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Billionaire Alex Gerko has lost a long-running legal battle over the tax treatment of profits made by individual traders.
The UK’s Supreme Court on Wednesday ruled that traders should pay income tax on their share of trading profits, a point that Gerko had previously argued would result in “massive double taxation”.
Gerko is one of the UK’s biggest single taxpayers. He paid £202mn last year and £665mn in tax in 2024, according to Sunday Times estimates.
The dispute, which pitted Gerko and a group of traders that he managed against HM Revenue & Customs, centres around £22.5mn worth of tax on profits made while they worked at hedge fund GSA Capital between 2010 and 2015.
Gerko spun out XTX from GSA Capital in 2015 along with the small group of traders. XTX has grown into one of the world’s biggest trading houses, handling $250bn worth of daily trades across stock, bond, currency and commodities markets.
The payment plan was structured so the traders would be paid as much as a 50 per cent share of profits over three years. They believed they would be taxed at corporation tax rates, rather than taxed individually at higher income tax rates. But in 2024 judges ruled that they should pay income tax on their share of trading profits.
Gerko and the traders had challenged this position at the Supreme Court after losing previously at lower courts.
Gerko said in 2024 that he disagreed with the lower courts’ approach, saying it “results in massive double taxation and has wider implications for the financial industry”.
HMRC said: “We welcome the decision, which confirms our position that the arrangements discussed in the ruling are ineffective. We are committed to pursuing those who avoid paying their fair share of tax.”
Gerko responded on LinkedIn, saying: “Pretty astonishing from HMRC to get 70 per cent effective tax rate and also gloat about it.”
The judges ruled that the traders’ profits are “income charged to income tax”, saying that “there is no relevant overlap” between taxing the profits of the company and taxing the deferred profits received by individuals. In the judgment, the judges referred to the suggestion by HMRC’s lawyers that the arrangement was comparable to the distinction whereby a company pays tax on its profits and shareholders pay tax on their dividends.
In the same ruling the judges also unanimously dismissed an appeal by HMRC to test the taxation of profit-sharing arrangements used in the Gerko case under a separate provision of the tax code.
HMRC had argued that the traders should pay income tax on profit-shares that were allocated to GSAM, a corporate member of a limited liability partnership, then reallocated to individual team members under a deferred remuneration arrangement.
The court ruled against HMRC as the individual members had “no contractual right” to receive the money.
Additional reporting by Alistair Gray
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