Portugal’s Latest Housing Plan: Boost Supply, Offer Rental Tax Breaks, and Introduce Capital Gains Exemption for Reinvestment
In its most recent Council of Ministers meeting, the Portuguese government approved a series of new measures aimed at expanding housing supply nationwide. Although these measures have not yet been officially published in the Diário da República and some still require approval by the Assembly of the Republic, the overall direction is clear: alleviate housing pressure through tax incentives, lower construction costs, promote 'moderate-rent' housing, and increase rental market supply. The government also expects to unveil a supplementary policy package in December.
1. 6% VAT (IVA) rate for mid-priced housing construction – valid until 2029
One measure includes applying the lowest VAT rate of 6% to construction or renovation of residential properties that meet the 'mid-priced' criteria until 2029. The government has set the following price caps: Maximum sale price for homes: €648,000 Maximum monthly rent for rentals: €2,300 If the sale price or rent exceeds these thresholds, the standard 23% VAT rate applies. DECO PROteste emphasized the need to clearly define which goods and services qualify for the 6% rate and establish strict invoicing rules to prevent businesses from raising prices under the guise of tax relief.
2. Increase IRS deduction limit for rental expenses
To ease tenants' burden, the government decided to raise the IRS (personal income tax) deduction cap for rent: 2026: up to €900 deductible 2027: increased to €1,000 The deduction rate remains at 15%. DECO PROteste noted that while this measure offers tax benefits, it does not directly reduce tenants’ actual rent payments—which remain the primary financial strain for many households. The organization also criticized the government for still not implementing its long-standing proposal to allow mortgage interest deductions for loans signed or transferred after 2012.
One of the most attractive and widely discussed measures in this housing plan is the full exemption from capital gains tax (Mais-valias) under specific conditions.
Homeowners who reinvest proceeds from the sale of a residential property into another dwelling rented out at 'moderate' rates can apply for full tax exemption. Conditions include: 1. The property sold must be a primary residence; 2. The capital gain must be reinvested in another residential property; 3. The new property must be rented within 6 months; 4. The rent must comply with the official 'renda moderada / preço acessível' standard (max €2,300/month); 5. The rental contract must last at least 5 years. Moreover, the government offers a very flexible timeframe: - Reinvestment within 36 months after sale qualifies for exemption; - Properties purchased up to 24 months before the sale also qualify if they meet all conditions. In other words, purchases made in the past two years or planned within the next three years can all count as valid reinvestment, enabling tax-free capital gains on the sale. This makes the strategy of 'sell → buy → rent out' one of the most appealing tax-planning opportunities in 2025–2026.
4. Landlord income tax (IRS) reduced from 25% to 10% – for 'moderate-rent' leases
To encourage more properties to enter the long-term rental market, the government decided: Reduce the income tax rate for landlords renting at 'moderate' rates (≤ €2,300/month) from 25% to 10%. Under current law, longer lease durations already qualify for lower tax rates. DECO PROteste pointed out that it is essential to clarify how this new reduction integrates with existing rules. The organization also noted that, according to official information, the €2,300 'moderate rent' threshold applies uniformly nationwide—without regional adjustment. DECO PROteste stressed that significant rent disparities exist between major cities and inland areas, and thus the policy must account for these differences.
5. Properties rented at or below €2,300/month exempt from additional IMI tax
Owners of residential properties rented at or below the government-defined 'moderate rent' threshold are exempt from the additional municipal property tax (IMI). This further reduces landlords’ operational costs when entering the long-term rental market.
Clear policy direction: encourage long-term rentals, lower construction costs, curb speculation Overall, this housing package reflects three clear objectives: 1. Increase supply of affordable rental housing. 2. Incentivize property owners to participate in long-term rentals through tax benefits—especially the sell-reinvest-exempt capital gains mechanism. 3. Lower construction costs (6% VAT) to stimulate new housing supply. In particular, the integrated strategy of 'sell → reinvest → rent long-term → capital gains tax exemption' is widely seen as the 'biggest advantage' of this policy framework, offering strong appeal to owners planning to upgrade homes, switch from owner-occupancy to investment, or commit to long-term rentals.