Gerko defeated in £22.5m tax battle with HM Revenue and Customs
As FT reports, 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. XTX believed that the unit of traders 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.
XTX 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”.
XTX declined to comment on the Supreme Court ruling.
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.”
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.
The judges unanimously dismissed an appeal by HMRC on a separate point about whether the traders should pay tax based on their presumed profit share outlined in “indicative” letters from Gerko. The court rejected the tax authority’s argument that tax should be based on the amounts set out in the letter before the traders’ actual share of profits was confirmed.
Deputy Editor
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