Capital Goods Scheme VAT Changes Coming in July 2026

Businesses investing in commercial property could benefit from a welcome reduction in VAT administration from 29 July 2026, when changes to the Capital Goods Scheme (CGS) take effect. 

These changes are intended to simplify the VAT system and reduce the administrative burden for businesses. 

What is changing? 

From 29 July 2026, the Capital Goods Scheme threshold for land, buildings and civil engineering works will increase from £250,000 to £600,000 (excluding VAT). This means many smaller property developments, extensions, and refurbishment projects will no longer be subject to the scheme's ten-year VAT adjustment and record-keeping requirements. In addition, computers and computer equipment will be removed from the scheme entirely, further reducing the administrative burden for businesses. 

The Capital Goods Scheme requires businesses to review VAT recovered on major property projects over a ten-year period if the property's use changes. This can result in additional VAT being reclaimed or repaid to HMRC. 

Under the new rules, the qualifying 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 developments and refurbishment projects will no longer fall within the scheme. 

The changes should particularly benefit businesses, landlords and charities carrying out medium-sized property projects by reducing the need for long-term record keeping and annual VAT adjustments. 

However, the scheme has not been abolished. Larger projects exceeding the new £600,000 threshold will still be subject to the rules, meaning VAT may need to be adjusted if the property's use changes during the following ten years. 

Property owners planning new developments or refurbishments should review their VAT position early in the project. Understanding whether a property falls within the revised rules could help avoid costly VAT issues in the future. 

The new rules take effect from 29 July 2026. If you are planning a property investment or development project, please contact us. Professional VAT advice can help ensure the correct VAT treatment from the outset.

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