What is the rateable value of your commercial property? Many businesses, tenants and property owners aren’t 100% clear on what rateable value is and how it’s calculated. But it’s an essential part of your property investment knowledge bank, something you need to understand fully to help you make great decisions going forwards. Here’s what you need to know about the many ins and outs of rateable value.
Rateable Value Definition
What is a rateable value? Your commercial property’s rateable value is what’s used to figure out the business rates you pay, carefully assessed by the Valuation Office Agency, which is part of HMRC. The rateable value of a property is based on an assessment of the annual rent the property would provide if it was let on the open market at a fixed valuation date. Business rates are local taxes paid by those who occupy non-domestic and business properties, just like people council tax on their homes. Business rates affect shops, offices, pubs, warehouses, factories and more, and the definition covers all properties not used for domestic purposes.
Business rates bills are annual. The amount you pay is calculated based on your property’s rateable value, which at the moment means the open market rental value at 1st April 2015. These initial estimates are made by the Valuation Office Agency but you can estimate your own. All you do is multiply your rateable value by the right multiplier, which is set by the government. If you qualify, you can get your bill reduced through something called business rates relief.
The Valuation Office Agency changes the rateable value of business properties to reflect changes in the property market as a whole, usually every five years. You can estimate your current rateable value here.
How is rateable value calculated
Rateable value is calculated using one of two multipliers. One is the standard non-domestic rating multiplier, the other is the small business non-domestic rating multiplier. Your local authority figures out the business rates you’ll pay by multiplying the rateable value of the property in question by the relevant multiplier. The multipliers are set by the government and change every year in line with inflation.
- The standard multiplier for 2021/22 is 51.2p
- The small business multiplier for 2021/22 is 49.9p
Imagine your business property has a Rateable Value of £100,000. That isn’t enough to qualify for small business rate relief, so it falls under the standard multiplier, 51.2p. Your basic rate charge for one financial year is a multiple of the rateable value by the standard multiplier, £0.512. Your annual bill is £100,000 x 0.512 = £51.200 excluding any transitional arrangements or reliefs.
It’s important to know rateable value is calculated in different ways throughout the UK, depending on your local council.
Can rateable value change
What about rateable value changes? Your rateable value can change. This can occur thanks to revaluation, where the Valuation Office Agency adjusts the rateable value of business properties to reflect the property market. The most recent revaluation happened in England and Wales on 1st April 2017, based on the rateable values taken on 1st April 2015.
Your business rates can also change if you move or make changes to the premises, the nature of your business changes, you sublet part of the property or merge two or more different properties into one. It’s your job to report the changes to make sure you’re paying the right amount. If not you could get a backdated increase.
You might be able to get a temporary business rates reduction if there’s severe local disruption from things like flooding, building and roadworks. And if you believe your rate is wrong you can check the rateable value used by your local council to calculate your bill. You’re allowed to ask for changes to property or valuation details if you think they’re wrong, look at the valuations of other properties, and change the rateable value if eligible.
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Exemptions on business rates
What about business rate exemptions? Some properties are exempt from business rates. Agricultural land and buildings, including fish farms, can be exempt, as can buildings used for training or for the welfare of disabled people, and those registered for public religious worship, including church halls. But all of these come with strict exemption rules that you’ll need to be aware of.
If your property stays empty for 3 months you don’t have to pay business rates. If it stays empty for longer, you’ll be charged the full rate. And a few kinds of property can qualify for something called extended empty property relief. Industrial premises are exempt for another 3 months. Listed buildings are exempt until they’re reoccupied. Those with a rateable value less than £2,900 are also exempt until occupied, and places owned by charities are exempt as long as they’re mostly used for charitable purposes. Last but not least, community amateur sports clubs buildings are exempt as long as next time they’ll be used it’ll be mostly as a sports club.
Retail relief of as much as £1,000 is available for retail properties, but the criteria are strict. Your building must have a rateable value of £50,000 or less, mainly used as a café or drinking establishment, restaurant or shop. If you’re based in a building formerly registered for retail you may be able to claim business rate relief at 50% if it was empty for a year or more before you moved in.
As a charity you can get as much as 80% relief as well as other potential reductions – it depends on your local council.
Small business rate relief kicks in when your property’s rateable value is less than £12,000. Rural rate relief is a mandatory 50% for rural businesses in an area with a population of less than 3,000. This can go up to 100% at the discretion of local councils. Rural retail businesses with rateable values less than £16,500 can also apply for extra local business rate reductions.
There are 24 enterprise zones in England designed to boost trade, help local communities and provide local jobs. When you start a business in one of them or relocate to one, you might be eligible for as much as 100% relief on business rates for as long as 5 years, to a maximum of £275,000.
So now you’re a rateable value expert!
It’s good to know you can ask for your rateable value to be changed if you think it’s unfair or wrong. And it’s great to know there are so many exemptions to claim. Rate reductions can make a big difference, so why not check the rateable value of your commercial property to make sure all’s well?