Informative Note

Proposals for tax changes to support the housing market

01/10/2025

On 25 September at a Council of Ministers meeting, the government approved a package of measures aimed at boosting the residential housing market.

These measures still need to be finalised and presented to and approved by the Assembly of the Republic (the Portuguese parliament). However, given their importance, we are providing a brief summary of the main tax changes under discussion.

Measures to stimulate the rental market

It is proposed that landlords benefit from a reduction in the autonomous Personal Income Tax (IRS) rate, from 25% to 10%. This would apply to rental contracts with monthly rents of up to €2,300, which are classified as ‘affordable rents’.

Additionally, capital gains would be exempt from personal income tax in cases of reinvestment in properties intended for rental at affordable rates.

Furthermore, the Municipal Property Tax Surcharge (AIMI) would be waived for properties with monthly rents of up to €2,300, even if the official taxable value (valor patrimonial tributário - VPT) exceeds €600,000. This would be an exception to the current rules under which the AIMI is payable whenever the VPT of a property exceeds €600,000.

For tenants, the income tax deduction for rental costs would increase from €500 to €900 in 2026 and to €1,000 in 2027. Despite this increase, the deduction will continue to be calculated at 15% of the annual costs incurred.

Measures to stimulate construction:

It is proposed that the VAT rate on construction should be reduced from 23% to 6% in the following cases: (i) construction of dwellings for sale at a price of up to €648,000; and (ii) construction of dwellings for rent at a monthly rent of up to €2,300. This measure is temporary and, if approved, will remain in force until 2029.

It should be noted that the announced measure appears to exclude owner-occupied and permanent housing from the scope of the reduced VAT rate. If this aspect is confirmed in the draft law to be presented to the Assembly of the Republic, it could compromise the consistency of the package of measures adopted. It would be difficult to justify why construction for a person’s own permanent residence should not benefit from the same VAT rate as construction for sale or rent.

Measures to reduce demand

It is proposed that the Municipal Property Transfer Tax (IMT) will increase when homes are purchased by non-resident citizens, with the exception of emigrants. The increased rates to be applied are not yet known.

However, serious doubts have been raised as to the compatibility of this measure with the principle of non-discrimination under European tax law, as well as with the constitutional principle of equality, given that the details are unknown.

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