Housing in Portugal: New Tax Measures to Boost Rental Supply and Construction
Portugal has introduced a new package of tax measures aimed at increasing housing supply, encouraging residential construction, and supporting long-term rental activity.
The measures form part of a broader strategy to address housing shortages and improve access to residential property, while also creating new opportunities for investors, developers, landlords, and tenants.
Reduced VAT on Construction and Rehabilitation
One of the most significant changes is the application of a reduced 6% VAT rate to:
Construction works relating to properties intended for one's own permanent residence
Residential properties intended for affordable or moderate rental
This reduced rate will apply until 31 December 2032, significantly lowering construction and rehabilitation costs.
Lower Taxation on Rental Income
The new regime also introduces favourable taxation for residential rental income:
Individual landlords benefiting from moderate rental arrangements may be subject to a 10% personal income tax rate, instead of the standard 25%
Companies and individuals under organised accounting may benefit from a 50% exclusion of qualifying rental income for tax purposes
These measures aim to stimulate long-term residential leasing and increase the availability of housing at moderate prices.
Capital Gains Exemption on Reinvestment
Capital gains arising from the sale of residential properties may become exempt from personal income tax where the proceeds are reinvested into properties intended for residential rental at moderate rents.
This measure seeks to encourage reinvestment into the housing market and support the expansion of rental supply.
New Affordable Rental Framework
Portugal is also introducing a new Simplified Affordable Rental Scheme, replacing the previous affordable rental programme.
The regime applies to qualifying lease and sublease agreements with rents capped below a percentage of the local median rental value. Eligible arrangements may benefit from favourable tax treatment.
Additional Measures
The package further includes:
Increased personal income tax deductions for tenants
New incentives for residential lease investment structures
Changes to property transfer taxation for certain non-resident acquisitions
What it means in practice
These measures represent one of Portugal’s most significant recent housing tax reforms and may create attractive opportunities for:
Real estate developers
Institutional and private investors
Landlords
Families seeking long-term housing solutions
However, the practical impact of the regime will depend heavily on implementation details, compliance requirements, and future guidance from the Portuguese tax authorities.
Careful tax and legal analysis remains essential before structuring investments or relying on the new incentives.
