Analysis of the New Tax Package for Housing in Portugal

Introduction

Faced with the growing crisis in the housing sector in Portugal, the Government submitted to the Assembly of the Republic, on December 2, 2025, Bill No. 47/XVII/1ª. This initiative, titled “Build Portugal: New Strategy for Housing,” aims to introduce a vast set of tax changes with the primary objective of encouraging the supply of properties for purchase and rent, boosting construction and rehabilitation, and facilitating access to housing. The legislative package focuses on significant modifications to Personal Income Tax (IRS), Corporate Income Tax (IRC), Value Added Tax (VAT), and Municipal Property Transfer Tax (IMT), seeking to positively influence the entire value chain of the real estate market.

This article offers a detailed analysis of the main proposed tax measures, consolidating information from specialized sources to provide a clear and structured view of the potential changes and their impact on landlords, tenants, investors, and real estate developers.

Main Proposed Tax Measures

The central element of the new government strategy is the reduction of the tax burden for agents who contribute to the increase in housing supply and, simultaneously, for citizens seeking to access the market. The measures apply to values considered moderate, establishing a ceiling of €2,300 for monthly rent and €648,022 for the sale price of eligible properties.

Value Added Tax (VAT)

One of the most anticipated measures is the reduction of the VAT rate on the construction and rehabilitation of properties intended for housing, which drops from the standard rate of 23% to the reduced rate of 6%. The application of this measure is, however, subject to specific conditions:

Type of Operation	Measure Details	Application Conditions
Construction for Own Residence	Partial VAT refund for the individual.	The owner pays VAT at 23% and subsequently requests a refund of 17% from the Tax Authority, which has 150 days to do so. The total value (land + construction) cannot exceed €648,022.
Construction/Rehabilitation for Sale	Direct application of the reduced rate of 6%.	The property must be sold as the buyer's own and permanent residence within a maximum period of 24 months after the completion of the work.
Construction/Rehabilitation for Rental	Direct application of the reduced rate of 6%.	The first rental contract must be signed within 24 months, and the property must remain rented for a minimum period of 36 months (consecutive or interpolated) within the first five years.

This measure applies to urban development operations initiated between September 25, 2025, and December 31, 2029, with the tax becoming due from January 1, 2026.

Personal Income Tax (IRS)

Within the scope of IRS, the changes aim to benefit both landlords who charge moderate rents and the tenants themselves.

• Reduction of the Tax Rate on Rental Income: The autonomous IRS rate on income from residential rental contracts (new and existing) is reduced from 25% to 10%, provided that the monthly rent does not exceed €2,300. This measure will be in effect until December 31, 2029.
• Exemption of Capital Gains on Reinvestment: Capital gains obtained from the sale of a property intended for housing are exempt from taxation if the sale proceeds are reinvested in the acquisition of another property in Portugal to be placed on the residential rental market (with rent up to €2,300). The reinvestment must occur within 6 months, and the property must remain rented for a minimum of 36 months in the first 5 years.
• Increased Deduction for Tenants: The tax credit in IRS for expenses with permanent housing rent is progressively increased, rising from the current limit of €800 to €900 in 2026 and to €1,000 from 2027 onwards.

Corporate Income Tax (IRC)

For companies that place properties on the rental market at moderate prices, the proposal provides for a significant reduction in the taxable base. Only 50% of the rental income earned from residential rental contracts (with rent up to €2,300) will be considered for IRC purposes.

Municipal Property Transfer Tax (IMT)

In contrast to the tax reliefs, the proposal provides for an increase in the IMT for non-resident buyers in Portugal. A single rate of 7.5% will be applied to the acquisition of residential properties. However, there are exceptions that allow for a refund of the difference to the general progressive rates, namely if the buyer becomes a tax resident in Portugal within two years or if the property is intended for rental at moderate prices under the conditions already mentioned.

New Incentive Schemes

In addition to the changes to existing taxes, the legislative package creates new structural schemes to encourage long-term investment.

Investment Contracts for Housing Rental (CIA)

A new investment contract scheme is created, entered into between the investor and the Institute for Housing and Urban Rehabilitation (IHRU), with a term of up to 25 years. This scheme is intended for construction or rehabilitation projects where at least 70% of the area is for residential rental at moderate prices. Investors who join will benefit from a robust package of incentives, including:

• Full exemption from IMT and Stamp Duty on the acquisition of properties.
• Exemption from IMI for a period of 8 years, followed by a 50% reduction in the rate in subsequent years.
• Exemption from Additional to IMI (AIMI).
• Application of the 6% VAT rate on construction works.

Simplified Affordable Rental Scheme (RSAA)

This new scheme replaces the previous Affordable Rental Program (PAA), maintaining the full exemption from IRS and IRC on rental income. To qualify, rents must be equal to or less than 80% of the median rent values per m² in each municipality, as defined by ordinance. The contracts must have a minimum term of 3 years.

Other Relevant Measures

The package also includes measures for administrative simplification and strengthening of legal certainty:

• Simplification of Licensing: Amendment to the Legal Regime for Urbanization and Building (RJUE) to streamline procedures, eliminating global deadlines and strengthening ex-post inspection, while increasing the responsibility of real estate developers.
• Security in Purchase and Sale: It becomes mandatory for the purchase and sale contract of a property to state whether a valid “urban planning title” exists, under penalty of annulment of the transaction, protecting buyers from acquiring properties with unresolved urban planning situations.

Conclusion

The “Build Portugal” tax package represents one of the most ambitious interventions in the housing market in recent years. Through a combination of significant tax incentives for supply and relief for tenants, the Government seeks to stimulate the construction and availability of more affordable homes. The success of this strategy will depend not only on its parliamentary approval but also on the adherence of the various market players and their ability to effectively increase the housing supply in a sustained manner. Alongside these measures, the Government has already signaled its intention to move forward, in early 2026, with other important reforms, namely in streamlining eviction processes and regulating real estate mediation, indicating a continuous effort to balance and boost the sector.

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