The new moderate rent income tax regime (up to €2,300)

For over a decade, housing has been one of the most pressing issues in Portugal. The continued and steep rise in prices, coupled with structural supply shortages, have prompted several interventions and legislative packages that were not particularly successful.

We now have one more attempt to save the Portuguese housing market. This time, the approach balances two essential vectors: on the one hand, it offers landlords a more favourable tax regime, increasing the profitability of real estate investment for rental purposes, and, on the other hand, it guarantees tenants an effective increase in the deductibility of rents for income tax purposes.

It is important to note that, although approved in general terms by Parliament, this bill is still under discussion, and is subject to changes. Given the political relevance of the issue, it is expected that the various parliamentary forces will contribute with proposed amendments until the final overall vote and subsequent entry into force.

What is considered a moderate rent?

The highlight of this package lies in the creation of the definition of moderate rent.

This concept corresponds to indexing the maximum income limit to 2.5 times the national minimum wage forecast for 2026 - € 2,300.

Although not without criticism, this limit of € 2,300 per month seems to reflect the reality of areas under greater urban pressure, namely Lisbon, Porto and the Algarve coast.

Unlike previous, more restrictive regimes, this measure appears to cover the middle class, establishing an income ceiling in line with market reality in the most pressured urban areas.

What are the tax benefits for landlords/investors?

This law introduces several tax incentives for landlords and investors, whether individuals or companies.

PIT: Incentives for Individual Persons

• Reduction in the PIT rate on property income: The rate drops from 25% to 10% for rental contracts classified as moderate income, with monthly rents of up to €2,300. In most cases, this reduction leads to a 60% reduction in the tax burden.
• Application to new and existing contracts: The reduced rate applies to both new contracts and contracts already in force, provided that the properties are intended for own and permanent residence.
• Exemption from capital gains tax on personal income tax: Capital gains resulting from the sale of properties are fully exempt from personal income tax, provided that the amount is reinvested in the purchase of properties intended for the moderate rent market.

CIT: Incentives for Companies

• Partial taxation of property income: Only 50% of property income obtained under the moderate rent scheme is subject to corporation tax.

What are the tax benefits for tenants?

Tenants also benefit from a significant increase in the maximum rent deduction limits for personal income tax purposes. In 2026, the maximum deduction limit will be €900 (previously €700). In 2027 and subsequent years, the maximum deduction limit will be €1,000.

VAT on Construction: Proposed Reduction

The Government's intention is to reduce the VAT rate applicable to property construction intended for:

• Sale as permanent residences, or
• Residential rental.

According to the proposal, a reduced rate of 6% would be applied, replacing the standard rate of 23% currently applied in most situations.

IMT for non-residents

For purchases of urban buildings or autonomous fractions thereof, intended for housing, by non-residents (i.e., persons who do not have tax residence in Portugal), a single IMT rate of 7.5% is proposed, without entitlement to any exemptions or reductions, unless the purchaser becomes a tax resident in Portugal within two years or if the property is intended for residential rental within six months of the date of purchase, with moderate rent and leased for at least 36 months in the first five years.

As we monitor the progress of this legislation, NEWCO remains attentive to its developments and practical impacts.

Our team is available to assist with:

• Analysis and advice on this new tax regime
• Monitoring implementation for owners and investors
• Specialised support for companies in the real estate sector