Business Rates on Mixed-Use Property: What Shop-and-Upper Owners Really Pay

A shop-and-upper property has two separate public-charge systems.

• The shop normally pays business rates.
• The residential uppers normally pay council tax.
• The amount depends on the valuation and assessment recorded by the relevant authority.
• The owner’s exposure changes when the commercial unit is vacant or the lease places liability on the owner.
• Reliefs must be confirmed with the billing authority. They should not be treated as guaranteed income or savings.

This article focuses on England, Wales and Scotland. The rules are not identical across the three nations.

Summary of the main points

• Rateable value is not the business rates bill. The local authority applies a multiplier and then considers reliefs.
• The commercial and residential parts may be assessed as separate hereditaments or within a composite assessment. This is decided by the valuation authority, not the owner.
• A tenant will normally pay business rates while occupying the shop. The liability can return to the owner during a void.
• Empty property relief is not uniform across England, Wales and Scotland. Confirm the period and conditions with the billing authority.
• Small business rates relief depends on the rateable value, the occupier’s property portfolio and changes in ownership or occupation.
• The 2026 revaluation changed rateable values from 1 April 2026. Historic rent and historic rateable value should not be used without checking the new assessment.
• Model the shop and each flat separately before combining the results.
• The residential uppers can reduce concentration in the commercial income, but they have separate compliance, tenancy and council tax matters.

How the assessment is split

The Valuation Office Agency decides how a mixed-use building is assessed.

A typical shop-and-upper may have:

• One non-domestic hereditament for the shop, assessed for business rates.
• One domestic hereditament for each self-contained flat, assessed for council tax.
• A composite hereditament where the commercial and domestic parts are closely connected or the accommodation is not self-contained.

This is an assessment question. It is not a choice that can be made to obtain the preferred tax treatment.

For example, a shop with a separate entrance, commercial trading area and two self-contained flats above will often have one business rates assessment and two council tax assessments. The owner should check the current rating list and council tax valuation list before exchange.

The position may differ if the upper rooms share facilities with the shop, are used by the business, or are not legally or physically self-contained.

How business rates are calculated

The basic calculation is:

Rateable value × business rates multiplier = business rates before reliefs

Rateable value is an estimate of the property’s open-market rental value for rating purposes. It is not the rent actually collected, the purchase price or the property’s capital value.

From 1 April 2026, England uses the new 2026 rating list. The assessment is based on rental evidence from 1 April 2024. The Valuation Office Agency’s business rates service can be used to check current and past rateable values.

For England, the 2026–27 multipliers include:

• 38.2 pence for qualifying retail, hospitality and leisure properties with a rateable value below £51,000.
• 43.2 pence for other properties with a rateable value below £51,000.
• 43.0 pence for qualifying retail, hospitality and leisure properties with a rateable value from £51,000 to below £500,000.
• 48.0 pence for other properties with a rateable value from £51,000 to below £500,000.
• 50.8 pence for properties with a rateable value of £500,000 or more.

The applicable multiplier depends on the use and the rateable value. A shop does not automatically qualify for every retail relief or multiplier.

Wales has different 2026–27 multipliers:

• 35.0 pence for qualifying retail properties.
• 50.2 pence for the standard multiplier.
• 51.5 pence for the higher multiplier, generally applying to properties with a rateable value above £100,000.

Scotland also has a separate system:

• 48.1 pence for the basic property rate.
• 53.5 pence for the intermediate property rate.
• 54.8 pence for the higher property rate.

Check the relevant Welsh Government business rates guidance or Scottish Government guidance before relying on a figure.

Who pays during occupation and during a void?

The occupier normally pays business rates. On a full repairing and insuring lease, the tenant will often be responsible for the rates as part of its occupation costs. The lease must be checked. The lease may place the liability elsewhere.

The owner may face the charge when:

• The shop is vacant.
• The owner occupies the commercial space.
• The lease has ended but the tenant remains liable only for certain costs.
• The lease is unclear or the tenant cannot pay.
• The billing authority records the owner as liable.

A shop can therefore have no tenant rent payments while still creating business rates exposure. This is one of the main costs under-budgeted by buyers of vacant mixed-use property.

Empty property relief

In England, most empty commercial properties receive three months of empty property relief from the date they become empty. Certain industrial properties can receive a further three months. Listed buildings and some properties with a rateable value below £2,900 can have different treatment.

These rules should not be applied universally.

• Wales has its own non-domestic rates system and relief rules.
• Scotland allows local authorities to set empty property relief arrangements. There is no single national empty-property period that applies to every property in every council area.
• Property type, rateable value, occupation history and the reason for vacancy can affect the result.
• A short period of occupation does not automatically restart empty property relief. Do not assume that a brief occupation creates a new relief period.
• The billing authority should confirm the relief position in writing.

The GOV.UK empty property relief guidance should be reviewed alongside written confirmation from the local authority.

Small business rates relief and property ownership

In England, a business can usually claim small business rates relief where:

• The rateable value is below £15,000.
• The business uses one property, subject to rules for businesses using more than one property.
• The rateable value is £12,000 or less for the single property, which can result in no business rates being payable before other adjustments.
• Relief tapers between £12,001 and £15,000.

The relief relates to the business and its property holdings. It is not automatically attached to the building.

A buyer should not assume that the seller’s relief transfers after completion. The position can change when:

• The property changes hands.
• The occupier changes.
• The business takes another property.
• The investor or business already holds other commercial property.
• The rateable value changes after revaluation.
• The property becomes empty.

The GOV.UK small business rates relief guidance states that a business with more than one property may keep relief on its main property for a limited period, subject to the relevant conditions. Confirm the current position with the billing authority.

The 2026 revaluation

The 2026 revaluation took effect on 1 April 2026 in England and Wales. It changed the rateable value recorded for each non-domestic property.

A buyer reviewing historic information should therefore separate:

• The historic rent.
• The historic rateable value.
• The 2026 rateable value.
• The multiplier for the relevant year.
• Reliefs applied to the actual ratepayer.
• Any transitional relief.

A historic rates bill may not show the cost that applies after completion. It may also show relief claimed by a previous occupier that is not available to the buyer or the next tenant.

Check, Challenge, Appeal

In England and Wales, the process is generally:

• Check: confirm the property details, floor areas, use and other facts held by the Valuation Office Agency.
• Challenge: submit evidence if the rateable value is wrong.
• Appeal: take the matter to the relevant valuation tribunal if the challenge does not resolve the issue.

The occupier or ratepayer can use the business rates valuation account. A person with a qualifying interest or an authorised agent may also be able to act. The business rates valuation account explains the available service.

Scotland uses a separate assessor and appeal process. Use the relevant Scottish assessor before relying on the England and Wales process.

Worked illustration: shop with two flats above

This is an illustrative example only. It is not a valuation of any actual property and does not predict a bill.

Assume:

• The shop is in England.
• The shop is used for a qualifying retail purpose.
• The shop has a 2026–27 rateable value of £30,000.
• The small business retail, hospitality and leisure multiplier is 38.2 pence.
• There are two self-contained flats above.
• Each flat is assumed to be in council tax Band D.
• For illustration, the council tax charge is assumed to be the 2026–27 England average Band D charge of £2,392. The actual charge depends on the local authority.

The commercial calculation is:

£30,000 × £0.382 = £11,460 annual business rates before reliefs

The residential calculation is:

• Flat one: £2,392 annual council tax.
• Flat two: £2,392 annual council tax.
• Total council tax used in this illustration: £4,784.

The combined property-level public charges are therefore:

£11,460 + £4,784 = £16,244 before reliefs and other costs

If the shop becomes vacant for twelve months and the normal three-month English empty property relief applies, the illustrative business rates exposure after relief would be:

Nine months × £11,460 ÷ 12 = £8,595

The flats are separate. If they remain occupied, the residents will normally be responsible for their council tax. If they are vacant or the letting arrangement places liability on the owner, the actual council tax position must be checked with the local authority. On the illustration’s figures, adding both council tax charges would produce £13,379 of public-charge outgoings during the year.

The example shows why the uppers are a partial hedge, not a complete hedge. They can continue producing tenant rent payments while the shop is empty, but the two flats have separate tenancy, safety, energy and council tax requirements.

Residential letting arrangements must also comply with current law. From 1 May 2026, do not model a strategy around serving a new Section 21 notice.

Ownership structure and tax planning

The choice between a limited company and a limited liability partnership does not determine the business rates assessment. The valuation authority will assess the property and the ratepayer based on the facts of occupation and ownership.

The structure can still affect the wider investment position:

• A limited company may own the property and receive commercial rent, subject to company taxation and extraction considerations.
• A limited liability partnership may allocate income and qualifying expenditure between members, subject to the partnership agreement and tax advice.
• A pension arrangement may be able to hold commercial property, but residential uppers require careful separation and specialist advice.
• Capital allowances may apply to qualifying fixtures and commercial equipment. The commercial and residential parts must be apportioned correctly.
• Capital gains calculations also require a defensible division between commercial and residential elements.

Read Realty Packaging’s guides on capital allowances for shop-and-upper property and capital gains tax on mixed-use property. For a vacant asset, also review the commercial property due diligence checklist.

Tax-advantaged strategies are not automatic. Capital allowances, pension ownership, company structures and reliefs require separate professional review. Returns are not guaranteed.

Buyer’s due diligence checklist

Before exchange, obtain and evidence:

• The current commercial rateable value and the 2026 rateable value.
• The assessment details, including property description, floor areas and use.
• Confirmation of whether the building is assessed as separate or composite hereditaments.
• The rates bill history from the seller.
• Details of all reliefs claimed by the seller or current occupier.
• Written confirmation of whether any relief is expected to continue after completion.
• The lease clause dealing with business rates, including any full repairing and insuring obligations.
• The liability position during a void.
• The council tax band and current charge for every residential upper.
• The occupancy position and liability for council tax if a flat becomes empty.
• Confirmation from the billing authority before exchange.
• Separate income and cost models for the shop and each flat.
• Separate compliance checks for planning, fire safety, energy performance and residential letting requirements.

Business rates and council tax are outgoings that must be evidenced. They should not be estimated from the purchase price, a seller’s historic bill or a headline yield.

Information and discussion only: This article is not financial, tax or legal advice. Rules, assessments, reliefs and billing authority decisions can change. Obtain advice from suitably qualified advisers before buying or structuring a mixed-use property.

Capital at risk: Commercial property values, tenant rent payments and income can fall. A property may remain vacant, costs may exceed estimates and invested capital may not be recovered. Returns are not guaranteed.