VAT Capital Goods Scheme Changes from 29 July 2026: What It Means for Property and IT Spending

VAT-registered businesses that buy expensive equipment, land or buildings are about to see one of their more tedious compliance obligations shrink significantly. From 29 July 2026, changes to the VAT Capital Goods Scheme will remove computers entirely and sharply raise the threshold for property.

What the Capital Goods Scheme actually does

The Capital Goods Scheme (CGS) exists to adjust the amount of VAT a business can reclaim on big-ticket assets over several years, based on how the asset's use changes between taxable and exempt business activities. It applies to computers costing over £50,000, and land, buildings and civil engineering works costing over £250,000, requiring businesses to track and potentially adjust their VAT recovery annually — for computers over 5 years, and for property over 10 years.

What's changing on 29 July 2026

Two changes take effect via the Value Added Tax (Amendment) Regulations 2026 (SI 2026/765), according to ICAEW's tax news:

• Computers removed entirely. New qualifying expenditure on computers and computer equipment will no longer be subject to CGS adjustment rules at all, eliminating years of tracking for a category many smaller and mid-sized businesses found disproportionately burdensome relative to the sums involved.
• Property threshold raised from £250,000 to £600,000. Many smaller construction, refurbishment and renovation projects will now fall outside the scheme entirely, according to analysis from Kreston Reeves.

Crucially, this isn't retrospective: if you incurred qualifying property expenditure before 29 July 2026, the old £250,000 threshold continues to apply to that specific asset, so existing CGS tracking obligations don't simply disappear for assets already caught by the scheme.

Who benefits most

Businesses that partly or fully make VAT-exempt supplies — such as those in financial services, insurance, education, or with mixed commercial and residential property portfolios — are the ones who feel CGS most acutely, since they can't reclaim all their input VAT and must monitor changes in use. Removing computers and lifting the property threshold takes a meaningful slice of smaller capital projects out of scope altogether.

Checklist: what to do before and after 29 July 2026

1. Identify any computer equipment purchases currently being tracked under CGS — confirm with your accountant whether ongoing adjustments can stop once the new rules take effect.
2. Review planned property and refurbishment spending. If a project is between £250,000 and £600,000 and hasn't yet been incurred, timing the spend after 29 July 2026 could keep it outside the scheme.
3. Don't assume existing CGS assets are unaffected. Property expenditure incurred before the change date remains subject to the old £250,000 threshold and its full adjustment period.
4. Update your VAT partial exemption records to reflect which assets are now excluded, since this simplifies future annual adjustment calculations.
5. Check the underlying gov.uk CGS guidance for the current list of asset categories still in scope, as it will be updated to reflect the new rules.
6. Speak to your VAT adviser if your business has a partial exemption special method, since a smaller CGS population can sometimes justify simplifying or renegotiating that method with HMRC.

How the UK's approach compares internationally

The EU's VAT Directive contains a broadly similar capital goods adjustment mechanism, with member states setting their own de minimis thresholds, generally lower than the UK's newly raised property limit, according to European Commission VAT guidance. The US has no equivalent, since it doesn't operate a VAT system, relying instead on state-level sales tax without ongoing capital-asset adjustment rules. Australia's GST system includes "adjustment periods" for capital acquisitions similar in principle to the CGS, administered by the Australian Taxation Office.

Key Numbers

• 29 July 2026 — effective date of the CGS changes
• £600,000 — new property/civil engineering threshold, up from £250,000
• £50,000 — former computer threshold, now removed from scope entirely
• 10 years — standard property adjustment period under the scheme

Sources

• ICAEW: Government makes changes to the capital goods scheme
• Kreston Reeves: Changes to the VAT Capital Goods Scheme
• GOV.UK: VAT Capital Goods Scheme guidance

Educational content only — not financial advice.