It answers one question only: what is different on the form this year, and which of it a UK trading company actually has to engage with.

What actually changed on the December 2025 revision

The What's New section of the Instructions for Form 5471 (Rev. December 2025) identifies five discrete changes to the form itself, all traceable to two events: the final section 987 regulations, and the international provisions of Public Law 119-21, the One Big Beautiful Bill Act. Nothing in the list rewrites the architecture of the form. Schedules C, F, J, P and Q sit where they always did.

Where	What it asks	What triggers it	Typical UK trading company
Schedule G, question 3b (new)	Does the corporation have one or more qualified business units with a functional currency different from its owner's? If yes, how many Forms 8964-TRA are attached?	Final section 987 regulations	No. Zero forms attached.
Schedule G, line 21 (new)	Was any increase or decrease in E&P attributable to a section 304 transaction? Split at 21b(1) for PTEP and 21b(2) for other E&P.	Group reorganisations and intra-group share sales	No. 21b left blank.
Schedule G, question 22a and new 22b	22b identifies dividends potentially subject to the Pro Rata Share Transition Rule under OBBBA section 70354(c)(2).	Mid-year acquisitions and distributions around 28 June 2025	No, unless shares changed hands during the year.
Schedule E, Part I, Section 1, column (j)	A statement identifying taxes allocated under section 70352(c)(1)(C).	Repeal of the one-month deferral election	Not applicable to a 31 March or 31 December year end.
Schedule I, Worksheet A, line 46 (new)	Adjustment reflecting the same pro rata share transition rule.	Same as question 22b	Zero.

The honest summary for a great many readers is this: if you own one UK limited company, it trades in the UK, its functional currency is sterling, its shares did not change hands during the year and there was no group restructuring, four of the five items are answered No or left blank and the fifth does not apply. That is not a reason to skip them. It is a reason not to pay anyone to manufacture complexity around them.

Schedule G question 3b: what a qualified business unit actually is

Question 3b is the section 987 question. Section 987 governs how income, loss and earnings and profits are determined where a taxpayer holds a qualified business unit that uses a functional currency different from its owner's. The final regulations issued in December 2024 replaced a long period of proposed and reserved guidance, and the IRS built two companion forms to carry the compliance: Form 8964-TRA for transition information, and Form 8964-ELE for elections.

The question on Form 5471 is narrower than it looks. It asks whether the foreign corporation has one or more QBUs with a functional currency different from the corporation's own. Your UK limited company is not a QBU of itself. Its sterling functional currency is the reference point, not the mismatch.

When does a UK company answer Yes?

You answer Yes only where the UK company itself carries on a separate and clearly identified unit of a trade or business, with separate books and records, whose functional currency differs from sterling. In practice that means:

• A UK limited company with a genuine branch in the United States, the eurozone or elsewhere, keeping its own books in dollars or euros.
• A UK limited company that owns a foreign disregarded entity operating in another currency, which is the same fact pattern that produces a Form 8858 obligation for a foreign branch.
• A UK company with a division whose accounting records are genuinely maintained in a non-sterling currency, not merely a sterling ledger with foreign-currency invoices posted to it.

Invoicing US clients in dollars does not create a QBU. Holding a dollar bank account does not create a QBU. A consultancy or design studio incorporated in England and Wales, banking in sterling, filing sterling accounts at Companies House and paying UK corporation tax on a sterling profit has no section 987 QBU, answers 3b No, and attaches nothing. That is the correct answer, and it should take thirty seconds.

Where the answer is Yes, the work is real. Form 8964-TRA is filed for each QBU for which transition information is required, and the elections form is filed by the owner. The transition computations require a pretransition gain or loss determination that most UK owner-managed businesses have never had to produce, and it is worth reading the IRS instructions for Form 8964-TRA before assuming the software will do it for you. This is the single change on the December 2025 revision most likely to catch out a genuinely international UK structure.

Schedule G line 21: section 304 and your earnings and profits

New line 21 on page 6 asks whether, during the tax year, any portion of any increase or decrease to the foreign corporation's earnings and profits, including previously taxed earnings and profits described in section 959, was attributable to a transaction described in section 304. If the answer is Yes at 21a, you report the movement in functional currency, an increase as a positive number and a decrease as a negative number, split between 21b(1) for previously taxed E&P described in section 959(c)(1) and (c)(2), and 21b(2) for other E&P.

What does a section 304 transaction look like in a UK group?

Section 304 addresses the sale of stock of one controlled corporation to another controlled corporation for property. Rather than a sale, the transaction is recharacterised, in broad terms, as a redemption tested against the acquiring corporation's earnings and profits. In a UK setting the classic patterns are:

• Inserting a UK holding company above an existing trading company by selling the trading company's shares to the new holdco for cash or a loan note, rather than by share-for-share exchange.
• Selling shares in one UK subsidiary to a sister subsidiary for consideration, as part of a group simplification.
• An intra-family or intra-group buy-out where one commonly controlled company acquires the shares of another for property.

These are not exotic. UK advisers restructure owner-managed groups routinely, and a UK reorganisation that is entirely benign for HMRC purposes, often with clearance obtained, can still be a section 304 transaction under US law. That is the cross-border trap: the transaction was designed against a UK rulebook and reported to the IRS against a different one. If your company had any share transfer between commonly controlled entities in the year, line 21a needs a considered answer rather than a reflexive No.

For everyone else, the answer is No. A company whose share register did not move, or where the only movement was an issue of new shares to a third party for cash, is outside section 304 entirely.

Question 22 becomes 22a, and new 22b: the Pro Rata Share Transition Rule

The former question 22 is renumbered 22a and its substance is unchanged. New question 22b asks you to identify dividends potentially subject to the Pro Rata Share Transition Rule under section 70354(c)(2) of the OBBBA.

The underlying rule matters most to a specific population: US shareholders who acquired stock in a foreign corporation part-way through a year in which distributions were made. Section 951(a)(2)(B) has long allowed a shareholder to reduce its pro rata share of subpart F or tested income by distributions received by another person during the year with respect to stock acquired during that year. The OBBBA changed that mechanic, and section 70354(c)(2) provides a transition rule under which certain dividends are not treated as dividends for section 951(a)(2)(B) purposes.

The dates that define the window

Notice 2025-75 sets out guidance taxpayers may rely on, and describes two categories of affected dividend. The first is a dividend paid or deemed paid on or before 28 June 2025, during a tax year of the corporation that includes that date, where the US shareholder did not own the stock during the portion of the year on or before that date. The second is a dividend paid or deemed paid after 28 June 2025 and before the foreign corporation's first tax year beginning after 31 December 2025.

Read that carefully against your own facts. If you have owned 100 percent of your UK company since incorporation in, say, 2019, and no one else received a distribution from it during the year, there is no dividend in either category and 22b is answered accordingly. If you bought into a UK company in autumn 2025 and the previous shareholder took a dividend before completion, you are squarely in the population the question was written for.

The statement, and why it is the real obligation

The notice contemplates that a shareholder relying on the treatment attaches a statement to Form 5471 specifying the amount of the dividend and explaining why the shareholder is entitled to treat the amount as a dividend for section 951(a)(2)(B) purposes. Ticking a box without the supporting statement is the failure mode we expect to see most often this season. The statement is short, but it has to exist, and it has to be specific about amount and reasoning.

The corresponding computational change sits at Schedule I, Worksheet A, line 46, which is added to give effect to the same transition rule. If 22b is a No, line 46 is zero and the worksheet behaves as it always has.

Schedule E, Part I, Section 1, column (j): the one-month deferral fallout

Column (j) now asks for a statement regarding taxes allocated under section 70352(c)(1)(C). This one is the tail end of a structural change most UK company owners will never have engaged with.

Section 898(c)(2) used to permit a specified foreign corporation to elect a tax year ending one month earlier than its majority US shareholder's year. Section 70352 of the OBBBA repealed that election, and for a tax year of a specified foreign corporation beginning after 30 November 2025 the corporation may no longer have a tax year beginning one month earlier than the majority US shareholder year. Where a corporation must therefore change its tax year, section 70352(c)(1)(C) governs how foreign taxes paid or accrued are allocated between the first required year and the succeeding year, and the column (j) statement identifies taxes allocated under that provision.

UK limited companies overwhelmingly use a 31 March or 31 December accounting reference date, aligned to Companies House and the CT600, and almost never made the section 898(c)(2) election. If your company's year end has never been a November date chosen to sit one month behind a US shareholder's year, column (j) is not your problem. If it was, this is a change to raise with your adviser now rather than in April, because it interacts with your foreign tax credit position in the year of change.

US versus UK: what your UK records give you, and what they do not

Item	UK position (HMRC / Companies House)	US position (Form 5471, Dec 2025 revision)
Functional currency	Sterling by default; accounts and CT600 prepared in sterling with no separate election required	Sterling is the CFC's functional currency; question 3b asks only about QBUs that differ from it
Group reorganisation	Share-for-share relief and clearances; often no immediate charge	May be a section 304 transaction requiring a Yes at Schedule G line 21 and an E&P split
Dividends	Reported on the shareholder's Self Assessment return; no company-level dividend tracking beyond distributable reserves	Question 22b and Schedule I Worksheet A line 46 turn on who owned the shares when the dividend was paid
Corporation tax paid	Paid nine months and one day after the year end, or by quarterly instalments for larger companies	Tracked on Schedule E by year of accrual, with new column (j) statement where section 70352(c)(1)(C) applies
Foreign branch of the UK company	Branch exemption election available; otherwise profits taxed with credit relief	Potential section 987 QBU, potential Form 8858, and a Yes at question 3b with Forms 8964-TRA counted
Accounting reference date	Set at incorporation, commonly 31 March or 31 December	One-month deferral election repealed; only ex-electing companies face a forced change

The pattern here is consistent with what we see across the whole cross-border compliance file. UK records are complete and reliable for UK purposes but silent on the facts the US form now asks about: who held the shares on a particular date, whether a reorganisation was a sale or an exchange, and whether a division keeps its own non-sterling books. Building those facts into your year-end file, rather than reconstructing them in March, is the difference between a fifteen-minute exercise and a fortnight of correspondence.

A practical workflow for the December 2025 revision

Run this once, before your preparer starts. It takes an hour at most for a single company.

• Confirm the revision date. Check that the form your preparer or software is producing is headed December 2025. A return assembled from a prior-year template can omit the new lines entirely.
• List every place the company keeps books. One sterling ledger and nothing else means question 3b is No. Anything else needs a QBU analysis before you answer.
• Pull the share register movements for the year. Any transfer between commonly controlled entities flags line 21. Any acquisition or disposal by a US shareholder flags 22b.
• Pull the dividend history against ownership dates. Specifically test distributions paid on or before 28 June 2025 and those paid after it, against when each US shareholder acquired stock.
• Check the accounting reference date. If it is anything other than a standard UK date, establish whether a section 898(c)(2) election was ever in place.
• Draft the statements before the form. Where 22b applies, write the amount-and-reasoning statement first; it will tell you whether the position holds.

The equivalent exercise for a UK partnership interest runs through Form 8865 for UK LLP members, and for an unincorporated branch or foreign disregarded entity through Form 8858. The three forms share a design logic, and a structure that touches more than one of them should be mapped once rather than form by form. Our cross-border tax team does this mapping as a standing part of the annual file.

What has not changed, and why that matters

None of the five changes alters who has to file, which category you fall into, or what happens if you do not. The USD 10,000 per form, per year starting penalty and the statute of limitations consequences of an incomplete or missing form are unchanged. Nothing here changes the substantive treatment of subpart F, the foreign tax credit mechanics on Schedule E, or the Schedule J and Schedule P previously taxed earnings tracking that most UK company owners find the hardest part of the return.

That last point deserves emphasis. If your Form 5471 is difficult, it is almost certainly difficult because of E&P history, PTEP tracking and foreign tax credit allocation, not because of the December 2025 additions. The new boxes are disclosure. The hard part remains the accumulated position underneath them, and if that position was built on estimates in earlier years, this is the year to correct it rather than compound it.

If you have not filed at all

A material share of the people reading a form-revision guide are not up to date. If Form 5471 was never filed for a UK company you have owned for years, the new boxes are not your first problem. The correct route is usually a structured catch-up, and where the failure was non-wilful, the IRS streamlined procedures remain the principal mechanism. We deal with this constantly through our streamlined filing practice, and the analysis of whether you qualify should be made before any form is submitted, not after. Filing a single late Form 5471 outside a formal procedure can be the worst of both worlds: it puts the omission on the record without securing the relief.

Common mistakes we expect this season

• Answering 3b Yes because the company invoices in dollars. Currency of invoicing is not functional currency, and neither is a foreign bank account.
• Ticking 22b without the statement. The disclosure and the statement are one obligation, not two options.
• Answering line 21a No after a UK group reorganisation. UK clearance does not settle the US characterisation.
• Assuming the software handles the transition items. The section 987 transition computations in particular are not automatic.
• Filing on a prior-year form. The omitted lines make the return incomplete, which is the condition that keeps the statute of limitations open.
• Treating the changes as a reason to over-engineer. For a straightforward UK trading company, four No answers and a blank worksheet line is the right result.

Reading the primary sources

We would encourage any sophisticated owner to read the source material directly rather than rely on secondary summaries, including this one. The Instructions for Form 5471 carry the What's New section verbatim, and the About Form 5471 page on irs.gov links the current revision of the form and every schedule. For the UK side of your company's position, the HMRC corporation tax payment guidance on gov.uk remains the reference point for the payment dates that feed your Schedule E accruals. Where the two rulebooks disagree about the same transaction, and on section 304 they routinely do, the disagreement is the work.

Where this leaves you

The December 2025 revision is a narrow, well-targeted update. It closes information gaps the IRS identified around functional currency, group share transactions and a specific OBBBA transition window. For a single-shareholder UK trading company with sterling books and a stable share register, it changes almost nothing about the effort involved in filing. For a UK company with a foreign branch, a recent reorganisation, or a mid-2025 change of ownership, it changes a great deal, and it changes it in ways that generalist preparers are unlikely to spot from the face of the accounts.

At Jungle Tax we prepare US and UK returns for founders, executives and privately held companies on both sides of the Atlantic, and we review the position before the form is drafted rather than after. If you own a UK limited company and want a clear read on which of these five items apply to you this year, and on whether anything in your accumulated E&P and PTEP history needs correcting first, contact our cross-border team for a confidential consultation. We will tell you plainly if the answer is four No's and a blank line, and we will tell you just as plainly if it is not.