What the 2026 business rates review means for hotels

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Business rates have long been one of the hospitality sector’s most difficult fixed costs to manage. Now, following significant increases in rateable values for hotels in the 2026 revaluation, the way hotel businesses are valued is coming under renewed scrutiny.

On 24 August 2026, the Government launched an independent review into the valuation methodology used to calculate business rates for hotels in England and Wales. The aim is to establish whether the current system accurately reflects how hospitality businesses operate today and whether valuations can be made fairer, clearer and more predictable.

For hotel operators, this matters beyond the rates bill itself. Property costs influence decisions about refurbishment, expansion, technology investment and the viability of individual sites. If the review leads to a system that better reflects the economics of running a hotel, it could have a wider impact on where and how operators choose to invest.

Why are hotel business rates being reviewed?

The scale of the 2026 revaluation has brought the issue into sharper focus. The median rateable value of hotels increased by 32.2% between the 2023 and 2026 revaluations. Across retail, hospitality and leisure as a whole, the equivalent increase was 12.7%.

There is important context behind those figures.

The 2023 revaluation was based on market conditions as of 1 April 2021, when COVID-19 restrictions were having an exceptional impact on the hospitality sector. The 2026 revaluation uses an assessment date of 1 April 2024, when those restrictions had disappeared and trading conditions had substantially normalised.

The resulting jump therefore partly represents the removal of pandemic-era valuation adjustments rather than a straightforward three-year increase in the underlying value of hotel property. Nevertheless, it has highlighted a more fundamental question: does the way hotels are valued adequately reflect the commercial realities of operating them?

That is the question the Government now wants the industry to help answer.

How hotel business rates are calculated is under scrutiny

Rateable value is intended to represent the annual rent a property could reasonably command on the open market at a particular valuation date.

However, valuing hotel property is not always as straightforward as valuing conventional commercial space.

Hotels are operating businesses as well as properties. Their commercial performance can be affected by occupancy, room rates, food and beverage revenue, staffing costs, utilities, distribution costs and the level of ongoing investment required to maintain the property and its brand standards.

The Government’s review will examine whether current valuation methodologies remain appropriate, what evidence is used, how the methodologies are applied in practice and whether valuations are sufficiently transparent to businesses.

Importantly, the call for evidence specifically asks how trading performance is reflected in rents and where current valuation approaches may fail to align with market reality.

For operators, this creates an opportunity to demonstrate something that can be lost in property-based taxation: revenue does not automatically translate into profit.

A hotel can generate significant turnover while simultaneously facing rising payroll, food, energy, maintenance and financing costs. The economics of the business can therefore look very different from its headline revenue performance.

Why this matters for hotel investment

The immediate debate is naturally about the size of business rates bills, but there is a wider issue at stake.

Hotels are capital-intensive businesses. Properties require continual investment simply to remain competitive, from bedroom refurbishments and restaurant upgrades to kitchens, technology, sustainability improvements and back-of-house infrastructure.

When fixed property costs increase significantly, the return required to justify those investments also increases.

That can affect decisions such as whether to refurbish a restaurant this year or defer it, whether to invest in new technology across an estate, whether an underperforming property remains viable or whether a potential acquisition or new opening produces an acceptable return.

A more predictable business rates environment would not remove these commercial pressures, but it could provide operators with greater certainty when modelling future investment.

For hotel groups planning several years ahead, certainty can be almost as important as the headline tax rate.

What could change for hotels?

For the hotel sector, the potential long-term importance of the review lies in reforming how properties are valued and creating a system that better reflects the economics of operating a modern hotel. However, operators should not expect the review to change their current valuations.

Any recommendations are intended to inform the next business rates revaluation in 2029. Existing 2026 rateable values will not be changed as a result of the review.

This means the review should be viewed as a longer-term opportunity to improve how hotel business rates are calculated rather than an immediate solution to higher bills.

The hotel industry has an opportunity to influence what comes next

The review is being led independently by business rates specialist Jerry Schurder and is expected to report to the Treasury by the end of March 2027.

Before then, the Government has launched a call for evidence inviting hotel operators, landlords, valuers, industry bodies and other stakeholders to contribute with the consultation closing on 16 October 2026. This could be particularly important for hotel operators.

Rather than focusing solely on whether individual rates bills are too high, the industry has an opportunity to provide evidence about how modern hotels actually generate revenue, how operating costs affect profitability, how rents are established and how investment requirements influence the economics of individual properties.

The stronger that evidence is, the better chance the industry has of helping shape a valuation methodology that reflects the sector as it operates today.

From a tax issue to a strategic issue

Business rates may traditionally sit within the finance or property function, but their impact reaches considerably further.

For operators already balancing wage pressures, food inflation, energy costs and the need to continually reinvest in their properties, another unpredictable fixed cost can influence decisions across the business.

A successful reform of the valuation system will not solve the wider cost pressures facing UK hotels. Nor will the current review provide immediate relief for operators facing higher bills following the 2026 revaluation.

What it could do is create a more transparent and predictable framework for the future.

And that matters because the question facing hotel operators is not simply “How much will we pay in business rates?” Increasingly, it is “What does our total cost base allow us to invest in next?”

If the new review can create a closer connection between business rates valuations and the genuine economics of operating hotels, its biggest impact may ultimately be measured not just in tax saved, but in investment unlocked.

Source: Government’s business rates valuation review and call for evidence