Commercial property improvements that increase rateable value will sit outside the government's new two-year business rates freeze for qualifying retail, hospitality and leisure properties in England.
The Budget measure caps eligible bill increases by CPI inflation in 2027/28 and 2028/29, but updated guidance from the Ministry of Housing, Communities and Local Government says the cap will not cover increases in rateable value resulting from improvements. Losses of other reliefs, including improvement relief after 1 April 2026, are also outside the freeze.
For owners and occupiers planning extensions, additional floorspace or new building services, that leaves the rating effect of the works as a separate cost consideration. The government itself has acknowledged that improvements capable of changing rental value can increase the subsequent business rates liability.
Construction works at Admiralty Arch in central London. Photo: London Construction Magazine
Improvement relief only covers qualifying works for one year
A separate improvement relief scheme can protect eligible occupiers from the increase for one year after qualifying works are completed. The works must increase the property's rateable value and either increase its size or add new features or equipment, such as heating, air conditioning or CCTV.
The eligibility rules draw a useful line for refurbishment projects. Improvements to existing features or equipment do not qualify under the current GOV.UK guidance, and the same ratepayer must occupy the property during and after the works. The Valuation Office decides whether the change qualifies and issues a certificate showing the effect on rateable value and when the relief ends.
That means two projects with similar construction values can receive different rating treatment depending on what is physically changed and whether the works meet the relief conditions. A new extension or newly installed equipment may qualify; replacement or improvement of an existing feature falls outside the stated eligibility test.
Treasury example shows how an improvement can cross a rates threshold
HM Treasury examined the investment effect directly in its Business Rates and Investment work. One illustrative case used a non-RHL property with a £495,000 rateable value undertaking £10,000 of improvements that increased its rateable value to £505,000.
Using the multiplier structure in the Treasury example, the property moved from the standard to the high-value multiplier. Its illustrative annual bill rose from £237,600 to £256,540, an increase of £18,940. The figures were used to test a possible alternative "slice" structure and are not a forecast for an individual property.
A second Treasury example used a property moving from £50,000 to £52,000 rateable value after £2,000 of improvements. Under the illustrated slab structure, the bill rose from £21,600 to £24,960 because the property crossed into the standard multiplier.
The Treasury said property investment is likely to affect rateable value where it is of a scale that would be reflected in rents. It also noted that most plant and machinery used as an integral part of a business process is covered by separate exemptions, so the rating consequence depends on the property and the work carried out.
RHL multipliers corrected after Budget day
MHCLG updated its Budget information letter on 30 October, two days after the Budget, to change the 2027/28 retail, hospitality and leisure multipliers. The department said the adjustment was needed so inflation was applied consistently with the policy intention.
The standard RHL multiplier is now set at 44.5p and the small-business RHL multiplier at 39.5p for 2027/28. The standard non-domestic multiplier remains 49.7p, the small-business multiplier 44.7p and the high-value multiplier 52.5p.
The wider Budget also raises the Small Business Rates Relief thresholds for qualifying RHL properties to £18,000 for full relief and £21,000 for tapered relief. The real-terms bill freeze runs until 31 March 2029.
Rates are already part of the investment debate
The property issue sits alongside a wider government review of how business rates affect investment. Airports and other large infrastructure operators have raised concerns about the predictability of valuations based on receipts and expenditure, particularly where capital projects have long investment horizons.
The Budget says government is addressing those concerns ahead of the 2029 revaluation. Treasury's review has also considered possible changes to the multiplier structure and further development of improvement relief once more evidence is available on how the current scheme is being used.
The measures add another cost test to a commercial refurbishment market that LCM identified before the Budget as one of the construction sectors still providing growth while wider private work remained under pressure. LCM's pre-Budget construction review recorded commercial refurbishment and fit-out as one of the areas partly offsetting weaker private housing and repair, maintenance and improvement activity.
Regulations and detailed guidance for the 2027/28 business rates changes are due in the coming weeks. The revised RHL multipliers published on 30 October are 44.5p for standard qualifying properties and 39.5p for qualifying small-business properties.
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