HMRC Increases Capital Goods Scheme Threshold – What Businesses Need to Know
Jaspal Dhillon, 9 July 2026
Jaspal Dhillon, 9 July 2026
HMRC has announced significant changes to the Capital Goods Scheme (CGS), with effect from 29 July 2026. The changes will reduce the number of businesses affected by the scheme and simplify VAT administration for many property owners and developers.
However, the rules will continue to be important for higher-value property transactions, refurbishments, acquisitions and disposals.
The Capital Goods Scheme (CGS) is designed to ensure that the amount of VAT recovered on certain capital assets accurately reflects how those assets are used over time.
Where an asset falls within the scheme, businesses are required to review its use each year over a 10-year adjustment period. If the use of the asset changes – for example between taxable, exempt or non-business activities – a VAT adjustment may be required.
The scheme typically applies to:
The Capital Goods Scheme is not only relevant when a property is acquired or constructed.
In practice, businesses must continue to monitor qualifying assets throughout the adjustment period to ensure the correct amount of VAT is being recovered each year.
The scheme also becomes particularly important during:
In many cases, a purchaser inherits the Capital Goods Scheme obligations attached to a qualifying building. Understanding the CGS position is therefore an important part of due diligence, as it can affect future VAT liabilities and the ongoing use of the property.
Until now, the Capital Goods Scheme has generally applied to:
These thresholds have meant that many commercial property projects and significant refurbishments have fallen within the scheme.
HMRC has confirmed two significant changes:
The expenditure threshold for land, buildings and civil engineering works will increase from:
£250,000 to £600,000 (excluding VAT).
As a result, many smaller property acquisitions and refurbishment projects will no longer fall within the Capital Goods Scheme.
From 29 July 2026, computers and computer equipment will no longer be included within the Capital Goods Scheme, regardless of value.
This removes the previous £50,000 threshold for computer equipment and simplifies the VAT position for many businesses making significant IT investments.
The increased threshold will reduce the administrative burden for many businesses as new capital expenditure is now less likely to be within scope as the threshold has increased in line with increases in property valuations. However, businesses involved in larger property developments, commercial property ownership or corporate transactions should continue to consider the Capital Goods Scheme carefully.
Where qualifying properties are bought, sold or their use changes, the VAT implications can still be significant and early advice can help avoid unexpected liabilities.
Our specialist VAT team regularly advises businesses on all aspects of the Capital Goods Scheme, including annual adjustment calculations, property transactions, business acquisitions and VAT due diligence.
If you would like to discuss how these changes may affect your business, please contact Jaspal Dhillon, VAT Partner, or your usual Lubbock Fine adviser for tailored advice.
