Missed UK Tax Returns on US MLP Units: A K-1 Guide

If you are UK resident and hold units in a US master limited partnership, you usually owe UK tax on your share of the partnership's profits each year, not on the cash distributions you receive. Many UK-resident Americans report the K-1 to the IRS but never report it to HMRC. Those gaps are missed UK tax returns, and you can fix them.

For a UK-resident American, Missed UK Tax Returns linked to US publicly traded partnerships are among the most common gaps we find in otherwise well-run affairs. The US side feels familiar: a Schedule K-1 arrives each spring, most distributions are treated as a return of capital, and you know there will be ordinary income recapture when you sell. The UK side works on different rules. HMRC generally looks through a US limited partnership and taxes you on your share of its profits, worked out under UK rules. A distribution is not the taxable event, so the K-1 cannot simply be copied into Self Assessment. When you sell, the UK computes your gain from a base cost the IRS would not recognise.

This guide explains how the two systems treat the same units, why the numbers and the timing differ, how double tax relief works in each direction, and how unreported UK years are brought up to date. It covers return preparation and compliance only. It is not investment advice, and several HMRC positions described below are uncertain enough that they should be confirmed for your specific holding before a return or disclosure is filed.

Why do US master limited partnership units create a UK filing obligation?

A master limited partnership (MLP) is a US limited partnership whose units trade on a stock exchange. Most are in energy infrastructure: pipelines, storage terminals, gathering and processing. They avoid US entity-level tax because they are publicly traded partnerships that meet the US qualifying-income test. Each unitholder is a limited partner and receives a Schedule K-1 showing their allocated share of income, gain, deductions and credits.

For UK purposes, the first question is whether the entity is transparent or opaque. HMRC's International Manual publishes its view on common foreign entities. There, a limited partnership formed under the US Uniform Limited Partnership Act is listed as transparent (see HMRC INTM180030). A transparent entity is not taxed in its own right. Its members are taxed on their share of its profits, income and gains as those profits arise, whether or not any cash is paid out.

The result for a UK-resident unitholder is simple to state and hard to apply. You are treated as a partner in a US business. Your UK taxable income for the year is your share of that business's profit, calculated as if UK tax rules applied. The distribution you received is not what is taxed.

Check the legal form: not every "MLP" is a limited partnership

Some publicly traded vehicles described as MLPs are actually limited liability companies that are taxed as partnerships in the US. HMRC has long treated US LLCs as opaque. If that applies, a UK-resident member is taxed on distributions as foreign dividend-type income rather than on a share of profits. In June 2026 the government consulted on giving UK-resident individual members of such "reverse hybrids" transparent treatment that matches their US treatment, but only for future tax years once legislation is in place (see the GOV.UK consultation). The proposal does not correct past years. Before any figure is prepared, we confirm each holding's legal form from its offering documents.

How the same units are taxed in the US and the UK

This table sets out the main differences for a US citizen resident in the UK who holds MLP units through a US brokerage account. It is a general comparison. The actual treatment depends on the partnership, your residence and domicile history, and the years involved.

Issue	US (IRS)	UK (HMRC)
What is taxed each year	Allocated share of partnership income per Schedule K-1	Share of partnership profits, recomputed under UK rules
Cash distributions	Generally a tax-free return of capital that reduces basis, until basis reaches zero	Not taxable as such; drawings from a transparent partnership
Depreciation	Accelerated and bonus depreciation, often producing low or negative taxable income	Accounting depreciation added back; capital allowances given instead, where available
Character of income	Mostly ordinary business income, often eligible for the qualified business income deduction	Possibly trading income, or property or other income, depending on the partnership's activity
Period	Calendar year K-1	UK tax year (6 April to 5 April), with apportionment of calendar-year results
Base cost on sale	Adjusted basis: cost plus allocated income, less distributions and losses	Generally cost plus allowable acquisition costs; no reduction for return-of-capital distributions
Gain on sale	Ordinary income recapture (hot assets) plus capital gain	Capital gain computed under UK rules; possible trading adjustments to verify
Withholding	Section 1446 regimes apply to foreign partners, not to US citizens with a valid W-9	None; tax is self-assessed

Is my share taxed as trading income, property income or something else?

For a transparent partnership, UK law generally looks at what the partnership actually does. A partnership that runs pipelines, storage terminals or processing plants for fees usually carries on a trade. A UK-resident partner in a partnership trading wholly or partly outside the UK is normally taxed on their share of the trade's profits, computed as though the partnership were UK resident. Some partnerships mainly earn royalty or mineral interest income, or rent from real estate. Their profits may fall into different UK income categories with different computational rules.

The category is not a technicality. It determines:

• which Self Assessment pages the income belongs on, and whether the partnership pages or the foreign pages are the right home for each item;
• whether UK capital allowances replace US depreciation, and which assets qualify;
• how losses can be used. Limited partners and non-active partners face strict limits on setting trading losses against other income, including an annual cap for non-active partners;
• whether Class 4 National Insurance is in point. A passive limited partner's liability should be checked, together with the US-UK social security agreement.

These points are genuinely uncertain for passive holders of listed partnership units, and HMRC has published little guidance aimed at this situation. We set out the position taken for each partnership in the return or disclosure, with the reasoning behind it, rather than choosing a treatment without saying so.

Why can't I just copy my K-1 onto the UK return?

The K-1 shows your share of US taxable income, calculated under US rules. The UK figure starts with the same economic activity but is built differently. Converting one to the other is the core of the work.

Depreciation and capital allowances

Much of the appeal of MLPs in the US comes from depreciation. Accelerated and bonus depreciation on pipeline and plant can shelter most of the cash flow, so the K-1 may show little income, or a loss, while generous distributions are paid. The UK does not allow accounting or US tax depreciation. It is added back, and capital allowances are given in its place, at different rates and only on qualifying expenditure. The UK profit share is therefore often much higher than the K-1 income. That is the main reason unitholders who assumed a small K-1 meant a small UK liability are often wrong.

Information you do not have

A K-1 does not provide a UK capital allowances computation. It does not split out UK-disallowable items and it does not break income down by UK category. In practice the UK figure is reconstructed from the partnership's published audited accounts, the K-1 and its supplemental schedules, and your unitholding history. Reasonable, documented estimates are sometimes needed. The method should be applied consistently across all years, explained in a note on the return or disclosure, and supported by working papers that can be produced if HMRC enquires.

Calendar year versus tax year

Since basis period reform, unincorporated business profits are taxed on a tax-year basis. For a partnership with a 31 December year end, the 2025-26 UK tax year takes roughly nine months of calendar 2025 results and three months of calendar 2026. K-1s normally arrive in the March after the calendar year ends. So the 2026 figures needed for the 2025-26 return, due by 31 January 2027, will not be available by the deadline. Provisional figures must be used and corrected later. For missed years this matters less, because the actual figures are now known. Each historical year is built from two K-1s and two sets of accounts, and 2023-24 carries its own transitional adjustments.

How the mismatch affects double tax relief in both directions

A US citizen living in the UK is taxed by both countries on the same partnership. The US-UK tax treaty and each country's foreign tax credit rules decide who gives way.

The UK credit for US tax

An MLP carrying on business in the US generates US-source income that is effectively connected with a US trade. Under the treaty, the US keeps the primary right to tax business profits attributable to a US permanent establishment, and it would do so even if you were not a citizen. The UK, as your country of residence, therefore generally gives foreign tax credit relief for US federal tax on that income. For a US citizen, the treaty's rules limit the UK credit to the US tax a non-citizen would have paid on the same income. This stops the UK from absorbing the cost of citizenship-based taxation.

The timing problem appears here. Depreciation often means little US tax is paid on the K-1 income in the year the UK taxes your profit share. The UK credit cannot exceed the US tax actually attributable to that income, so the UK tax is largely uncredited. The US tax comes later, mainly as recapture on sale. By then the UK may be taxing a capital gain calculated differently, and the question becomes whether credit can be matched across different years and categories of income. The UK credit is also calculated source by source, so it is not simply a matter of netting totals.

The US credit for UK tax

On the US return, UK tax paid on US-source partnership income is not normally creditable against US tax on that same income, because the US has primary taxing rights. The treaty's resourcing rules for US citizens resident in the UK can re-source some income so that UK tax above the non-citizen US tax can be credited. Applying those rules to partnership income needs care and is often done incorrectly. Excess UK tax on non-US income can sometimes be used against US tax elsewhere on Form 1116, or carried over. How this plays out depends on the rest of your US return, which is why we prepare the US and UK filings together.

State taxes

MLPs often allocate income to several US states, and some states require non-resident returns from partners. Whether UK relief is available for US state income tax, and how much, depends on the treaty and UK domestic rules. The firm should verify this for each state involved.

UK capital gains tax when you sell the units

In the US, your gain on sale is the amount realised less your adjusted basis. That basis has usually been reduced sharply by years of distributions and allocated losses. Part of the gain is taxed as ordinary income recapture under the hot-asset rules, and the K-1 for the year of sale includes a sales schedule for this purpose.

In the UK, the calculation starts again. Distributions from a transparent partnership are drawings, not a return of capital that reduces UK base cost. So the UK base cost is generally what you paid, plus incidental acquisition costs. The UK gain can therefore be much smaller than the US gain. Timing still matters: the US tax on recapture is charged in the year of sale, and matching it against UK CGT, or against a UK balancing charge if the partnership's capital allowances are treated as clawed back, is a technical exercise.

Under HMRC's long-standing practice, a partner is treated as owning a fractional share of each partnership asset. Applying that practice to listed partnership units is not settled in every respect. Several questions should be checked for each holding before a gain is reported:

• whether units are pooled like shares;
• whether large distributions of capital are a part disposal;
• whether the offshore fund rules could apply.

CGT rates for individuals have been 18% and 24% since 30 October 2024. Gains must be converted to sterling using the exchange rates on the acquisition and disposal dates, so currency movements alone can create or remove a UK gain.

A brief word on section 1446(f)

A broker must generally withhold 10% of the amount realised when a foreign partner sells publicly traded partnership units. Separate withholding applies to distributions paid to foreign partners (see the IRS guidance on publicly traded partnerships). As a US citizen with a current Form W-9 on file, you should not be subject to either. If the brokerage holds a W-8BEN because it believes you are foreign, withholding may have been applied incorrectly. It then needs to be claimed back on your US return.

Bringing unreported UK years up to date

US-source partnership profits are offshore income for UK purposes. That brings in HMRC's offshore time limits and penalty regime. The main steps are below.

1. Establish the years and the behaviour

For offshore income and gains, HMRC can usually assess 12 tax years back where the error was careless or innocent. It can go back 20 years where behaviour was deliberate. Exceptions can shorten the period in some cases. Where tax was never notified at all, a failure-to-notify penalty is also relevant. Holdings that go back before April 2016 need specific review under the Requirement to Correct rules, because failure-to-correct penalties are much higher. Whether you took reasonable care matters to both the number of years and the penalty. Having reported everything to the IRS, and having relied on advice, can be relevant evidence.

2. Rebuild the UK figures year by year

For each year, the UK profit share is built from the K-1s, the audited accounts and your transaction history. The steps are to:

• add back depreciation and compute capital allowances;
• apportion calendar-year results to tax years;
• convert each amount to sterling;
• work out foreign tax credit relief, source by source.

Any sales are computed under UK CGT rules at the same time.

3. Disclose through the right route

Offshore corrections are normally made through HMRC's Worldwide Disclosure Facility. You notify HMRC first, then have a set period to submit the disclosure, pay the tax, interest and penalties you have calculated, and include a supporting explanation. Where returns were never issued, registration for Self Assessment and the filing of any outstanding returns follow HMRC's instructions. Late-payment interest runs from the original due dates.

4. Align the US return

Correcting the UK side can change the foreign tax credit position on your US returns. If US returns, FBARs or Forms 8938 have also been missed or are incomplete, for example because UK accounts or pensions were left off, the IRS Streamlined Foreign Offshore Procedure is often the right way to correct them. We sequence the two sets of corrections so that each country's credit calculations use final figures from the other.

What should a UK-resident American do now?

• Collect every K-1, including the supplemental schedules and any sales schedule, for each year you have held units.
• Confirm each entity's legal form: limited partnership or LLC.
• Check your residence and any foreign income regime claims for each year. Recently arrived UK residents may be within the four-year foreign income and gains regime from 2025-26, which needs to be claimed on the return, not simply assumed.
• Check the tax classification your brokerage holds for you (W-9 or W-8BEN).
• Do not file further UK returns that leave the partnership out while a disclosure is being prepared.

For clients who hold several partnerships, several brokerage accounts and UK investment assets, we coordinate the whole position under our high-net-worth service. That way one set of figures supports both jurisdictions. More background is available in our cross-border tax guides.

Speak to a US-UK specialist

Unreported partnership income is a technical problem, but it can be dealt with. With a clear reconstruction of the figures and a well-documented disclosure, most clients bring their affairs up to date and pay no more than the law requires. Jungle Tax prepares UK and US returns and disclosures for UK-resident Americans with complex US holdings, including publicly traded partnerships. If your K-1s have never reached your UK return, contact our cross-border team for a confidential consultation. We will review your holdings, identify the years affected and set out the route to put things right.