The government has unveiled a draft legislation seeking parliamentary approval to modify several tax laws, including the IVA, IRS, and IMT codes, as well as the Tax Benefits Statute.
In the realm of IRS, one of the proposals made by Luís Montenegro’s administration is to exempt property owners from IRS on capital gains accrued from selling a house, on the condition that they reinvest the proceeds in rental properties with a monthly rent of up to 2,300 euros.
The maximum limit for “moderate monthly rent,” which forms the basis for this and other tax incentives, is set at “2.5 times the minimum monthly wage projected for 2026,” equating to those 2,300 euros.
The government also seeks authorization to apply “a reduced IRS autonomous taxation rate [of 10%, instead of 25%] on rental income from lease contracts intended for residential use,” within the specified rent bracket.
Companies renting out properties within the same 2,300-euro rent threshold will also receive incentives, with only 50% of rental income being taxed under IRC.
The proposal additionally outlines the “application of a 5% rate on income earned by participants or shareholders from investment units or holdings in alternative investment entities,” proportionally aligned with “income from those entities resulting from contracts of leasing or subleasing under the RSAA [simplified affordable leasing regime] or other regulations promoting affordable housing leases or subleases.”
Under the simplified affordable leasing regime, these incomes are exempt from IRS.
For this, the monthly rent must be “equal to or lower than the maximum limit by type to be defined in a government directive on finance and housing, based on 80% of the median rent values released by the National Institute of Statistics, I.P. (INE, I.P.) for the rented area’s municipality, possibly considering property characteristics, including energy efficiency and availability of private parking,” as proposed in the legislative text.
If taxpayers choose to combine rental income with other income types (work or others) for taxation under IRS’s progressive rates, the income remains exempt but contributes to “determining the rate applicable to other income,” according to the legislative draft.
The decree further establishes an investment contract regime for rental (termed CIA), “ensuring a set of tax benefits, for up to 25 years, for investment in building, rehabilitating, or acquiring properties for leasing or subleasing residentially.”
For tenants in residential lease contracts, the draft law proposes a higher ceiling for rent deductions. Instead of the regular 800 euros, the limit would rise to 900 euros in 2026 and 1,000 euros in 2027 and subsequent years.
Purchasers of controlled-cost housing would also benefit from reduced IMT and Stamp Duty, according to the draft law.
