1. Reinvestment of real estate capital gains in residential rental property

If you sell a property and reinvest the proceeds in the acquisition of properties intended for residential rental, with rents falling within the “moderate rent” limits established by the Decree-Law, the resulting capital gain may be exempt from Personal Income Tax (IRS).

• Practical example:
  You sell an apartment for €300,000;
• Any loan secured against the property is deducted;
  You reinvest the resulting amount in the acquisition of one or more properties intended for residential rental, with rents within the applicable “moderate rent” limits;
• You enter into lease agreements and maintain the properties under lease for at least 36 months during the first five years.

If these requirements are met, the capital gain is not subject to tax. If they are breached – for example, because the lease agreements are terminated before the required period or the rent exceeds the applicable limits – the exemption is lost and the capital gain becomes taxable in the year in which the breach occurs.

2. Rental income subject to a 10% tax rate and a reduced taxable base

Rental income arising from lease agreements exclusively intended for residential purposes, where the rent falls within the applicable moderate rent limits, will benefit from:

• A 10% autonomous tax rate for IRS purposes;
• The inclusion of only 50% of the income in the taxable base where the income is earned by Corporate Income Tax (IRC) taxpayers or IRS taxpayers maintaining organized accounting records.

This is particularly relevant for individuals and entities that already hold residential rental portfolios or are considering investing in housing aimed at middle-income households. These tax benefits will remain in force until 31 December 2029.

3. Acquisition of controlled-cost housing

For the first acquisition of a controlled-cost housing unit (habitação de custos controlados) intended as the purchaser’s own permanent residence, the legislation provides for:

• An exemption from IMT up to the threshold of the first tax bracket;
• A reduction in IMT above that threshold;
• A deduction from the stamp duty assessment, up to the maximum amount associated with that bracket.

Anyone who has owned a residential property during the preceding three years is excluded from these benefits.

4. Higher IMT rate for non-residents, subject to exceptions

As a general rule, non-residents purchasing a residential property will be subject to a 7.5% IMT rate, without access to the applicable exemptions. However, there are two alternatives:

• Becoming a Portuguese tax resident within two years; or
• Allocating the property to moderate-rent residential leasing (within six months of its acquisition) and maintaining it under lease for at least 36 months during the first five years.

In these cases, the IMT may be adjusted to the standard IMT rates, upon application to the Portuguese Tax and Customs Authority (Autoridade Tributária e Aduaneira – AT).

5. VAT on construction and rehabilitation works

A new item (2.42) has been added to List I annexed to the Portuguese VAT Code, allowing the application of the reduced VAT rate to construction or rehabilitation works involving properties intended as the owner’s own permanent residence or for moderate-rent residential leasing.

In parallel, a specific scheme provides for the partial refund of VAT incurred by individuals in the construction of their own permanent residence, provided that:

• The property complies with the applicable value limits;
• VAT was paid at the standard rate and is evidenced by invoices reported to the AT;
• The application is submitted within 12 months of the date on which the property is first occupied.

Applications relating to the first three quarters of 2026 may only be submitted from 1 October 2026 onwards.

6. Increased IRS deduction for rent payments

The annual limit for the deduction of rent payments under qualifying residential lease agreements increases to €900 in 2026 and €1,000 from 2027, directly benefiting tenants with qualifying residential lease agreements.