Portugal's New Housing Tax Incentives 2026

If you own property in Portugal, rent one out, or you're thinking about building, you've probably heard that the government rolled out a big housing tax package this year. 

It's been called "Construir Portugal" and it's one of the most significant sets of tax changes the housing market has seen in a long time. I've been reading through it, talking to people, and trying to make sense of what it actually means on the ground. Because as anyone who's dealt with Portuguese tax law knows, the headline and the reality don't always match. Here's what I've understood so far.

The Big One: VAT on Construction Dropped from 23% to 6%

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This is the measure everyone's talking about, and for good reason. If you're building or renovating a property for residential use, the VAT on qualifying construction work has gone from 23% down to 6%. 

On a build costing €650,000, that's roughly €110,000 in savings. That's not a small number. But — and there's always a but — it's conditional. The property has to be intended for one of two things: sale as someone's primary and permanent residence (at a price up to around €648,000), or residential rental with a monthly rent no higher than €2,300.

If you're building your own home to live in, there's a refund mechanism. You pay the standard rate, then apply within 12 months of getting the usage licence, and the tax authority refunds the difference. It takes about 150 days, which by Portuguese standards is actually not terrible.The measure applies to projects initiated from September 2025 onward, with the VAT kicking in from January 2026. 

It's set to run until the end of 2029 - so there's a window, it's not open forever.

Landlords: A Much Lower Tax Rate on Moderate Rents

If you rent out a property at what the government considers a "moderate" rent — currently up to €2,300 per month — the tax rate on that rental income has dropped from 25% to 10% under IRS (personal income tax). 

For anyone operating through a company, only 50% of that rental income now counts toward taxable profit for IRC (corporate income tax) purposes. That's a meaningful reduction.

And if you go even further and rent under the new Simplified Affordable Rental Regime — where your rent is no more than 80% of the local median and the contract is at least three years — the rental income is fully exempt from both IRS and IRC.

I'll be honest, I'm still digesting all the conditions around these. The devil is always in the detail with Portuguese tax incentives. But on paper, it's a real shift in how rental income is treated.

Capital Gains Exemption If You Reinvest in Rental Property

This one caught my eye. 

If you sell a residential property and reinvest the proceeds into another property that you intend to rent out at moderate prices, you won't pay capital gains tax on the sale. Previously, this kind of exemption only applied if you reinvested in your own primary residence. Now it's been extended to rental investment. 

The government's logic is obvious — they want private money flowing into the rental market. Whether it works as intended remains to be seen, but the incentive is there.

More Support for Young Buyers

If you're under 35 and trying to buy your first home, the government has expanded the public guarantee programme. The total allocation is now €1.55 billion, and the state can guarantee up to 15% of your mortgage — meaning you could potentially finance 100% of a property valued up to €450,000.

The special IMT exemption for young buyers has also been updated. For 2026, you won't pay IMT on a primary residence purchase up to €106,346, and the young buyer threshold has risen to €330,539.

I know those numbers sound precise and a bit abstract, but they matter when you're crunching the costs of a purchase. Every bit helps.

Higher Rent Deductions for Tenants

If you're renting, the annual limit on what you can deduct from your IRS for rent has gone up to €900 for 2026, and it'll rise to €1,000 from 2027. Not a headline-grabber, but it's a step in the right direction.

A Higher IMT Rate for Non-Residents

On the flip side, non-residents buying property in Portugal will now face an increased IMT rate of 7.5%. There are exceptions — if the property is intended for rental at moderate rents, or if the buyer becomes a Portuguese tax resident within two years, the higher rate doesn't apply.

This one feels like a signal. The government is trying to channel investment toward housing that actually serves the local market, rather than sitting empty or being used as short-term lets.

So What Does It All Mean?

Honestly? It's a lot. And like most things in Portugal, the gap between what's announced and what actually plays out in practice can be wide. I've seen enough tax changes come and go to know that the fine print matters more than the headline.But there's no question the direction is clear. The government wants more homes built, more properties on the rental market at reasonable prices, and fewer sitting empty or priced out of reach. Whether you're a developer, a landlord, a buyer, or just someone trying to understand where things are heading — these measures are worth paying attention to.As always, talk to a good accountant or tax advisor before making any decisions based on this. I'm sharing what I've learned, not giving professional advice. But I hope this helps cut through some of the noise.