In WWM (Harrogate) LLP v HMRC [2026] TC09907, the First Tier Tribunal (FTT) found that an Independent Financial Adviser (IFA) who had incorporated his sole trade business in 2008 had no personal goodwill to contribute to a Limited Liability Partnership (LLP) subsequently formed between him and his company in 2014.
Mr Walters operated as a sole trader Independent Financial Adviser (IFA) from 2006. He was registered as an appointed representative of St James' Place (SJP) rather than holding his own Financial Conduct Authority (FCA) registration. He built his client base from customers transferred from a previous employer, a book of clients purchased from SJP and new referrals.
- In 2008, Mr Walters Incorporated his business, transferring the whole trade and assets, including Goodwill valued at £450,000, to his wholly owned company, Walters Wealth Management Ltd (WWM Ltd).
- WWM Ltd became SJP’s appointed representative, succeeding Mr Walters, whose sole trade business ceased on incorporation.
- In 2014, on the advice of his accountants, Mr Walters and WWM Ltd entered into a Limited Liability Partnership (LLP), WWM (Harrogate) LLP, with an 80:20 profit-sharing ratio.
- At the time the LLP was formed, a figure of £860,662 was recorded as goodwill in the LLP's accounts, credited to Mr Walters' capital account.
- This figure represented an alleged transfer of Mr Walters' personal goodwill to the LLP.
- Under Statement of Practice D12, no disposal arose for Capital Gains Tax (CGT) purposes.
- The goodwill was effectively sold to the LLP, with the purchase price being left outstanding by way of a loan. This enabled the LLP to make tax-free loan repayments to Mr Walters.
- The Goodwill valuation was calculated on a single sheet of plain paper with no identifiable author. It was based on a weighted average of WWM Ltd's profits over three years, with a multiple of six applied.
- No SJP valuation methodology was used, no independent evidence of the multiple was provided and the document contained no supporting workings.
- The LLP had no FCA registration and no direct clients. Its only income comprised 'management fees' payable by WWM Ltd, the basis of which the taxpayer's accountant could not explain. These were funded largely by capital contributions from WWM Ltd.
- The LLP agreement produced at the hearing was unsigned and contained provisions entirely unrelated to the financial advisory business, including a description of the business as 'designing and constructing scenery and sets'.
- No sale agreement, transfer instrument, board resolutions or correspondence relating to the goodwill transfer were in the bundle.
- As Mr Walters approached retirement, WWM Ltd sold tranches of its client book to third parties.
- These included a formal sale to Marshall Wealth Management Ltd in 2021 using SJP's standard business transfer agreement, in which WWM Ltd warranted it could sell the goodwill without the consent of any other person.
- The gains from these disposals appeared to have been reported by, and taxed on, Mr Walters via Self Assessment.
- The explanation given was that the disposal by the company of a percentage of its client base included a Part disposal of the goodwill in the LLP.
- No corresponding disposals of part of a business were shown in the company’s accounts, nor did the tax returns of the LLP show any chargeable disposals.
- HMRC issued Closure notices dated 2 October 2024 for the tax years ending 5 April 2021 and 2022, concluding that the goodwill figure should be removed from the LLP's fixed assets and from Mr Walters' capital account.
- The LLP Appealed to the First Tier Tribunal (FTT).
The FTT found that:
- As a matter of law, Mr Walters could own personal goodwill in relation to the business carried on by WWM Ltd.
- This was supported by Kubrik v Ucar [2013] EWHC 1499 (Ch) and the FTT's obiter analysis in Smith and Corbett v HMRC [2023] TC8977.
- Mr Walters did not retain any personal goodwill following the incorporation of his sole trade business in 2008.
- He transferred his entire business, including its goodwill, to WWM Ltd.
- Unlike the directors in Smith and Corbett, there was no agreement or understanding that client relationships 'belonged' to Mr Walters personally. On the balance of probabilities, he would have been subject to restrictive covenants, and no arrangement existed under which clients could follow him independently of the company.
- Mr Walters did not hold a personal FCA registration and could not have advised clients in his own right after incorporation.
- He was dependent on WWM Ltd's status as an appointed representative of SJP. This distinguished his position from that of Smith and Corbett, who were personally FCA-registered throughout.
- Any goodwill generated by Mr Walters' efforts between 2008 and 2014 accrued to WWM Ltd as his employer, not to him personally. He could only exploit his client relationships for the benefit of the company.
- While Mr Walters possessed strong client relationships and connections, these were not goodwill, although they may be used to generate goodwill in the company.
- In HMRC v Smith & Williamson Corporate Services Limited and Patrick Smiley [2015] UKUT 0666, the Upper Tribunal held that personal client connections, however valuable, do not of themselves constitute goodwill capable of being sold.
- The 2021 sale of part of WWM Ltd's business to Marshall Wealth Management Ltd. confirmed that the goodwill belonged to WWM Ltd.
- The company warranted in that agreement that it could sell the goodwill without the consent of any other person. If the LLP had owned any goodwill, that warranty could not have been given.
- No genuine commercial rationale for the LLP structure was established.
- The explanations offered (crystallising goodwill value and providing a 'lifeboat' in case of reputational damage to the company) were unconvincing.
- It was also conceptually impossible to correlate any goodwill held by the LLP with the client books sold by the company.
- Mr Walters had no assets to contribute to the LLP. The purported transfer of £860,662 goodwill was not a transfer of an intangible asset and it had no value.
The appeal was dismissed.
Useful guides on this topic
Incorporation: Businesses & Trades
How to transfer an existing sole trader's business by incorporation into a company.
Goodwill & incorporation: Tax issues
What are the tax issues concerning Intangible Property (IP) assets, such as goodwill, on incorporation? What tax reliefs apply if you buy and sell goodwill and IP? What are the valuation and clearance procedures?
Valuation: Goodwill
What valuation methods are suitable for valuing a business? What are the issues with goodwill and other intangibles? What does HMRC suggest? What do the courts think?
Partnerships: Capital Gains Tax
How does Capital Gains Tax (CGT) work for partners and partnerships? What is HMRC’s Statement of Practice D12? How are transactions between partners treated? What if the partners are connected persons for CGT?
Mixed members: Partnerships with company members
What is a mixed-member partnership? How are the profits of a mixed-member partnership taxed? What tax adjustments are required? Are there any relieving provisions?
External link