The Budget 2025 confirms a permanent reduction in business rates for eligible retail, hospitality and leisure (RHL) properties from April 2026, funded by a new high‑value multiplier applied to properties with a rateable value (RV) of £500,000+. Smaller hotels benefit from lower multipliers, but many large and high‑value hotels will face materially higher operating costs under the new regime. 

Structure of the new regime

Rates payable by businesses will continue to be calculated by multiplying the RV by the relevant multiplier. The 2026 business rates revaluation increases RVs across sectors, with the largest uplift, about 28.3%, in the “other” sector that includes hotels.¹ 

RHL properties with RVs under £500,000 will receive an effective rates discount because the multiplier applied to them will be set 5p below the national non‑RHL standard multiplier. However, all properties with an RV of £500,000+ will face a higher multiplier, set 2.8p above the national standard. This multiplier for higher RV properties applies across all sectors, including RHL sites, and so for larger or multi‑site hotel portfolios, this will translate into a notable and recurring cost increase.² 

The Valuation Office Agency will continue to calculate RVs for large and chain hotels based on fair maintainable trade (FMT). This is a measure intended to reflect the annual level of trade a hotel might expect to achieve if operated in a reasonably efficient manner³. The 2026 valuations are calculated with a reference date of 1 April 2024 and so capture the post‑pandemic recovery, implying higher RVs as trading was significantly better than at the last valuation reference date of April 2021.

Mitigations and reliefs

The Government promised to support “ratepayers seeing large bill increases as a result of the revaluation” once the complete 2026 revaluation picture had been reviewed. Accordingly, a transitional relief to cap post‑revaluation increases will be introduced. Separately, the Government has opted not to set the higher multiplier at the maximum allowed, acknowledging the role of high‑value properties in growth.⁴

To partially fund these reliefs, a 1p supplement applies for one year from 1 April 2026 to ratepayers not receiving Transitional Relief or Supporting Small Business support.⁶

Who is most affected?

About 21,100 properties will fall into the high‑value bracket versus 750,000+ benefitting from the lower RHL multipliers. The burden of the higher rate multiplier is therefore concentrated on a small proportion of properties. For the hotel sector, industry commentary points to “millions” being added to the bills of the largest properties, with the collective bill for four‑ and five‑star London hotels rising by roughly 25%, and two individual luxury hotels likely to experience increases of more than £1m.⁷ 

UK Hospitality estimates the average hotel bill will rise by up to £29,000 in 2026 and £111,300 by 2028/29 - roughly £205,200 over three years. The impact does not appear to be confined to large corporate groups. Comments from the chief executive of the Institute of Hospitality (reported in the UK press) reflected the view of the owner of a “small London hotel group which will see its bill go up four-fold from £20,000 to £80,000 a year”.⁸

Early market reaction

Listed hotel groups with UK exposure have moved quickly to re‑underwrite their cost bases. Whitbread (Premier Inn) referred to an additional £40–50m in annual costs by FY27 due to rates reform, with planned £60m cost savings to help offset this - shares fell over 10% following the warning, and several brokers downgraded the stock.⁹ 

Scandic Hotels Group was also downgraded, with analysis citing the Budget 2025 as a “significant concern”. The group has recently taken over operating Dalata Hotels, which has a high concentration of UK assets. Morgan Stanley analysis calculates that the business rates change will add in the region of €10m to the UK rates bill of the Dalata assets.¹⁰

Geographic and asset‑class disparities

The impact of the high‑value multiplier is geographically uneven. More than 50% of in‑scope properties are in London and the South East, reflecting higher property values in those regions.¹¹ 

London properties also face the Greater London Authority £0.02 business rate supplement for RVs over £75,000 (which helps fund Crossrail), further compounding the impact of the rates increase. 

It has also been reported that the revised rates regime has produced sharp rises in major cities but a reduction in certain seaside locations.¹²

There is debate about whether the policy targets its intended base. Although the Government highlighted large distribution warehouses as a key contributor as a result of the increased rates, they make up less than 10% of in‑scope properties.¹³ As far as the hotel sector is concerned, UK Hospitality analysis suggests average hotel bills will rise by 115% over three years, while distribution warehouses see only about 16% by 2028/29, implying hotels bear a disproportionate share of the rates burden.¹⁴ 

As with all measures that operate using thresholds, there is a risk of particularly harsh effects on those who fall just the “wrong” side of the set thresholds. Some hotels already operating on lean margins with a customer base unable to accept further rises in average daily rates could find it very difficult to absorb the new rate costs. 

Strategic implications for investors and lenders

Although difficult to predict, there is potential for a broad adverse impact from higher business rates for some hotels.

For hotel owners and lenders, the business rate changes raise fixed operating costs and can compress NOI and capital values, particularly in high‑RV, full‑service assets. This may mean:

• Changes to prices? 

Operators are experiencing upward cost pressures from increased labour costs (e.g. increased NICs and national minimum wages) and have already built-in operating efficiencies following the pandemic. It is not easy to see where further cost reductions can be found to offset the rates increase for affected hotels. Operators may look to increase average daily rates to absorb the higher rates where feasible. However, the introduction of an overnight visitor levy (“tourist tax”) could limit the extent to which operators feel able to use pricing as a method of absorbing the additional rates burden, without deterring bookings. 

• Investment deterrent?

Britain has a high level of property tax when compared to other leading economies, an additional business rates multiplier will hit bottom line costs for hotel owners/operators, and this will be a consideration for investors as these increased costs translate into significant reductions in the value of some hotels. 

• Capex deterrent?

This additional pressure will likely result in closer review of overall spend with the potential to impact the ability of hoteliers to invest in upgrading of stock and amenity offerings. This goes to market competitiveness (customers are demanding an increasing array of services), brand (maintenance of a benchmark quality) and sustainability (environmental and efficiency standards). 

• Appeals backlog?

Rating appeal activity may rise post‑1 April 2026 given known valuation inconsistencies in FMT‑based assessments for hotels, potentially creating administrative delays and protracted cash flow uncertainty. 

Investment outlook

Despite the near‑term drag of the rates reform, it can at least be said that the policy reduces uncertainty by clarifying rate structures from April 2026, allowing underwriting updates now, rather than later. Broader conditions (such as a falling interest‑rate environment, transparent regulation, and legal certainty) remain supportive of considered investment in the hotel sector, particularly into assets with pricing power, revenue agility, and demonstrable cost control in markets where demand fundamentals are intact. 

Practical takeaways

Near-term actions for hotel owners/operators include:

• re‑underwrite 2026–2029 business plans with updated RVs and multipliers, including London supplements where applicable;
• prioritise assets at or above £500,000 RV for impact assessment as portfolio‑level effects can be material;
• revisit capex timing and pricing strategy; and
• monitor transitional relief details and evaluate scope for valuation appeals from April 2026. 

Policy perspectives

This issue highlights the difficulty in reforming business rates, particularly when the Government is unable or unwilling to forgo a significant part of the £34bn it raises from it. It faced a particular problem because of the ending of a temporary relief for smaller RHL properties announced by the previous government, which was going to result in many small businesses seeing increases in business rates. It has protected these smaller businesses, but at the expense of a smaller number of larger businesses that now face the prospect of a hefty increase. This adds to the complexity of the business rates system and creates additional uncertainty for investors in the sector, but was obviously judged to be politically the “least worst” option.