Government Announces New Housing Tax Rules, Reducing VAT on Construction and Increasing IMT for Non-Residents
The Portuguese Government has approved a new package of fiscal measures aimed at the housing sector, introducing a reduced VAT rate on construction for affordable housing and simultaneously increasing the property transfer tax for certain non-resident buyers. The announcement details several changes to VAT, IMT (Municipal Property Transfer Tax), AIMI (Additional to IMI), and IRS (Personal Income Tax) regulations.
A central component of the new legislation is the reduction of the VAT rate to 6% on the construction of new homes designated for affordable housing. This applies to properties intended for sale with a value up to €648,000 and to properties for the rental market with monthly rents capped at €2,300. According to the announcement, this reduced VAT rate will be in effect until 2029. The objective is to incentivize the construction of housing at more accessible price points.
In a move targeting foreign investment, the government has also approved an increase in the IMT for non-resident citizens purchasing property in Portugal. The measure explicitly states that Portuguese emigrants will be excluded from this tax aggravation, focusing the change on other foreign nationals who do not hold residency in the country. The specific percentage increase for the IMT was not immediately detailed.
For property owners, the new rules provide tax relief for those who participate in the affordable rental market. Properties rented out at rates up to €2,300 per month will be granted an exemption from the AIMI, a tax levied on higher-value property holdings. Furthermore, landlords offering rental contracts within these moderate price bands will benefit from a significant reduction in the IRS tax rate on their rental income, which will drop from the standard 25% to 10%.
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Pedro Castro, Head of Operations and Housing Credit at the financial comparison portal ComparaJá.pt, commented on the measures. “The reduction of VAT and the IMT exemptions are significant incentives for the construction and rental of moderately priced housing,” he stated, adding that “it is crucial that these policies are accompanied by effective monitoring and implementation mechanisms, so that the benefits truly reach the population.”
The package also includes relief for tenants, with an increase in the maximum deductible amount for housing rent expenses in their annual IRS filings. This deduction is set to rise to €900 in 2026 and subsequently to €1,000 in 2027. Additionally, the government mentioned that initiatives are underway to provide temporary accommodation support for workers in the construction sector and that discussions are ongoing with the banking industry to create more flexible conditions for housing credit and construction financing.
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