Capital Goods Scheme threshold rises to £600,000

The Capital Goods Scheme (CGS) threshold for land, buildings and civil engineering works has increased from £250,000 to £600,000 (excluding VAT). While this change will reduce the compliance burden for many property projects, the new threshold does not automatically apply to every project completed on or after 29 July 2026.

For projects that span the change, businesses need to look at more than just the completion date. The key factors are when the capital expenditure was incurred, what work was carried out and whether the asset had already become a CGS capital item under the previous £250,000 threshold. These details will determine which Capital Goods Scheme rules apply and whether ongoing VAT recovery adjustments may still be required.

What is relevant expenditure?

For Capital Goods Scheme (CGS) purposes, relevant expenditure is the VAT-bearing capital expenditure incurred on a property asset. This can include the cost of acquiring land, constructing a building, carrying out a refurbishment, fitting out premises, or extending or altering a property or civil engineering work. Depending on the circumstances, professional fees, planning costs and other related costs may also count towards the total capital expenditure.

For projects that span 29 July 2026, the timing of expenditure is important, but it is not the only factor that determines which CGS threshold applies. A cost incurred before that date does not automatically mean that all later expenditure falls under the previous rules.

Instead, the key question is whether the land, building or civil engineering work had already become a CGS capital item under the £250,000 threshold that applied before 29 July 2026. Establishing whether a capital item already existed is often the starting point for determining which Capital Goods Scheme rules apply and whether ongoing VAT recovery adjustments may be required.

When was the expenditure incurred?

The Capital Goods Scheme (CGS) threshold for land, buildings and civil engineering works increased from £250,000 to £600,000 (excluding VAT) on 29 July 2026. However, whether the new threshold applies depends not only on when expenditure was incurred, but also on whether the asset had already become a CGS capital item under the previous rules.

If an asset had already entered the Capital Goods Scheme before 29 July 2026 because it exceeded the previous £250,000 threshold, it remains within the scheme for the rest of its normal ten-year adjustment period. The increase to £600,000 does not remove existing capital items from ongoing CGS monitoring or VAT recovery adjustment requirements.

HMRC has confirmed that the new £600,000 threshold applies to land acquired on or after 29 July 2026 and to buildings and civil engineering works acquired, constructed, refurbished, fitted out, altered or extended on or after that date. However, projects involving phased works, multiple acquisitions or expenditure incurred over a long period may require a more detailed review to determine the relevant capital item and which CGS threshold applies.

Why this matters in practice

Where a property falls within the Capital Goods Scheme (CGS), VAT recovery must be reviewed over a ten-year adjustment period. If the use of the property changes over that time, for example from taxable use to exempt or non-business use, the amount of VAT that can be recovered may increase or decrease.

This is particularly important for partly exempt businesses, property investors, charities, education providers and other organisations whose use of land and buildings may change over time. In these cases, the CGS rules can affect the amount of VAT ultimately recoverable on a property project.

Getting the position wrong can be costly. A business that incorrectly assumes a property project falls outside the Capital Goods Scheme may miss annual adjustment requirements, fail to maintain the necessary CGS records, or adopt an incorrect VAT recovery position that needs to be corrected later.

Businesses should also take care before removing assets from existing CGS monitoring simply because the CGS threshold has increased to £600,000. Assets that were already within the scheme under the previous £250,000 threshold continue through their normal adjustment period. As a result, annual reviews and ongoing record-keeping obligations may still apply.

The grey area

The most complicated cases are likely to involve property projects where expenditure was incurred both before and after 29 July 2026. Other examples include land acquired before development starts, major refurbishments carried out in phases, or multiple capital projects taking place on the same site.

In these situations, it is not always possible to determine the correct Capital Goods Scheme (CGS) treatment by simply adding together all project costs. Instead, businesses first need to identify the relevant CGS capital item and then consider whether it had already entered the scheme under the previous £250,000 threshold or whether the new CGS threshold of £600,000 applies.

As a result, two projects with similar costs and completion dates could have very different outcomes for VAT recovery and CGS monitoring. The deciding factors are often the project’s structure, timing and expenditure history rather than its overall value alone.

Projects most likely to require review

Businesses should take particular care with projects involving:

• land acquisitions followed by construction or development works;
• phased refurbishments, extensions or fit-outs;
• projects where expenditure was incurred both before and after 29 July 2026;
• projects with total costs between £250,000 and £600,000;
• multiple capital projects on the same site; and
• assets already being monitored under the CGS before the threshold changed.

Projects spanning a lengthy period or involving multiple phases may warrant further review before concluding that they fall outside the scheme.

Could your project be affected?

Property developments, refurbishments, extensions, fit-outs and acquisitions around the £250,000 to £600,000 range are particularly worth reviewing where activity spans 29 July 2026.

The key question is not simply whether any expenditure was incurred before that date. It is whether the relevant asset had already become a CGS capital item under the previous rules and, where there are separate phases or works, whether they form one capital item or more than one for CGS purposes.

VAT team view

The increase in the threshold should reduce the CGS burden for many property projects. However, projects around the £250,000 to £600,000 range, particularly those that straddle 29 July 2026, should not be assessed solely by reference to headline cost or completion date.

The key is to identify the relevant capital item, establish whether it was already within the CGS before 29 July 2026 and then apply the appropriate threshold.

Where the position is uncertain, the expenditure and project history should be reviewed before removing an asset from CGS monitoring or concluding that no CGS record is required.

Need advice on the capital goods scheme or VAT recovery?

The new CGS threshold could reduce compliance requirements for some projects, but transitional cases can be complex. If your property acquisition, development, refurbishment or fit-out spans 29 July 2026, it is important to establish whether the asset falls within the Capital Goods Scheme and whether ongoing CGS adjustments are required.

Our experienced VAT specialists advise businesses, property investors, charities, educational organisations and other organisations on Capital Goods Scheme compliance, VAT recovery and partial exemption matters.