With the aim of tackling (or at least minimizing) the housing shortage, several measures proposed by the Government are currently being debated in Parliament.
As has been widely publicised, the measures under discussion concern tax relief aimed at boosting housing supply, seeking to encourage the construction, renovation, purchase, and rental of housing at moderate prices.
By way of summary, below are the main changes under debate:
Personal Income Tax (IRS)
In terms of Personal Income Tax, relevant measures are being introduced regarding both rental activity and the sale of residential property.
For residential lease agreements with a monthly rent of up to €2,300, the application of a reduced autonomous tax rate of 10% on rental income is proposed.
For tenants, an increase in the annual deduction limit for paid rent is proposed, set at €700 in 2025, €900 in 2026, and €1,000 in 2027.
Regarding capital gains, an IRS exemption is proposed when proceeds from the sale of residential property are reinvested in the acquisition of another property intended for rental at moderate rent levels, provided that the deadlines and conditions already set out in the reinvestment regime of the IRS Code are met, as well as additional requirements concerning the effective placement and maintenance of the property in the rental market.
Value Added Tax (VAT)
The proposal adds a new item to List I of the VAT Code, allowing the application of the reduced 6% rate to construction or rehabilitation works on properties intended as primary and permanent residence or for residential rental, provided that the sale price or monthly rent does not exceed €2,300 and the relevant legal requirements are met.
For the construction of a primary and permanent residence, without subsequent sale or rental, a partial VAT refund scheme is proposed, corresponding to the difference between the 23% and 6% rates.
According to the proposal, the application of the reduced rate is limited to operations started between 25 September 2025 and 31 December 2029, with tax becoming chargeable until 31 December 2032.
Property Transfer Tax (IMT)
With regard to Property Transfer Tax, a flat rate of 7.5% is proposed for the acquisition of residential property by non-tax residents in Portugal, without exemptions or reductions, unless the purchaser obtains tax residency in Portugal within two years or allocates the property to residential rental at moderate rent levels for a minimum period of 36 months, in which case the exemption will operate by means of reimbursement.
An IMT exemption is also proposed for the first acquisition of controlled-cost primary and permanent housing, provided that the property value does not exceed €324,058.
Creation of a New Investment Contracts for Rental (CIA) Regime
The creation of a new Investment Contracts for Rental (CIA) regime is also proposed, granting tax benefits to investors in the construction, rehabilitation, or acquisition of property for rental purposes.
Essentially, this involves entering into a contract between investors and IHRU, I.P., for a period of 25 years, in which at least 70% of the total construction area must be allocated to residential rental at moderate rent levels.
