OTS review of Capital Gains Tax – First Report

OTS review of Capital Gains Tax – First Report

The OTS has published its first report on the policy design and principles underpinning CGT and makes some radical proposals.

Daniel Crowther

Partner, Family Office and Private Client

KPMG in the UK


Also on home.kpmg

The Office of Tax Simplification (OTS) has published its first Capital Gains Tax (CGT) report on the policy design and principles underpinning CGT. The Chancellor, when requesting the review, asked the OTS to “identify opportunities relating to administrative and technical issues as well as areas where the present rules can distort behaviour or do not meet their policy intent.” This report is the first of two parts of the OTS review of CGT. The first part considers high level views on the future of CGT and the second part (which closed on 9 November) will consider more detailed comments about the technical detail and practical operation of CGT. The OTS has confirmed that its second report will be published early next year.

The first CGT report is in response to Part 1 ‘Principles of Capital Gains Tax’ of the OTS CGT review call for evidence (14 July 2020). This report sets out what is described as “a framework of policy choice within which the Government could consider simplifying the design of Capital Gains Tax, to smooth out bigger picture distortions, improve administrative efficiency and make the tax easier to understand and predict”. The report highlights where the features of CGT can distort behaviour, including its boundary with Income Tax (IT) and interconnections with Inheritance Tax (IHT) and makes a number of recommendations for the Government to consider.

These recommendations include some radical potential changes to the CGT rules such as:

  • Increasing the CGT rates to align more closely with rates of income tax;
  • Removing the capital gains uplift on death; and
  • Abolishing or reforming some valuable reliefs including replacing Business Asset Disposal Relief (formerly Entrepreneurs’ Relief).

The OTS recommendations, if implemented, could result in increases in tax on capital gains and there has therefore been a lot of press interest in the report. It is important to keep this OTS report in context and to bear in mind that this is not the first OTS report making radical recommendations on capital taxes. Over the last few years, the OTS has been asked by the Government to undertake reviews of a number of different areas. However, the Government does not always choose to respond to these recommendations. The scope of some of these earlier OTS reviews overlap with some of the issues considered by the OTS review of CGT. For example the OTS review of IHT, with its first report on IHT published in November 2018 and a second report in July 2019 (see Inheritance Tax Review – OTS publishes second report) for which we are still awaiting the Government’s response.

If you think you might be impacted by potential changes of this nature, now is a good time to take stock of your position so that should the Government decide it is to make any changes you understand the implications. Please contact your usual KPMG Private Client adviser or one of the specialists listed on our Family Office and Private Client web page to discuss how these changes might affect you.

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