Understanding Commercial Property Tax Rates in the UK: A Complete Guide

In the UK, commercial property rates – more commonly known as business rates – represent a key element of the tax system applied to non-domestic properties. For business owners, especially those occupying industrial units or office spaces, understanding these rates is crucial for managing overheads and long-term planning. However, the mechanisms behind business rates can often seem complex, with regular revaluations, rate relief options, and regional variations. This article offers a comprehensive look at how commercial property rates work, why they matter, and how businesses can align with these financial and regulatory challenges.

An Overview of Commercial Property Rates

Business rates are a tax on most non-residential properties, including factories, warehouses, retail shops, and offices. Introduced to fund essential local services, these rates contribute to community amenities, infrastructure, and local public services. Unlike residential council tax, which is based on property value, business rates on industrial units and other commercial spaces are calculated using a property’s “rateable value” – an estimated rental value set by the government’s Valuation Office Agency (VOA).

The revenue from business rates helps local authorities finance critical services like schools, transportation, and waste management, making it essential for supporting local economies. For companies, particularly those in the logistics or warehousing sectors where property needs are substantial, understanding business rates is crucial in managing operational costs and making location decisions that maximise financial efficiency.

How Are Commercial Property Rates Determined?

Rateable Value

The process of determining commercial property rates starts with assessing a property’s rateable value, which represents an estimate of the annual rent the property could achieve on the open market. The VOA assigns a rateable value to each property based on its type, location, and typical market rents. These values are reassessed every three years to reflect changing market conditions.

Multipliers

Once the rateable value is set, the government applies a multiplier – a set amount per pound of rateable value, which is reviewed annually. In England, business rates are calculated by multiplying the rateable value by the appropriate multiplier.

2024 to 2025 Tax Year

As of the time of writing (November 2024), multipliers in England and Wales are set as below:

Standard multiplier 54.6 pence

Small business multiplier 49.9 pence

For example, an industrial unit with a rateable value of £100,000 would incur annual business rates of around £54,600, based on the small property multiplier.

Find the latest rates on the GOV.UK website.

Reliefs, Exemptions, and Managing Commercial Property Rates

Given the financial burden business rates can pose, especially for SMEs and new ventures, the UK government provides various reliefs and exemptions to make commercial property rates more manageable. Small Business Rate Relief (SBRR) is available for smaller properties, offering partial or even full relief if a property’s rateable value falls below certain thresholds. SBRR can significantly reduce business rates on industrial units used by small companies, thereby enabling these businesses to allocate resources more effectively.

Additional relief schemes include exemptions for properties used for charitable purposes, agricultural use, or properties that become temporarily vacant. Furthermore, transitional relief is sometimes available to ease the impact of rate increases after a revaluation period. Many industrial property developers and tenants, especially in warehousing, use these reliefs strategically to maintain profitability without compromising on location or facilities.

These relief measures, combined with the three-year revaluation cycle, give businesses opportunities to adjust their financial strategies as market conditions shift. For instance, if a business reconfigures its operations or shifts to smaller premises, it may become eligible for reduced rates upon the next revaluation.

Business Rates on Industrial Units: Key Considerations

For property such as Panattoni’s industrial units in Basingstoke, the nature of the property can significantly impact the rateable value, given that these buildings often have large footprints, specialised configurations, and specific zoning requirements. Unlike retail properties, which may see fluctuations in rental values due to consumer demand, industrial properties are valued based on factors such as proximity to transport hubs, accessibility, and overall market demand in the area.

Business rates on industrial units can thus vary widely depending on factors like warehouse size, location, and the specific layout or features. For companies in the logistics sector, selecting a property with manageable business rates can support long-term viability and contribute to efficient supply chain operations. Additionally, as warehouse demand grows with the rise of e-commerce, industrial units in prime locations often see higher rateable values due to their strategic importance in modern distribution networks.

Where to Find Help Navigating Commercial Property Rates

For business owners, understanding commercial property rates and managing business rates on industrial units can be challenging without specialised guidance. Fortunately, there are several resources and expert services available to help navigate this complex area.

Your Local Authority

Local authorities are often the first point of contact for information on business rates. Each local council has dedicated staff to answer questions and provide guidance on how commercial property rates are calculated. These local offices can also advise on any relief or exemptions that might apply to specific types of properties or businesses. For larger industrial tenants, working with local authorities can be essential for exploring potential rate relief options.

GOV.UK

Another valuable resource is the government’s official business rates page, hosted on GOV.UK. This online portal explains the basics of commercial property rates, rateable values, and multipliers, and offers detailed guidance on the different types of relief and exemptions available. The GOV.UK site also allows property owners to look up their rateable value, access forms, and view announcements about rate changes and upcoming revaluations.

Expert Advisors

For companies that need in-depth assistance, especially those with larger property portfolios, hiring a professional rating surveyor can be highly beneficial. These experts specialise in assessing and managing business rates for properties, including business rates on industrial units. A rating surveyor can conduct a detailed review of rateable values, negotiate on behalf of the tenant with local authorities, and ensure the company is taking full advantage of available reliefs. Surveyors can also assist with appeals if the rateable value assigned to a property seems disproportionate.

Industry Bodies

In addition to professional advice, industry organisations such as the British Property Federation (BPF) provide guidance, policy updates, and advocacy on commercial property matters. The BPF, along with other professional bodies, often works to address common industry challenges related to business rates and can offer insights into upcoming policy shifts and advocacy opportunities.

Panattoni UK: Leading the Way in Efficient and Sustainable Property Development

In the commercial property sector, where managing overheads is essential, Panattoni UK is at the forefront of creating innovative, cost-effective solutions that support both tenants and communities. As one of the largest developers in the industrial and logistics space, Panattoni understands the impact of business rates on industrial units and designs properties with efficiency, flexibility, and sustainability in mind.

Panattoni’s commitment to creating cost-effective and sustainable spaces directly benefits businesses managing high commercial property rates. Through features like energy-efficient insulation, optimised building layouts, and low-carbon construction materials, Panattoni’s industrial developments will help to minimise possible future rateable value increases linked to energy consumption and carbon output, aligning with national objectives to reduce emissions. This strategic approach helps tenants balance operational costs while supporting broader industry and regulatory shifts toward sustainability and efficiency.

FAQs

How do I calculate the value of a commercial property?

Calculating the value of a commercial property involves considering several factors, including the property’s location, current income, and potential for future income growth. One common method is the income capitalisation approach, where the property’s net operating income (NOI) is divided by the capitalisation rate (cap rate). For example, if a property generates £100,000 in annual income and has a cap rate of 5%, its estimated value would be £2 million (£100,000 / 0.05). Additional factors, such as market demand and recent sales of comparable properties, also influence the property’s value. Property investors often consult a professional surveyor for an accurate valuation, particularly when assessing commercial property rates.

How much is a commercial property per square foot in the UK?

The cost per square foot of a commercial property in the UK varies greatly depending on the region, property type, and local market conditions. In prime locations, such as central London, prices can reach several thousand pounds per square foot, while properties in regional areas or industrial zones may cost considerably less, often between £50 and £200 per square foot. The property’s condition, accessibility, and amenities also influence its cost. Prospective buyers and tenants are encouraged to review commercial property rates in the desired area and consult with local real estate agents to gauge current market prices.

What is the cap rate for commercial property in the UK?

The cap rate for commercial property in the UK typically ranges from 4% to 8%, depending on the property type, location, and market conditions. Prime properties in high-demand areas, such as retail or office spaces in London, often have lower cap rates around 4%, reflecting their stable income and lower risk. In contrast, properties in secondary markets or with higher risk may show cap rates closer to 8%. The cap rate helps investors estimate the return on their investment, making it a key metric in assessing business rates on industrial units and commercial properties overall.

How much are business rates in the UK?

In the UK, business rates are a form of tax on commercial properties and are calculated based on the property’s rateable value, which is assessed by the Valuation Office Agency (VOA). The rateable value is then multiplied by the uniform business rate (UBR), also known as the multiplier, set annually by the government. For the 2024-25 tax year, the standard multiplier in England is 54.6p, meaning a property with a £20,000 rateable value would incur business rates of £10,920 (£20,000 x 0.546). Businesses may be eligible for reliefs or exemptions based on property type or size, so consulting with a rating surveyor can be valuable to ensure accurate calculations and potential savings on business rates on industrial units.