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Capital gains reprieve for UK dot com millionaires

British investors, entrepreneurs and employees bracing themselves for a big capital gains tax (CGT) bill when they cash in their dot com shares were given a reprieve in yesterday’s Budget.

The reprieve for investors, first mooted in a pre-budget statement by the chancellor of the exchequer, Gordon Brown, means investors holding a qualifying business asset for more than four years, beginning from April 6 1998, will pay CGT at a rate of 10%.

Assets held for three years will attract a CGT rate of 20%, for two years 30%, rising to 35% for assets held for one year or more.

Importantly for the private equity industry, a widened definition of qualifying “business asset” means investors, entrepreneurs and employees holding shares in unquoted companies will also enjoy the lower CGT rates.

Qualifying business assets will now include:

  • all shareholdings in unquoted companies and those traded on the Alternative Investment Market;
  • all shareholdings held by employees in quoted companies;
  • shareholdings held by outside investors in quoted companies above a 5 per cent threshold.

Britons holding shares in small, high-tech firms, whose value have soared since 1998, will avoid millions of pounds in tax. One estimate puts the savings for private investors at up to £600 a year.

The Budget announced a further reprieve for entrepreneurs concerned about unfunded National Insurance (NI) contributions payable on their employee’s unrealised capital gains. Employers can now give employees up to £3000 of shares each year free of tax and NI contributions.

The measures are part of a broader government strategy to import a US-style entrepreneurial culture to the UK.

“With both the lowest corporate rates for businesses ever and the lowest ever capital gains tax rates for long term investors,” said Mr Brown, “Britain is now the place for companies to start, to invest, to grow and to expand.”