Decapitalisation Rate for the 2026 Revaluation: business regulatory impact assessment

Introduction

This is a Final Business and Regulatory Impact Assessment for the decapitalisation rates for the 2026 revaluation in Scotland.

Non-domestic rates, sometimes referred to as business rates, are a property tax based on the rateable value (RV) of a property. RVs are derived from net annual values (NAV), which are based on the annual rental value that a property would attract in an open market if vacant and to let. Rating valuations are carried out by independent Scottish assessors and RVs are periodically updated at revaluations taking into account changes to general market conditions. The most recent valuation was on 1 April 2023 based on rental values (‘tone date’) as at 1 April 2022. The next revaluation is on 1 April 2026 with a tone date of 1 April 2025. The draft valuation roll is due to be published on 30 November 2025.

While most RVs are based on estimated annual rent, around 9% of subjects (23,400, of which 43% are in the public sector), accounting for 24% of total RV (£1.8bn) are derived using the Contractor’s method of valuation. One of the inputs used in this method of valuation is the decapitalisation rate: the NAV and RV is calculated by multiplying this rate by the estimated capital value of a property.

Prior to 1990, valuation offices across the UK set their own decapitalisation rate(s) but there were difficulties in determining how the decapitalisation rate(s) should be derived and at what level it/they should be set. This created uncertainty as to the rates liability of those whose properties were valued using the Contractor’s method, and ultimately also to non-domestic rates income.

Since 1990, the decapitalisation rates have been prescribed using regulation-making powers contained in the Valuation and Rating (Scotland) Act 1956. For the 2023 revaluation, the standard rate was maintained at 4.6% and the lower rate at 2.9% for educational establishments and church and healthcare properties which had been set under the Valuation for Rating (Decapitalisation Rate) (Scotland) Regulations 2016.