Hotel rateable values have risen sharply under the 2026 business rates revaluation, prompting a government review of how hotels are valued and whether the current methodology remains fit for purpose.
Across England and Wales, the median rateable value for hotels increased by 32.2% between the 2023 and 2026 revaluations. The government says the increase largely reflects the recovery in hotel trading from the pandemic-affected conditions that underpinned the previous rating list.
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The 2026 revaluation took effect on 1 April and is based on rental values and economic conditions at 1 April 2024. By contrast, the 2023 revaluation was based on a valuation date of 1 April 2021, when hotels were still operating under the effects of the Covid-19 pandemic.
The government announced in January that it would review how pubs and hotels are valued following concerns raised by ratepayers and sector representatives. HM Treasury formally launched the independent review and a call for evidence on 24 August, examining whether the existing methodology accurately reflects the markets for the two sectors and whether the valuation process is sufficiently clear and transparent.
The review will not change hotels’ 2026 rateable values. Any recommendations accepted by the government are intended to inform the next revaluation, scheduled for 2029.
Why hotel rateable values increased
A property’s rateable value is an estimate of its annual open-market rental value at a specified valuation date. It is not the amount a hotel pays in business rates. Local authorities use the rateable value, together with the applicable multiplier and any reliefs, to calculate the final bill.
For hotels, the difference between the valuation dates underpinning the 2023 and 2026 rating lists is particularly significant.
On 1 April 2021, the hotel sector was operating in highly unusual conditions because of Covid-19. There was limited evidence of normal hotel rents and trading, and the Valuation Office applied substantial adjustments to pre-Covid trading evidence when estimating rental values.
By 1 April 2024, no Covid-19 restrictions applied. The government says this contributed to significant increases in rateable values at the 2026 revaluation because the adjustments used during the pandemic were no longer appropriate.
The VOA makes the link more directly in its dedicated guidance on hotel valuations, stating that increases in 2026 rateable values “reflect the increase in hotels’ trade since 2021”.
The longer-term figures put the latest increase into context. Median hotel rateable values fell by 15.2% between the 2017 and 2023 revaluations, largely because of Covid-19 and the associated valuation adjustments. They then rose by 32.2% between 2023 and 2026. Across the full period from 2017 to 2026, the median increase was 18%.
There are also substantial regional differences. The median 2026 hotel rateable value is £247,000 in London, compared with £112,000 in the North West and £40,000 in Wales.
How hotels are valued for business rates
The Valuation Office does not use a single method to value every hotel.
Small independent hotels are generally assessed using rental comparisons. The VOA normally classifies a hotel as small if it has 20 bedrooms or fewer, or up to 50 bedrooms in central London, provided it has no other facilities and is run as an individual business or part of a small group.
Where not every small hotel has been rented, the VOA uses “double bed units” to compare properties. A double room, including a twin or king room, counts as one double bed unit. The VOA uses rental evidence to establish values per unit for similar hotels in similar locations.
Larger independent hotels and chain hotels are assessed differently because there are relatively few suitable open-market rental transactions. Many are owner-occupied or operate through management agreements, franchises or long-term leases that may not provide reliable evidence of open-market rental value.
The VOA therefore generally uses the receipts and expenditure method for these properties. It uses trading information to estimate the rental value that the property could support.
The principle is important: the valuation is intended to reflect the property and its trading potential, rather than the actual performance of its current operator.
Why hotel trading matters
Central to the receipts and expenditure approach is “fair maintainable trade”, or FMT. This is the annual level of trade a hotel could reasonably be expected to achieve if operated in a reasonably efficient way.
The VOA applies a percentage to FMT to calculate the property’s rateable value. The percentage varies according to factors including location, hotel type, service level and the services offered, such as food and drink, spa and conference facilities. It also considers expected profit and trading performance.
This means two hotels with similar levels of turnover do not necessarily receive the same rateable value. Their location, type, services and trading profile can all affect the assessment.
For the 2026 revaluation, the VOA analysed full receipts and expenditure information from approximately 300 hotels. The evidence was used to develop a valuation scheme covering more than 7,000 hotels in England and Wales.
The scheme categorises hotels according to factors including location and service level, with separate treatment for central London hotels, lodges and aparthotels.
Why the government is reviewing hotel valuations
The government announced the review in January after ratepayers and sector representatives raised concerns about the methodologies used to value pubs and hotels and their outcomes for individual properties.
The August call for evidence says there is “considerable concern in the pub and hotel sectors about the outcomes of the 2026 revaluation”, including sizeable increases for many individual properties. It also says economic and operational changes have increased the importance of valuations remaining relevant and responsive to market conditions.
The review is examining whether the existing valuation methods remain appropriate, whether the evidence used adequately reflects the market, how the methods are applied to individual properties and whether valuations are explained clearly enough to ratepayers.
For hotels specifically, the government is seeking evidence on whether alternative or additional approaches could produce more accurate valuations, whether the existing categories adequately reflect differences between properties and how well the VOA applies the scheme to individual hotels.
The review also has the backing of major hotel operators. Neal Jones, president EMEA at Marriott International, said the current methodology creates a “significant burden for hotels” and welcomed scrutiny of whether the system is “fair, transparent, and reflective of today’s market realities”.
Rating specialist Jerry Schurder is leading the independent review. He said stakeholder evidence and engagement would be “central” to assessing how the current valuation methodologies operate in practice and whether they remain fit for purpose.
Industry helped shape the current system
The current hotel valuation methodology was not developed by the VOA in isolation.
The government says hotel valuation schemes have been agreed with UKHospitality since at least the 2000 revaluation. For the 2026 scheme, discussions involved UKHospitality’s appointed professional agent, who liaised with other rating agents.
The agreed elements generally cover the valuation approach and the range of rental percentages. The VOA prepares the remaining guidance and applies the scheme to individual properties.
The 2026 hotel scheme was therefore developed with industry input. The government’s review is now examining whether that process, as well as the methodology itself, can be improved.
What hotel operators need to know
For hotel owners and operators in England and Wales, the immediate position is unchanged. The 2026 rateable value remains the basis for calculating business rates.
Operators can check their property’s rateable value through the government’s business rates valuation service. Registered ratepayers can also request a summary valuation showing how a trade-based assessment was calculated. This can include the FMT adopted by the VOA and the valuation percentages applied.
The review itself will not reopen or alter the 2026 rating list simply because the methodology is being examined. Its focus is the approach that could be used for future valuations.
For the hotel industry, the distinction is important. The 2026 revaluation reflects market conditions at the April 2024 valuation date and the recovery from the unusually depressed conditions of April 2021.
The Treasury review will now consider whether the methodology used to translate hotel rental and trading evidence into rateable values remains appropriate for the next revaluation and beyond.
Hotels, representative bodies and valuation professionals have until 16 October 2026 to submit evidence. Schurder is due to report to HM Treasury by the end of March 2027, with any recommendations accepted by the government intended to inform the next revaluation.
