How the 29 July Capital Goods Scheme change affects commercial property VAT planning

From 29 July 2026, the Capital Goods Scheme threshold for land, buildings and civil engineering works rises from £250,000 to £600,000 excluding VAT. Computers and computer equipment are removed from the scheme altogether.

For commercial property owners, landlords and developers, this means fewer mid-sized purchases and refurbishment projects will be caught by the 10-year VAT adjustment rules. That should reduce admin, but it also makes timing and first-use planning more important, especially where a property has mixed taxable and exempt use.

The official HMRC note on Capital Goods Scheme simplification confirms that the new rules apply from 29 July 2026. Getting VAT and option to tax treatment right before you spend is still essential.

A quick reminder of what the scheme does

The Capital Goods Scheme, or CGS, adjusts VAT recovery on certain high-value capital assets over time. For land, buildings and civil engineering works, the adjustment period is usually 10 intervals. If your taxable use changes during that period, you may need to reclaim more VAT or repay some VAT previously recovered.

For example, a building initially used for taxable business activity may later be used partly for exempt letting. Under the CGS, that change can trigger annual VAT adjustments. The scheme is designed to make VAT recovery fair over the life of a capital asset, but the calculations can be time-consuming.

What is changing?

The changes were made by the Value Added Tax (Amendment) Regulations 2026 and have also been summarised by ICAEW.

Watch the transitional rule

The new threshold does not automatically rescue projects already underway. HMRC says the changes apply only where no capital expenditure on the relevant item has been incurred before 29 July 2026.

That matters for phased works. If you start a refurbishment before 29 July 2026 and the old £250,000 threshold is met, the old rules may still apply. If the project is entirely incurred on or after 29 July 2026 and costs £400,000 excluding VAT, it should normally sit outside the CGS.

Anything already within the scheme keeps its existing adjustment period. You still need to run the remaining annual calculations until the 10-year period ends.

Why timing matters

Suppose you refurbish a commercial unit at a cost of £400,000 plus VAT. If the expenditure falls under the old rules, the project may become a CGS capital item and need monitoring for 10 years. If it falls under the new rules, it may be outside the CGS completely.

For a business using the property wholly for taxable purposes, that is mainly an admin saving. For partly exempt businesses, landlords, charities, care providers and mixed-use property owners, the answer is more nuanced.

Outside the CGS, VAT recovery follows the normal VAT and partial exemption rules at the relevant time, without future CGS adjustments. That can help if taxable use later falls, because there may be no CGS clawback. But it can hurt if initial recovery is low and taxable use later increases, because there may be no CGS route to recover more VAT in later years.

This is why you should take advice on before you commit to a purchase, refurbishment or change of use.

Who should look closely?

This change is especially relevant to landlords, developers and partly exempt businesses. If you handle residential property management accounting, hold property as a landlord, or are planning a commercial refurbishment, the timing and intended use of the asset need checking.

Developers should model the VAT position alongside developer cash flow work, particularly where a project sits near the new £600,000 threshold. Keep purchase invoices, contracts, option to tax records and use calculations tidy, because a later change of use still needs records that can stand up to a VAT inspection. For the wider picture, our note on tax planning for property investors explains how these decisions fit together.

Talk it through before your next project

We are accountants in Nottingham who specialise in property and VAT, from single units to full portfolios. Whether you need an outsourced finance department to handle the numbers or you are starting out with your first commercial purchase, get in touch and we will help you plan the VAT before you spend, not after.

Kellee Quigley

I lead FHP Accounting, an accountancy practice specialising in Commercial and Residential Property Accounting. Our goal is to make the administration of running property portfolios easier for landlords, managers, and investors — allowing you to focus on what you do best, while we take care of everything behind the scenes.