On 20 May 2026, the Council of Ministers approved a new, expanded package of measures to encourage home ownership and residential rental/subletting, focusing on tax benefits and new investment regimes.
We highlight the following changes:
- Tax incentives for housing and rental
6% VAT on construction/renovation
Amendment to the VAT Code, allowing the reduced rate of 6% to be applied to construction or renovation works on properties that:
- a) are intended for the purchaser’s own permanent residence; or
- b) are intended exclusively for residential rental,
Provided that the sale price or rent falls within the ‘moderate value’ limits (rent up to 2.5 times the minimum wage for 2026; sale price within the limits of the 2nd bracket of the Property Transfer Tax (IMT)).
Income Tax – capital gains and rent deductions
Two key changes have been made to Income Tax:
- a) Capital gains on the sale of property may be exempted if the proceeds are reinvested in properties intended for low-rent housing, provided that deadlines and other conditions are met.
- b) The annual deduction for rent paid by tenants rises to €900 in 2026 and €1,000 from 2027 onwards.
Property Transfer Tax (IMT) and affordable housing
With regard to Property Transfer Tax (IMT), the legislation provides, in particular, for:
- a) A flat rate of 7.5% for non-residents purchasing a property in Portugal, unless the buyer becomes a tax resident in Portugal within two years or uses the property for low-rent residential rental for at least 36 months during the first five years.
- b) A regime of controlled-cost housing, with exemption from IMT up to a certain value and a reduction in stamp duty on the first purchase of social housing, provided the legal requirements are met.
Property income – 10% tax rate and reduction in the tax base
A special regime for property income is also introduced:
- a) A 10% flat-rate tax under the personal income tax (IRS) regime on rental income from residential property, where the rent falls within the moderate limits (up to €2,300), until 31 December 2029, unless a more favorable regime applies.
- b) Only 50% of this income is included in the tax base for corporation tax or personal income tax where organized accounting is used.
- Rental Investment Contracts (CIA)
The Decree-Law establishes Rental Investment Contracts (CIA), aimed at large-scale residential rental projects.
- a) The CIA is entered into between the investor and IHRU, I. P., with a term of up to 25 years.
- b) At least 70% of the area must be allocated to residential rental, with rents within the moderate limits defined in the legislation.
In return, the investor may benefit from exemptions or reductions in IMT, IMI, AIMI, stamp duty and a reduced VAT rate on construction works, as well as a partial VAT refund on technical services.
Failure to comply with the conditions of the CIA may result in the loss of some or all the tax benefits, with repayment and interest.
- Simplified Affordable Rental Scheme (RSAA)
The RSAA replaces the former Affordable Rental Program and becomes the standard framework for contracts classified as “affordable rentals”.
- a) It covers residential tenancy and subletting agreements, including municipal programs.
- b) Rents must be below a ceiling per property type, based on 80% of the median rent per square meter in the municipality, to be set by ministerial order.
- c) Minimum term: 3 years for permanent residence and 3 months for temporary residence.
- d) Property income from contracts complying with the RSAA is exempt from personal income tax (IRS) and corporate income tax (IRC), provided the contract is registered on the IHRU platform and reported to the Tax Authority (AT) via that channel.
- Timetable – Effective dates
The legislation will be implemented in phases:
- a) 1 January 2026 – the main amendments to the CIRS (personal income tax code) and the EBF (tax benefits code) (including the 10% rate and the reduction in the tax base for rental income) and the first VAT measures.
- b) 1 September 2026 – Entry into force of the new CIA and RSAA regimes;
In light of these changes, it is important to analyze the potential tax implications arising from them.
