On Thursday, September 25, 2025, the Portuguese government approved a new package of housing measures during the Council of Ministers meeting. Prime Minister Luís Montenegro declared that the goal is to expand access to affordable housing with a particular focus on middle-class families.
The measures combine tax incentives, financing supports, and regulatory changes designed to stimulate both the rental and construction markets. While the government has framed the package as a “shock policy” to move the housing sector forward quickly, critics argue that the steps still fall short of solving the country’s deep housing crisis.
Here is an overview of the key measures that were approved.
1. Higher Deductions for Tenants
Starting in 2026, tenants will be able to deduct up to 900 euros in housing rent expenses from their income tax. In 2027, that deduction rises to 1,000 euros. These deductions apply to leases at moderate prices, defined as up to 2,300 euros per month.
2. Lower Taxes for Landlords
To encourage more rental supply, the government reduced the IRS tax rate on rental income from 25 percent to just 10 percent for properties leased at moderate rents. Officials argue that this change will make the rental market more attractive to owners. Hopefully, this will put some currently vacant properties on the market.
3. AIMI Exemption for Rental Properties
Properties rented out for up to 2,300 euros per month will now be exempt from the Additional Municipal Property Tax (AIMI). Officials say this exemption will incentivize landlords to keep rents within the moderate range. Let’s hope so.
4. Simplified Licensing Procedures
The government promised to shorten deadlines and reduce bureaucratic hurdles in the licensing process for new housing projects. The aim is to speed up construction and make it easier for developers to launch new projects. If the government fulfills its promise on this measure and prioritizes housing projects for low-income families, this measure would go a long way towards helping to alleviate the housing crisis.
5. IMT Increase for Non-Resident Buyers
The government approved an increase in the Municipal Tax on Onerous Real Estate Transmissions (IMT) for non-residents who buy homes in Portugal, although emigrants excluded from this change. The move is aimed at curbing speculative demand from abroad that has contributed to rising housing prices.
6. End of Capital Gains Tax for Reinvestment
Homeowners who sell property and reinvest the proceeds into moderate rental housing will no longer pay capital gains tax. This measure expands the existing exemption that only applied to those reinvesting in primary residences.
7. Expanded Public Guarantee for Young Buyers
We first wrote about the housing support initiative for Portuguese residents under the age of 35 in March 2025. The public guarantee program for young people under 35 who want to buy their first home has been increased by 350 million euros, which raises the total to 1.55 billion euros. The guarantee allows the state to back up to 15 percent of a mortgage. This makes it possible for young buyers to finance 100 percent of a home valued up to 450,000 euros!
8. VAT Reduction in Construction and Rentals
The value-added tax (VAT) rate will drop to 6 percent for the construction of homes priced up to 648,000 euros and for rental contracts capped at 2,300 euros. The reduced rate will remain in place until 2029 and is especially targeted at high-pressure housing areas like Lisbon and Porto.
9. End of Rent Cap on New Leases and Faster Evictions
The government confirmed it will eliminate the 2 percent annual rent increase cap on new contracts, although existing contracts will continue to be tied to inflation. In addition, officials plan to streamline eviction procedures for tenants who fail to pay rent. This move has been welcomed by landlords but criticized by tenant advocacy groups.
10. Support for Construction Worker Housing
Acknowledging the urgent need for more construction labor, the government has committed to supporting temporary housing for construction workers. While details remain unclear, officials emphasized that these accommodations should provide dignity and stability to workers.
What This Means for Portugal
The new housing package combines tax breaks, credit guarantees, and regulatory reforms in an attempt to boost supply and make housing more affordable. For tenants, the biggest gains come from increased tax deductions and indirect pressure on landlords to keep rents within the moderate range. For property owners, the cuts in tax rates and AIMI exemptions create clear financial incentives to put more homes on the rental market.
One small but impactful piece often overlooked are the Golden Visa applicants who applied for Portuguese residency through real estate investment but are still waiting for their citizenship applications to be processed. Many Golden Visa applicants purchased multiple properties in Lisbon and Porto to meet the Golden Visa threshold under the previous Golden Visa real estate scheme. Some properties currently held by Golden Visa holders are likely to go back on the market once the applicants receive their citizenship, or their cheaper properties will be sold, allowing them to invest in more high-end properties and more affordable housing to go back on the market.
The opposition has already argued that the measures do not go far enough to tackle the country’s housing shortage. Portugal continues to face record demand for both rentals and purchases, especially in Lisbon, Porto, and the Algarve, where locals often find themselves priced out of the market.
Still, by lowering construction costs, providing stronger support for young buyers, and creating tax advantages for moderate rentals, the government hopes this package will move the housing market in a more balanced direction over the next few years.
