London’s Luxury Hotels Face Business Rates Hikes, Passing Costs to Guests

Published on December 15, 2025

Luxury hotels in London are expected to see notable price increases from 2026, driven by a sharp rise in business rates. To manage the higher costs, many operators are likely to pass these increases on to guests, with room rates projected to rise by around 25% during the 2026–27 tax year. Research from property consultancy Savills indicates that the total annual business rates bill for four- and five-star hotels in the capital will jump from £335 million to £416 million.

These changes stem from recent budget announcements by Chancellor Rachel Reeves, which introduce “permanently lower tax rates” for more than 750,000 retail, hospitality, and leisure properties across the UK from 2026. However, the relief will be offset by a new levy on larger properties with a rateable value of £500,000 or more. Many luxury hotels in central London fall into this category, meaning they will shoulder a significant share of the cost. As a result, high-end hotels in prime areas such as the West End and nearby districts are expected to be among the most affected by the reform.

Impact of Business Rates Reforms

The steep rise in business rates is expected to place immense pressure on London’s luxury hotel sector. Two prominent luxury hotels in the city are projected to see their business rates bills increase by more than £1 million in the coming year. Meanwhile, an additional 16 hotels in the area face increases exceeding £500,000. As a result, hotel operators are likely to raise room rates to offset these additional costs, potentially making stays in London’s high-end hotels more expensive for guests.

The financial strain on luxury hotels is set to continue for the foreseeable future. According to Savills, the total business rates bill for four and five-star hotels in London is expected to climb to £535 million in 2027–28 and exceed £645 million by 2028–29. As these tax increases compound, hotel operators may face increased pressure to pass the costs on to guests, further inflating prices in an already expensive market.

In addition to the business rates increases, hotels have been grappling with rising operating costs in recent years. Minimum wage hikes, higher national insurance contributions, and increased energy and supply costs have already put pressure on margins. Many operators are expected to have little choice but to raise prices as a way of absorbing the impact of the new tax regime.

Effects on London’s Luxury Tourism

London’s luxury hotel sector plays a crucial role in attracting high-end international business travelers and tourists. The impact of rising business rates could make the city a more expensive destination, particularly for those seeking luxury accommodations. Operators and analysts alike fear that these sustained cost pressures could make London a less competitive destination in the luxury travel market.

The cost increases are not limited to London’s hotels. A number of hospitality venues, including bars, pubs, and restaurants, are also expected to feel the strain. The UK Hospitality industry body has raised concerns about the potential consequences for businesses, warning that many venues may be forced to reduce staff, raise prices, or, in the worst-case scenario, close their doors. These challenges could have a broader impact on the UK’s tourism industry, with potential knock-on effects for the overall visitor experience.

In terms of pricing, data from real estate analytics firm CoStar has shown that hotel prices in the UK, particularly in London, have already been rising. The average nightly rate for a five-star hotel in the UK increased by 41% from £253.75 in October 2019 to £357.17 in October 2025. As business rates continue to rise, the costs for guests staying in London’s luxury hotels are likely to climb even higher, further contributing to the overall trend of increased accommodation prices.

The Future of London’s Hotel Market

The London luxury hotel sector faces an uncertain future as business rates continue to climb and operating costs remain high. Large hotel groups like Whitbread, which owns Premier Inn, have already flagged the financial impact of the new tax regime, warning of increased costs and possible reductions in profitability.

As the UK government implements the new tax structure, there remains uncertainty about how the hotel industry will respond. While most hotels are expected to pass the cost on to customers through price increases, some may attempt to streamline operations, utilizing more tech-led solutions to cut costs and maintain profitability. This could lead to a shift in the way luxury hotels in London operate, with a focus on automation and more efficient service models.

Despite these challenges, London’s luxury hotels continue to be a vital part of the city’s tourism offering, attracting visitors from around the world. However, the ongoing rise in operating costs may force both tourists and businesses to reconsider their approach to visiting or hosting events in the capital.

Long-Term Impact on London’s Competitive Edge

Rising business rates and the resulting increase in prices risk weakening London’s appeal as a leading global tourism destination. With cities like Paris and New York offering vibrant hotel scenes and potentially more competitive pricing, London could face tougher competition in attracting high-end international visitors. If this trend continues, luxury travelers may begin to choose alternative destinations that offer the same level of comfort and experience, but at a more attractive cost.