VAT Capital Goods Scheme threshold increased

Legislation has now been passed to increase the VAT Capital Goods Scheme (CGS) threshold from £250,000 to £600,000 plus VAT. Although the measure was originally announced in April 2025, the change applies only to transactions taking place on or after 29 July 2026.

The increase means that many smaller capital property projects will no longer fall within the CGS. This will reduce the administrative burden for businesses and organisations that would otherwise have to monitor and adjust VAT recovery over a 10-year period. For example, if a partially exempt organisation, such as an academy trust, constructs a new sports hall in August 2026 at a cost of £500,000 plus VAT, the property will no longer be subject to the CGS and no annual VAT adjustments will be required.

However, the change is not retrospective. Properties that already fall within the scheme remain subject to the existing rules. A building constructed in 2023 for £500,000, for instance, will continue to be within the CGS until 2033, meaning annual VAT adjustment calculations must still be completed.

HMRC’s guidance in VAT Notice 706/2 has not yet been updated to reflect the new threshold.

If you would like advice on how the changes may affect your organisation or property projects, please get in touch with Alan Rolfe using the details below