The bill submitted this Tuesday, December 2, to the Assembly of the Republic to increase the housing supply provides IRS incentives for property owners who place homes on the rental market with monthly rents of up to 2,300 euros.

The various measures are listed in the legislative authorization text that the Government is asking Parliament to approve in this bill, in order to amend a set of tax legislation – the VAT, IRS and IMT codes, as well as the Tax Benefits Statute.

In the area of IRS, one of the measures proposed by Luís Montenegro’s government consists of exempting from IRS the capital gains obtained by property owners from the sale of a home, if they reinvest those gains in properties for residential rental with a monthly rent of up to 2,300 euros.

The maximum limit of the “moderate monthly rent,” which serves as a reference for accessing this and the remaining tax incentives, corresponds to “2.5 times the value of the minimum monthly wage expected for 2026,” that is, those 2,300 euros.

The Government is also requesting authorization to apply “a reduced autonomous IRS taxation rate [of 10% instead of 25%] to rental income arising from lease contracts intended for residential rental,” within that rent threshold.

Companies that place properties on the residential rental market and charge rents up to the same limit of 2,300 euros will also benefit from an incentive. The Government proposes that, for IRC (corporate income tax) purposes, only 50% of rental income should be taxed.

The proposal also provides for the “application of a 5% rate on income earned by participants or shareholders arising from units of participation or shareholdings in alternative investment vehicles,” in the proportion equivalent to “the income of those vehicles resulting from lease or sublease contracts entered into under the RSAA [simplified affordable rental scheme] or other regulations that promote rental or sublease of housing at affordable prices.”

Renting homes
Credits: Gonçalo Lopes | idealista/news
Affordable rental with IRS exemption on income
If landlords adhere to the simplified affordable rental scheme, that income becomes exempt from IRS.

To qualify, the monthly rent must be “equal to or lower than the maximum limit per typology to be defined in an ordinance issued by the Government members responsible for the areas of finance and housing, based on 80% of the median rent values published by Statistics Portugal (INE, I.P.) for the municipality of the rented property, and may take into account the characteristics of the properties, namely the level of energy efficiency and the availability of private parking,” according to the legislative text.

If the taxpayer decides to aggregate rental income with other income (from work or other sources) to be taxed under the progressive IRS brackets, the income remains exempt but will count towards the “determination of the rate to be applied to the remaining income,” the legislative text also states.

The bill also creates an investment contract scheme for rental housing (called CIA), “guaranteeing a set of tax benefits, for a period of up to 25 years, for investment in the construction, rehabilitation or acquisition of properties for residential rental or sublease.”

For tenants covered by residential rental contracts, the bill provides for a higher cap on rent deductions. Instead of the regular 800-euro deduction, the limit is expected to increase to 900 euros in 2026 and to 1,000 euros in 2027 and the following years.

Those who purchase homes at controlled prices will benefit from a reduction in IMT and Stamp Duty, according to the bill.