If you’re planning a property acquisition, refurbishment or development, upcoming changes to the Capital Goods Scheme (CGS) could affect how much VAT you can recover and how that recovery is monitored over time.
From 29 July 2026, HMRC is introducing significant changes to the CGS that will remove some assets from the scheme altogether and bring fewer property projects within its scope. For many property-owning and partially exempt businesses, this is one of the most significant practical VAT changes in recent years.
What’s changing?
The main changes are:
- Computers, and computer equipment, will no longer fall within the CGS (previously where expenditure was £50,000 or more)
- The CGS threshold for land, buildings and civil engineering works will increase from £250,000 to £600,000 (excluding VAT)
As a result, many projects that would previously have been subject to CGS adjustments will no longer be caught by the rules.
Transitional rules: timing is key
The new rules only apply where capital expenditure is incurred on or after 29 July 2026.
- If any qualifying expenditure on an asset is incurred before 29 July 2026, the existing CGS rules, including the £250,000 threshold, will continue to apply to that asset
- This remains the case even if the asset is not brought into use until after 29 July 2026
- For CGS purposes, it is the date expenditure is incurred that matters, not when the asset becomes operational
What should you do now?
If you have upcoming capital projects, now is a good time to review the potential VAT implications.
You may want to consider:
- Which side of the 29 July 2026 implementation date your project falls on
- Whether future changes in the use of a property could affect VAT recovery
- Whether VAT recovery decisions have been correctly assessed from the outset, particularly for mixed-use developments or partially exempt activities
- Whether the changes could impact other VAT areas, including option to tax decisions, TOGC transactions and pre-registration VAT recovery
Our view
While the changes will reduce administration for many businesses, a higher threshold does not automatically mean a better VAT outcome.
For organisations whose use of a property may change over time, including care homes, charities and partially exempt businesses, the CGS can provide valuable opportunities to adjust VAT recovery in future years. Projects that fall outside the scheme will no longer benefit from those adjustment mechanisms.
Understanding the long-term VAT position before committing to a significant investment could help avoid unexpected costs further down the line.
Need advice?
If you’re planning a property acquisition, refurbishment or development, our VAT specialists can help you assess how these changes could affect your VAT recovery position and identify any opportunities or risks before decisions are made.
Get in touch with our VAT specialists by emailing enquiries@pmm.co.uk.
