Tax Benefits for Housing in Portugal

The taxation of housing in Portugal is currently based on an articulated set of rules under Personal Income Tax (IRS), Corporate Income Tax (IRC), VAT, Property Transfer Tax (IMT) and Municipal Property Tax (IMI), which seek—through taxation—to guide behaviour in the real estate market, from rental at moderate prices to construction and rehabilitation for housing purposes.

The recently approved and announced measures reinforce this logic of convergence between tax policy and real estate law, deepening the regulatory framework applicable to housing and creating special regimes with a direct impact on the structuring of investments and real estate transactions.

IRS: rent deductions and tax benefits for residential rental

At IRS level, the legislator has mainly used two approaches:

A. tax deductions for tenants;

B. special regimes for taxation of rental income.

A. Deductions for tenants

The State Budget Law for 2026 increased the cap on the deduction of rent for permanent housing: the 15% deduction of rent paid is maintained, but the annual ceiling rises to EUR 900 in 2026, with a planned increase to EUR 1,000 in 2027, applicable to rental contracts at moderate prices duly reported to the Tax Authority.

This deduction is provided for in the Personal Income Tax Code (CIRS), and is operationalised through the annual income tax return.

B. Reduced taxation of rental income

In parallel, the regime for rental income has been amended for residential leases at moderate rents: the IRS flat rate is reduced to 10% (instead of the general 25% or 28%), provided that price conditions and a minimum contract duration are met, under the framework of the recently approved housing tax package.

These reductions are based on special provisions of the CIRS and implementing legislation approved under the “housing tax package” and the 2026 State Budget.

Capital gains and reinvestment

With regard to real estate capital gains, an exemption from IRS is provided for gains arising from the sale of housing where the proceeds are reinvested in the acquisition of properties intended for residential rental at moderate rents.

The recently approved and announced measures reinforce this logic of convergence between tax policy and real estate law, deepening the regulatory framework applicable to housing and creating special regimes with a direct impact on the structuring of investments and real estate transactions.

VAT: reduced rate for construction and rehabilitation for housing

In the field of VAT, housing-related matters intersect with the rules on reduced rates set out in List I annexed to the VAT Code.

Law No. 56/2023 of 6 October (“More Housing Package”) amended items 2.18 and 2.23 of List I, clarifying that the reduced 6% VAT rate applies to rehabilitation works on buildings and to the construction or rehabilitation of certain facilities, provided that the properties are located in a defined Urban Rehabilitation Area (ARU) and are part of rehabilitation operations of recognised public interest, under the Legal Framework for Urban Rehabilitation (RJRU).

The same package extended the scope of the reduced rate to construction or rehabilitation works on properties intended for affordable rental, provided that the operation is certified under terms defined by ministerial order issued by the member of government responsible for housing, and complies with the requirements of the affordable rental regime.

Recent case law from the Supreme Administrative Court, interpreting the RJRU, has clarified that mere location within an ARU is not sufficient to apply the reduced rate: formal approval of an Urban Rehabilitation Operation (ORU) is required, as defined under Decree-Law No. 307/99 of 23 October, thereby legally strengthening access to the 6% rate for rehabilitation works.

Additionally, the Government has obtained authorisation, within the framework of incentive packages announced under “Construir Portugal” and similar programmes, to propose extending the 6% reduced rate to certain construction and rehabilitation works for housing intended for permanent residence, regardless of location. This measure is expected to be implemented through future amendments to the VAT Code and List I.

In all cases, the legal anchor remains the VAT Code, combined with special legislation (such as Law No. 56/2023) and supplementary regulation.

IMT, IMI and other property taxes

Housing tax policy also has significant impact on property taxes: IMT, IMI, Stamp Duty, and in some cases the Additional Municipal Property Tax (AIMI).

A. IMT and stamp duty

Various special regimes provide exemptions for the acquisition of land and buildings intended for construction or rehabilitation for affordable rental housing or public housing programmes, as well as for contracts integrated into “Housing Rental Investment Agreements (CIA)”.

These exemptions result from specific laws adopted under the “More Housing” programme and subsequent tax packages, which authorise the Government to establish conditional benefits linked to housing purposes.

B. IMI and AIMI

Regarding IMI, there are regimes providing exemptions of up to eight years and reductions of up to 50% for the remaining period for properties allocated to affordable rental or integrated into certified projects, as well as AIMI exemptions during the term of certain housing investment agreements.

These solutions are based on the IMT Code (CIMT) and the IMI Code (CIMI), supplemented by special legislation defining project requirements, certifying entities and benefit duration periods, often referring to ministerial orders and joint governmental decisions.

Convergence between tax policy and real estate law

This legislative framework shows a clear convergence between tax policy instruments and housing policy objectives:

• In IRS and IRC, priority is given to rental contracts at moderate prices, with significant tax reductions and capital gains exemptions where reinvestment is made in rental housing;
• In VAT, reduced-rate regimes are designed for qualified urban rehabilitation and affordable rental housing, requiring ARU, ORU or certified programme frameworks, and combining the VAT Code with the RJRU and controlled-cost housing regimes;
• In IMT and IMI, exemptions and reductions are linked to the allocation of properties to affordable rental or public programmes, creating a long-term connection between tax benefit and the property’s housing function.

Final Notes

From a legal standpoint, these measures are not merely economic incentives; they are special regimes with conditions, deadlines, certifications, and clauses of expiry or clawback of benefits, integrated into tax codes and housing legislation.

A strict legislative reading—CIRS, CIRC, VAT Code, CIMT, CIMI, Law No. 56/2023 and subsequent legislation, as well as implementing ministerial orders—is therefore essential for the proper structuring of real estate investments and rental projects seeking to benefit from these regimes.

Close monitoring of regulatory developments and case law interpreting concepts such as “urban rehabilitation”, “moderate rents” or “affordable rental” is now central for any real estate operator, financial institution or institutional investor seeking to act safely and legally in the Portuguese housing market.