In this paper we study the interplay between the operation of circuit-hyperplane relaxation and the Kazhdan--Lusztig theory of matroids. We obtain a family of polynomials, not depending on the matroids but only on their ranks, that relate the Kazhdan--Lusztig, the inverse Kazhdan--Lusztig and the $Z$-polynomial of each matroid with those of its relaxations. As an application of our main theorem, we prove that all matroids having a free basis are non-degenerate. Additionally, we obtain bounds and explicit formulas for all the coefficients of the Kazhdan--Lusztig, inverse Kazhdan--Lusztig and $Z$-polynomial of all sparse paving matroids.