Decree-Law No. 97/2026, dated May 20, has been published, approving tax relief measures to promote the supply of housing.
With that in mind, we have listed below what we consider to be the most significant changes contained in this legislation:
Reduction of the VAT rate from 23% to 6% on construction or renovation projects for residential properties.
This benefit applies only to properties with a sale price of up to €660,982 (the upper limit of the second bracket of the IMT as defined in the 2026 State Budget) or properties intended for rental with a monthly rent not exceeding €2,300 (equivalent to 2.5 times the 2026 minimum wage).
The fact that the purchaser does not designate the property as their own permanent residence (HPP) does not retroactively render the 6% rate inapplicable, nor does it require the builder or contractor to refund the tax for which they benefited from the reduced rate.
In such cases, the purchaser will be subject to a 10% surcharge on the taxable amount of the IMT.
The application of the aforementioned reduced rate is subject to the transitional provisions of Article 18(5) of the law, namely “construction or renovation contracts related to urban development projects for which the procedural process begins during the period from September 25, 2025, to December 31, 2029, and for which the tax becomes due on or after January 1, 2026.”
When constructing hydroelectric power plants outside the business sector, it is possible to benefit from a partial VAT refund scheme,
In other words, the government refunds the difference between the tax paid at the standard rate of 23% and the amount that would have been due at the 6% rate; the request must be submitted within 12 months of the issuance of the usage permit.
This measure takes effect on July 1, 2026.
The standalone personal income tax rate on property income drops from 25% to 10%
For landlords charging rents of up to €2,300.00 (equivalent to 2.5 times the minimum wage for 2026), it should be noted that this reduction applies to lease agreements already in effect.
This measure takes effect for income earned on or after January 1, 2026.
When selling a property, it is also possible to benefit from a capital gains tax exemption,
Provided that the proceeds from the sale—net of any loan associated with the purchase—are reinvested in properties intended for rental housing at moderate rents.
This reinvestment must be made between 24 months prior to and 36 months after the date of sale, and the property purchased must be leased for at least 36 months during the first five years.
Failure to comply with these conditions automatically revives the tax liability in the year in which the violation occurs, plus compensatory interest.
This exemption is temporary and applies exclusively to transfers made between January 1, 2026, and December 31, 2029.
Increase in the annual income tax deduction for rent paid, rising to €900 in 2026 and to €1,000 starting in 2027.
Non-tax residents of Portugal who purchase a home are subject to a flat IMT rate of 7.5%, no exemptions or reductions apply, unless the buyer becomes a tax resident within the following two years or uses the property for affordable residential rental for a minimum period of 36 months during the first five years after the purchase.
The “Simplified Affordable Rental Program” (RSAA) is established:
This program replaces the Rental Support Program established in 2019 and offers a full exemption from personal income tax (IRS) and corporate income tax (IRC) on rental income for leases with rents not exceeding 80% of the median price per square meter in the respective municipality, with a minimum term of three years for permanent residence.
The program operates through an electronic platform provided by the Institute for Housing and Urban Renewal (IHRU), which validates contracts and communicates with the Tax Authority, and takes effect on September 1, 2026, the date on which the previous program is repealed.
The “Investment Lease Agreements” (CIA) regime is also established:
This program is aimed at larger-scale investors—funds, real estate companies, or others—who allocate at least 70% of the building’s floor area to moderate-income rental housing for up to 25 years, in exchange for a package that includes an exemption from the IMT tax, an exemption from the IMI tax for the first eight years, a 50% reduction in the IMI tax rate for the remaining period, and an exemption from the IMI surcharge.
The contract is entered into with the IHRU on behalf of the State, and the law stipulates that legislative changes that “affect the economic and financial balance of contracts entered into under a CIA” entitle the investor to compensation. This provision takes effect on September 1, 2026.
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This law also states that the provision establishing the reduced tax rate for construction remains in effect until December 31, 2032, while the main income tax (IRS) and corporate income tax (IRC) benefits on real estate income apply to income earned through December 31, 2029.