The First-tier Tribunal’s decision in WWM (Harrogate) LLP v HMRC [2026] UKFTT 832 (TC) reinforces how difficult it is to sustain ‘personal goodwill’ outside a corporate structure.
In this case an individual (Mr Walters) had incorporated his sole trade, and a few years later the company and Mr Walters entered into a Limited Liability Partnership (LLP). As part of becoming a partner of the LLP, Mr Walters transferred his personal goodwill in the business to the LLP as a contribution to his capital account. The case considered the three questions: is it possible for personal goodwill to be owned separately from the business to which it relates; did Mr Walters own such goodwill; and, if so, did he transfer it to the LLP as a capital contribution?
What did the Tribunal decide?
Based on a discussion of previous tax cases, the Tribunal accepted that personal goodwill can, in principle, be owned by an individual rather than the entity which owned the business.
However, this is a question of fact as to whether this occurred in this case. In WWM, Mr Walters had previously incorporated his business and transferred its goodwill to a company. Thereafter:
- He operated through that company;
- Clients contracted with the company; and
- Due to the regulated nature of the business, he could not operate a business in that sector as he had no individual registration with the FCA.
The taxpayer argued that, following the incorporation of the business, Mr Walters continued to generate personal goodwill in respect of the strong personal relationships and connections he had with the clients of the business. HMRC contended that, following the incorporation of the business, all future goodwill accrued to the company as Mr Walters was its employee.
On those facts, the Tribunal concluded that there was no separate personal goodwill capable of transfer to the LLP. They considered that any goodwill generated after the business was incorporated belonged to the company and that all Mr Walters had was strong client relationships and connections which enabled him, as an employee, to generate income for the company.
Why is this important?
The decision highlights that value generated by an individual does not automatically sit with them personally, even where clients are loyal to that individual. For LLP and mixed entity structures, this is particularly relevant where arrangements are intended to support:
- The value of capital accounts;
- Succession or asset protection planning; or
- Future disposals of part or all of a business.
What about earlier case law?
The Tribunal discussed earlier decisions (including Smith and Corbett v HMRC [2023] UKFTT 912 (TC) and HMRC v Smith & Williamson Corporate Services Limited (1) and Patrick Smiley (2) [2015] UKUT 666 (TCC)), which turned on specific facts such as whether the individuals had personal regulatory status to be able to run the business, contractual terms such as being able to take clients with them if the individuals left the LLP or alternatively restrictive covenants, and the extent to which relationships were owned and exploited by the firm where the individuals were employees rather than by the individuals themselves
This case underlines the importance of both legal rights and the commercial reality.
What should businesses consider?
Businesses with LLP or mixed structures should revisit whether any ‘personal goodwill’ assumptions are robust. In particular:
- Client relationships are not enough: personal connections, even very strong ones, do not automatically create transferable goodwill, nor is a personal relationship a transferable asset;
- Focus on control: who has the legal and commercial ability to exploit the relationships;
- Check the history: prior incorporations and transfers can play an important role in respect of ownership of future goodwill;
- Review documentation: legal contracts (such as employment), restrictive covenants and regulatory status matter; and
- Ensure consistency: accounting treatment must align with legal ownership and commercial reality.
This decision highlights the need to test the ownership of goodwill against the underlying facts. More generally this is a useful reminder of how the existence of contemporaneous documentation can help to support a position taken by a taxpayer.
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