Introduction
Business rates are one of the most significant ongoing costs associated with commercial property. Buyers should understand how rates are calculated, what reliefs may apply, and how liabilities can change over time.
Factoring business rates into a purchase decision at an early stage helps avoid unexpected costs and improves long-term planning.
What Are Business Rates?
Business rates are a tax on non-domestic property, charged to the occupier, and based on the rateable value (RV) of a property.
The rateable value represents the Valuation Office Agency’s (VOA) assessment of the property’s estimated annual rental value at a set valuation date.
How Business Rates Are Calculated
The annual business rates liability is broadly calculated as:
Rateable Value × Applicable Multiplier
Two main multipliers are applied:
- A standard multiplier
- A small business multiplier
The multiplier applied depends on the rateable value band and is set annually by government. Because multipliers change each year, buyers should always check the current rate at the time of acquisition.
Checking the Rateable Value
Before purchasing a commercial property, buyers should:
- Verify the current rateable value on the VOA register
- Confirm the valuation reflects the correct floor area and use
- Check whether recent changes or refurbishments have been reflected
Inaccurate assessments can materially affect ongoing costs.
Business Rates Reliefs
Several reliefs may reduce the amount payable, depending on the property and occupier.
Common reliefs include:
- Small Business Rate Relief
- Empty property relief (usually time-limited)
- Charitable relief
- Rural rate relief
Reliefs are not automatic and usually require an application to the local authority.
Revaluations and Transitional Relief
Business rates are subject to periodic revaluation, which can significantly alter liabilities.
Following revaluation:
- Rates may increase or decrease
- Transitional relief may apply to limit sharp year-on-year changes
Transitional relief is designed to phase in increases over time, but it can also limit reductions. Buyers should not assume a revaluation will immediately reduce liability.
Challenging a Rateable Value
If a rateable value appears incorrect, it may be possible to challenge it through the VOA’s Check, Challenge, Appeal process.
This involves:
- Reviewing the assessment
- Submitting supporting evidence
- Meeting strict procedural deadlines
Professional advice is often beneficial where values are high or complex.
Business Rates and Purchase Decisions
Business rates should be assessed alongside:
- Rental income or operating costs
- Energy efficiency and EPC compliance
- Planning use class
- Future letting and exit strategy
Two properties with similar purchase prices can carry very different long-term liabilities.
What Comes Next
In addition to business rates, buyers must understand transaction-specific taxes.
This is covered in the next section:
Stamp Duty Land Tax (SDLT) on a Commercial Property Purchase.
- Previous Article:
- Next Article: