Portuguese Parliament approves "Fiscal Shock" for Housing: VAT drops to 6% and IRS reduced for rents

2026-02-18

The Portuguese Parliament has today approved, with the support of Chega and Iniciativa Liberal, a package of fiscal measures designed to boost the real estate market and ease the housing burden on families. This set of reforms introduces profound changes to the VAT Code and IRS (Personal Income Tax), with a direct impact on construction and the rental market.

Key Approved Measures:

6% VAT on Construction and Rehabilitation: The VAT rate drops from 23% to 6% for construction or rehabilitation contracts of properties intended for primary permanent residence (with a value up to 648,000 euros) or for affordable rental housing. This measure aims to lower production costs and, consequently, the final price of housing.
IRS Reduction for Landlords: The autonomous tax rate on rental income undergoes a significant decrease, falling from 25% to 10%. This benefit applies to lease agreements with monthly rents not exceeding 2,300 euros (equivalent to 2.5 times the 2026 minimum wage).
Capital Gains Exemption: An exemption from taxation on capital gains from the sale of real estate was approved, provided that the amount is reinvested in properties destined for the residential rental market.
Incentives for Tenants: The ceiling for rent deductions in the IRS rises to 900 euros in 2026, with a further increase to 1,000 euros projected for 2027.

Legal and Fiscal Impact: This legislative package requires a careful analysis of eligibility requirements. For instance, regarding the 6% VAT, the buyer must now ensure that the property is effectively destined for primary residence or affordable rental; otherwise, they may face tax penalties under IMT (Property Transfer Tax).

At GL, we are monitoring the implementation of these measures to ensure that our clients - owners, developers, or tenants - maximize these new tax benefits with full legal certainty.

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