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Alex Gerko, the billionaire founder of British trading firm XTX Markets, has lost a legal appeal over the taxation of a deferred payment plan in the latest such case to go against a trading house.
Gerko, the UK’s biggest individual taxpayer, had challenged HM Revenue & Customs’ position on deferred trading profits he and other traders made while working for hedge fund GSA Capital between 2010 and 2015.
The payment plan was structured so the traders would be paid as much as a 50 per cent share of profits over three years.
The “hoped-for tax analysis” was that the traders, who worked as a separate unit, would be taxed at corporation tax rates, rather than taxed individually at higher income tax rates, the judgment said.
But judges ruled that the traders should pay income tax on their share of trading profits, according to the judgment handed down on Friday at the court of appeal.
“I fundamentally disagree with the judgment, which results in massive double taxation and has wider implications for the financial industry,” Gerko said in a statement, adding that he was considering options “to continue with the litigation route”.
Gerko is the UK’s top taxpayer, according to the Sunday Times tax list, having paid £664mn last year and £487.4mn in 2022.
“The amounts involved are small compared to the billions of pounds in tax I have paid, and been happy to pay, over the years,” Gerko said.
He left GSA Capital in 2015 to build XTX Markets, which has grown to become one of the world’s biggest trading houses, handling $250bn worth of trades daily across stock, bond, currency and commodities markets, and competing fiercely with the likes of Ken Griffin’s Citadel Securities.
The judgment makes Gerko and the others who left GSA to join XTX, the latest high-profile traders to lose a tax appeal. In December partners at billionaire Michael Platt’s BlueCrest Capital were found liable for income tax on a pay scheme dating back to 2008, after the investment firm lost its legal battle.
GSA’s case had “material similarities” to BlueCrest’s, the judgment said.
“I chose litigation rather than settling many years ago for a much smaller amount because I believe [the] HMRC case was built on an interpretation of complex and ambiguous tax law that led to a highly unreasonable result,” Gerko said.