Portugal Announces New Tax Legislation to Lower IRS on 'Moderate' Rents to 10%
The Portuguese government, through an announcement by Prime Minister Luís Montenegro, has declared its intention to introduce new legislation aimed at tackling the housing crisis. The government's announcement details a plan to significantly reduce the personal income tax (IRS) rate on rental income for landlords who agree to charge “moderate rents.”
The specific details of the new regulation, which will be formally approved at a Council of Ministers meeting on September 25th, include lowering the IRS tax rate on rental income from the current standard of 25% to a new, reduced rate of 10%. This measure is exclusively for landlords who enter into rental contracts that adhere to yet-to-be-defined “moderate” price ceilings. The goal is to incentivize property owners to offer more affordable housing options to the middle class.
The implementation timeline for these changes is set to begin with the 2026 tax year. Alongside the landlord incentive, the legislation will also increase the tax-deductible allowance for tenants' rental expenses. This deduction will rise to €900 in 2026 and again to €1,000 in 2027, providing direct financial relief to renters who are also in contracts with moderate prices.
The new legislation will affect all landlords and tenants in Portugal who choose to participate in this new regime. It is designed to have a particularly strong impact in high-pressure urban markets like Lisbon and Porto, where market rents have become unaffordable for a large segment of the population. The government's aim is to increase the supply of affordable long-term rental housing.
Compliance requirements will hinge on the definition of “moderate rents.” The government is expected to release specific rent value tables, likely varying by municipality and property type, that will determine eligibility for the tax benefits. Landlords will need to register these contracts through the national tax authority's portal to qualify for the 10% IRS rate.
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While penalties for non-compliance were not explicitly detailed in the pre-announcement, it is standard procedure for tax-related matters that any false declarations would be subject to investigation and penalties by the Autoridade Tributária e Aduaneira (Tax and Customs Authority). The primary enforcement mechanism is the requirement to register the rental contract with its corresponding value.
Initial industry reaction has been cautiously optimistic. Landlord associations have previously called for tax reductions to compensate for the perceived risks and lower returns of long-term rentals compared to short-term tourist lets. However, they are awaiting the final details on the rent price ceilings, which will be crucial in determining the attractiveness and uptake of the scheme.
A legal professional specializing in real estate tax law commented, “This is a significant shift in policy. Moving from a flat 25% rate to a conditional 10% rate is a powerful lever. The success will depend entirely on whether the government sets the 'moderate rent' thresholds at a level that is realistic for landlords, especially those with mortgages to pay.”
The government's rationale is to use tax policy as a tool to steer the market towards social objectives without resorting to a hard cap on all rents. The Prime Minister stated the goal is to “promote housing at moderate prices for the Portuguese and, in particular, for the middle class.” A further measure announced was the elimination of capital gains tax on property sales if the seller reinvests the proceeds into a property for the affordable rental market.
This legislative package is part of the broader “Construir Portugal” (Build Portugal) program, which also includes measures to simplify and accelerate construction licensing. The government hopes that this two-pronged approach of incentivizing the rental market and boosting new supply will provide a comprehensive solution to the housing shortage.
Resources for understanding compliance, including the specific rent tables and procedural guidelines, are expected to be published by the government following the official approval of the measures. Navigate Portuguese property regulations with expert guidance at realestate-lisbon.com.