Budget 2026: business rates changes

Thousands of smaller shops, cafés, pubs, salons and gyms could pay less, or no, business rates from April 2027. Here’s what the changes mean for occupiers and landlords.

Rates are one of the largest fixed costs of occupying commercial property. Changes of this scale affect what tenants can afford, how leases are negotiated and how landlords’ position and let their properties.

What’s changing?

The headline measure is a significant increase in small business rates relief for retail, hospitality and leisure properties in England.

From 1 April 2027:

• Properties with a rateable value of up to £18,000, previously £12,000, will receive 100% relief and pay no business rates
• Tapered (partial) relief will apply to properties with a rateable value of up to £21,000, previously £15,000
• Bills for other retail, hospitality and leisure properties will be frozen in real terms for two years
• Pubs, social clubs and most live music venues will retain the additional 20% relief announced in July, while vape shops and adult gaming centres will lose certain reliefs.

The government expects the changes to remove around 70,000 more businesses from the business rates system. It says half of all retail, hospitality and leisure properties in England will pay nothing.

Full relief is generally available only when a business occupies one property, or one property and a small second property. Offices, industrial units and other non-retail premises will remain subject to the existing, lower thresholds.

What does this mean locally?

The West Midlands is well placed to benefit. The region has many smaller retail and hospitality units in town centres, market towns and neighbourhood parades, with rateable values close to or within the new relief band.

Analysis by BusinessRateChecker of the Valuation Office Agency rating list suggests that the region’s largest council area has more than 2,400 properties in the new band, more than anywhere else in England.

In Coventry, the median rateable value across more than 8,800 non-domestic properties is around £11,000. This means a large proportion of smaller premises are at or below the new thresholds.

The position is likely to be similar in Warwickshire market towns, including Leamington Spa, Warwick, Stratford-upon-Avon, Rugby and Nuneaton, where independent retailers and hospitality businesses make up much of the high street.

The Budget also confirmed a move towards local retention of business rates, with mayors receiving a share of business rates income from 2027. Over time, this could give the region greater influence over how that income supports local infrastructure and regeneration.

What does this mean for occupiers?

For eligible tenants, removing a rates bill worth several thousand pounds a year could make a significant difference to affordability.

Occupiers should:

• Check your rateable value. Relief depends on the rateable value set by the Valuation Office Agency, not the rent you pay. If your property is close to the £18,000 or £21,000 threshold, check your valuation and whether it’s correct
• Make sure you claim. You’ll usually need to claim small business rates relief from your local council, as it isn’t always applied automatically
• Think before you expand. Full relief generally depends on occupying one property. Taking a second unit or moving to larger premises could affect your eligibility, so factor this into your plans
• Consider the saving in negotiations. Lower occupancy costs may support a new letting, renewal or longer lease term. However, landlords may seek to reflect part of the saving in the rent.

Occupiers should also consider the wider cost picture. The National Living Wage is expected to rise by 3.9% from April 2027, while energy and employment costs remain high. For many businesses, rates relief may offset rising costs rather than create a net gain.

What does this mean for landlords and investors?

Although occupiers pay business rates, those costs affect the total amount a tenant can afford.

A meaningful reduction in rates for smaller retail and hospitality properties could:

• Support demand for smaller high street and local centre units, particularly in market towns and suburban parades
• Reduce void periods and the risk of tenant failure in secondary locations where affordability has been a long-standing challenge
• Give landlords some scope to strengthen rents at renewal or rent review, although tenants are likely to resist attempts to capture the full saving
• Make unit size and configuration more important, as splitting or reconfiguring space could affect whether a unit falls within the relief band.

Not every occupier will benefit. Relief thresholds for offices and industrial premises won’t change, while hotels have been left out of the additional relief available to pubs and live music venues. Landlords with mixed portfolios should review which tenants will benefit and which won’t.

What should you consider now?

The changes will take effect on 1 April 2027, giving occupiers and landlords time to plan.

Questions to consider include:

• Do your existing leases clearly allocate responsibility for business rates, reliefs and appeals?
• Are any rent reviews or lease renewals due in 2027 where the changes could affect negotiations?
• Could proposed lettings, assignments, sublettings or unit splits affect a tenant’s eligibility?
• For multi-site occupiers, could the portfolio structure affect access to relief?
• For landlords and investors, how could the changes affect demand, voids and the value of smaller retail and leisure assets?