- The Capital Goods Scheme applies to high-value capital assets used for taxable and exempt trade.
- On 29 July 2026, HMRC raised the property limit to £600,000 net of VAT.
- Computers bought on or after 29 July 2026 are excluded, while vessels keep a £50,000 limit.
The UK Capital Goods Scheme VAT threshold is £600,000 net of VAT for land and buildings (raised from £250,000 on 29 July 2026) and £50,000 for aircraft and vessels. Under updated HMRC rules, computer hardware acquired on or after 29 July 2026 is completely excluded from the scheme.
This guide explains current limits, older asset rules, and basic calculations for UK firms.
Qualifying assets under the Capital Goods Scheme VAT threshold
The Capital Goods Scheme (CGS) covers specific high-cost assets under Part XV of the VAT Regulations 1995 and HMRC Notice 706/2. It does not apply to normal stock or small tools. Firms using VAT partial exemption rules use the scheme to match tax reclaims to actual business use over time.
| Asset Category | Statutory Threshold (Excl. VAT) | Adjustment Period | Current Rule Status |
|---|---|---|---|
| Land, buildings, and civil works | £600,000 | 10 intervals (years) | Increased from £250,000 on 29 July 2026 |
| Refurbishments and extensions | £600,000 | 10 intervals (years) | Must be capitalised for accounting purposes |
| Aircraft, ships, boats, vessels | £50,000 | 5 intervals (years) | Unchanged statutory threshold |
| Computers and IT hardware | No longer applicable | Excluded | Removed for purchases on or after 29 July 2026 |
| Pre-reform land and buildings | £250,000 | 10 intervals (years) | Grandfathered for assets acquired before 29 July 2026 |
For buildings, the cost includes buying land, construction work, and large extensions. You must capitalise fit-out work in your accounts to count it. Small repairs and paint jobs do not count toward the £600,000 sum.
The 2026 reform: property increases and IT removal
The new rules fix old caps. The prior £250,000 line stood unchanged from 1990 until 2026. High inflation caught minor refurbishments in needless administrative knots. Raising the floor to £600,000 cuts red tape.
Taking computers out also saves real time. Under older rules, single computer setups above £50,000 needed five years of tracking. Tech hardware loses value fast. Because of that rapid decline, HMRC dropped it completely. When you buy laptops or servers now, you claim tax once on your normal return.
Grandfathering rules still protect ongoing plans. If you bought property between £250,000 and £599,999 before 29 July 2026, it stays in the scheme. You must finish its ten annual checks. Old computer gear bought before that date must also run its full five-year course.
How annual adjustment intervals work in practice
A capital item has an initial claim, then yearly checks. Property uses ten intervals. Vessels and older computer gear use five intervals.
The first interval starts when you buy or use the item. It runs until your partial exemption tax year ends. Later intervals match your standard tax year, which often ends in March or April. You report adjustments on your second return after the year ends.
Worked adjustment calculation on commercial property
Here is a clear case with simple numbers. A firm buys an office on 15 August 2026 for £800,000 plus £160,000 VAT. In Year 1, it uses the site 70% for taxable work and 30% for exempt trade. It reclaims £112,000 at the start.
| Interval | Taxable Use % | Baseline Share (1/10th) | Actual Claim Allowed | Net VAT Adjustment |
|---|---|---|---|---|
| Interval 1 (Initial) | 70% | £16,000 | £11,200 | Baseline established (£112,000 total) |
| Interval 2 | 85% | £16,000 | £13,600 | +£2,400 repayment from HMRC |
| Interval 3 | 55% | £16,000 | £8,800 | -£2,400 clawback payable to HMRC |
| Interval 4 | 70% | £16,000 | £11,200 | £0 nil adjustment |
Each check reviews one-tenth of the tax, which is £16,000 each year. During Year 2, taxable work rises substantially to reach 85% of total business activity. The firm claims £13,600. It reclaims £2,400 back on its next return.
During Year 3, business conditions change and taxable use drops to 55%. The firm keeps £8,800. It must pay £2,400 back to HMRC right away. If use stays at 70%, no money moves. To fix past book errors, see HMRC VAT error correction rules.
Disposal rules and early property sales
Early sales trigger instant final reviews. That single sale year closes out all remaining future years in one go. If you sell with VAT, HMRC treats all future years as 100% taxable. When selling exempt, every future year drops to zero percent taxable trade without exception. You must repay HMRC right away.
Always plan ahead before selling commercial sites. If transferring a trade, check VAT bad debt relief rules UK and transfer guides. Keep all bills and maths sheets for six years after the final interval.
Frequently Asked Questions
What is the current Capital Goods Scheme threshold for property?
For acquisitions, refurbishments, and works starting on or after 29 July 2026, the threshold is £600,000 net of VAT. Earlier projects remain under the previous £250,000 limit.
Are computers still included in the Capital Goods Scheme?
No. Computer hardware acquired on or after 29 July 2026 is exempt from the scheme. Historical purchases made before that date continue their 5-year adjustment intervals.
How long does a Capital Goods Scheme adjustment period last?
The adjustment period lasts ten intervals for land, buildings, and civil works. It runs five intervals for aircraft, boats, and legacy computer assets.
What happens if an asset is sold before the scheme period ends?
A final disposal adjustment applies. If sold as a taxable supply, all remaining years treat use as 100% taxable. An exempt sale treats remaining years as 0% taxable.