Decree-Law no. 97/2026 – Tax Relief Measures to Promote Housing Supply

On 20 May 2026, Decree-Law no. 97/2026 was published in the official gazette (Diário da República). The decree was approved by the Council of Ministers on 27 March 2026 and promulgated by President António José Seguro on 12 May 2026. Issued pursuant to the legislative authorisation granted by Law no. 9-A/2026 of 6 March, the decree-law introduces a package of tax relief measures aimed at boosting the supply of housing, with particular emphasis on the landmark reduction of the VAT rate applicable to construction contracts from 23% to 6%.

According to the Government, this measure forms part of the most ambitious fiscal housing package in a decade, designed to increase the supply of homes for the middle class, both for sale and for rental. According to specialists, the VAT reduction represents a very significant decrease in the direct tax cost of construction and rehabilitation, with a direct impact on final prices for consumers.

The main measures introduced by the decree-law are as follows:

1. Reduction of the VAT rate from 23% to 6% on construction and rehabilitation

The VAT rate is reduced from 23% to 6% on contracts for the construction or rehabilitation of properties intended for housing. The benefit is not universal: it applies only to properties with a sale price of up to EUR 660,982 (the upper limit of the second bracket of IMT as defined in the 2026 State Budget), or intended for rental with a monthly rent not exceeding EUR 2,300 (equivalent to 2.5 times the 2026 minimum wage).

2. Temporal scope of application

The reduced rate applies to urban operations whose procedural initiative begins between 25 September 2025 and 31 December 2029, provided that the VAT becomes chargeable from 1 January 2026 onwards. The provision establishing this reduced rate remains in force until 31 December 2032. In practice, the measures will take effect from the third quarter of 2026 (July), from which point taxable persons will be able to submit regularisation requests to the Tax and Customs Authority.

3. Liability in the event of non-compliance by the buyer

The decree-law clarifies that a failure by the buyer to use the property as their permanent primary residence does not retroactively render the 6% rate inapplicable, nor does it oblige the contractor or builder to repay the tax benefit. The burden falls entirely on the buyer, who will be subject to an IMT surcharge of 10% on the taxable value of the property if they fail to establish their tax domicile at the acquired property within six months of the date of acquisition.

4. Partial VAT refund for self-builders

For individuals who build their own home outside a business context, the decree-law establishes a partial VAT refund regime, under which the State refunds the difference between the tax paid at the standard rate of 23% and the amount that would have resulted from the application of the reduced rate of 6%. The request must be submitted within 12 months following the issuance of the usage licence.

5. Reduction of the IRS rate on rental income

The autonomous IRS rate on rental income is reduced from 25% to 10% for landlords who charge monthly rents not exceeding EUR 2,300. This reduction expressly covers existing lease agreements, thereby providing an immediate incentive to moderate-priced housing rental. The main IRS and IRC benefits on rental income apply to income earned up to 31 December 2029.

6. Increased IRS deduction on rents for tenants

Tenants will be able to deduct a higher amount from their annual IRS in respect of rents paid: the ceiling increases to EUR 900 in 2026 and to EUR 1,000 from 2027 onwards, compared to the previous limit of EUR 700.

7. Capital gains exemption upon reinvestment in rental housing

Property owners who sell a property and reinvest the proceeds – net of any outstanding loan associated with the acquisition – in properties intended for moderate-rent residential leasing may benefit from a full exemption from capital gains tax. The reinvestment must be made between 24 months before and 36 months after the date of disposal, and the acquired property must remain leased for at least 36 months within the first five years. Non-compliance automatically revives the tax obligation, with the addition of compensatory interest. This exemption applies exclusively to disposals made between 1 January 2026 and 31 December 2029.

8. Tax regime applicable to non-residents

Non-residents for tax purposes in Portugal who acquire residential property are subject to a flat IMT rate of 7.5%, with no exemption or reduction applicable, unless the buyer becomes a tax resident within two years or allocates the property to moderate-priced residential letting for a minimum of 36 months within the first five years following the acquisition.

9. Simplified Accessible Rental Scheme (RSAA)

The decree-law creates the Simplified Accessible Rental Scheme (Regime Simplificado de Arrendamento Acessível – RSAA), replacing the Rental Support Programme established in 2019. The RSAA offers full IRS and IRC exemption on rental income for contracts with rents not exceeding 80% of the median price per square metre in the relevant municipality, with a minimum lease period of three years for permanent residence. The scheme operates through an electronic platform managed by the Housing and Urban Rehabilitation Institute (IHRU) and takes effect from 1 September 2026, the date on which the previous programme is revoked.

10. Contracts for Investment in Rental Housing (CIA)

For larger-scale investors – funds, real estate companies and others – that allocate at least 70% of their construction area to moderate-priced residential rental for up to 25 years, the decree-law establishes the Contracts for Investment in Rental Housing (Contratos de Investimento para Arrendamento – CIA). The package of benefits includes IMT exemption, IMI exemption for the first eight years, a 50% reduction in the IMI rate for the remaining period, and exemption from the additional IMI surcharge. The contract is entered into with the IHRU on behalf of the State, and the decree-law includes a legal guarantee of compensation to the investor should legislative changes affect the economic and financial balance of the contracts entered into under a CIA.

11. Monitoring and entry into force

Monitoring of the decree-law is entrusted to the IHRU, in collaboration with the Tax and Customs Authority, Social Security and the National Statistics Institute. An interim report is due by the end of 2028, and a final report by the end of 2030. The electronic platforms required for the operationalisation of the new legal regimes must be available by 1 September 2026.