The Portugal housing tax package 2026, enacted by Decree-Law 97/2026 of 20 May 2026, reshapes how residential property is taxed in Portugal, including Madeira. It raises transfer tax for most non-resident buyers, rewards long-term landlords with lower income tax, and cuts VAT on qualifying construction. Here is what it means for you.
Featured snippet paragraph: Portugal’s 2026 housing tax package introduces a flat 7.5% IMT rate for non-resident buyers of residential property, a capital gains exemption for reinvestment in moderate-rent rentals, a 10% tax rate on qualifying rental income, and a reduced 6% VAT rate for eligible residential construction projects.
Why this package exists
Portugal has faced a sustained housing supply shortage. The Government’s response is a bundle of tax measures meant to push more homes onto the long-term rental market and make construction cheaper. The headline incentives are real. However, almost every benefit comes with eligibility conditions, rent caps, holding periods and clawback rules. In other words: the package gives with one hand and monitors with the other. Before relying on any of these regimes, the fine print matters more than the headline rate.
The new 7.5% IMT rate for non-resident buyers
The most consequential change for international clients is a new flat 7.5% rate of IMT (municipal property transfer tax) for non-resident purchasers of residential property. Until now, non-residents paid the same progressive IMT rates as residents. Under the new regime, the 7.5% flat rate becomes the default for most non-resident buyers, replacing access to the ordinary progressive brackets.
Stamp duty of 0.8% continues to apply on top, so a non-resident buyer should now budget roughly 8.3% of the purchase price in acquisition taxes, unless an exception applies.
How to avoid the higher IMT rate
For purchases below €1,150,853, the 7.5% rate does not apply where the buyer:
- is already a Portuguese tax resident at the time of purchase;
- becomes a Portuguese tax resident within two years of the acquisition; or
- puts the property into qualifying affordable rental use (broadly, monthly rents below around €2,300).
Notably, the carve-out also covers buyers who have been Portuguese tax residents at any point in the past. For expats already planning to relocate to Madeira or mainland Portugal, the two-year residency window is the key planning tool: committing to the move can restore access to the ordinary progressive rates. Timing your tax residency therefore becomes part of the purchase decision, not an afterthought.
Is the non-resident surcharge compatible with EU law?
There is a serious legal question over whether charging a higher transfer tax only to non-residents is consistent with the free movement of capital under Article 63 of the Treaty on the Functioning of the European Union, which also protects investors from outside the EU. If courts ultimately find the regime incompatible, affected buyers may be able to claim back the excess IMT with interest. Refunds are unlikely to be granted voluntarily, so buyers who pay the 7.5% rate should keep complete records and take advice on preserving a potential claim, which would likely run through tax arbitration and could reach the Court of Justice of the EU.
Capital gains relief for reinvestment in rental property
The package creates a new exemption for capital gains on the sale of residential property, including second homes, where the proceeds are reinvested in Portuguese residential property let at moderate rents. This goes beyond the long-standing main-home reinvestment relief.
The conditions are demanding. In broad terms, the new property must be leased within the prescribed period at a rent within the moderate-rent thresholds, kept for a minimum holding period of five years, and the rent must stay within the cap. Breach any condition, an early sale, a rent increase above the threshold, a failure to lease, and the exempt gain becomes taxable, with compensatory interest. One further limitation: the relief appears to cover reinvestment in Portuguese property only, which itself raises EU free-movement questions.
For owners of second homes in Madeira weighing an exit, this relief can be valuable, but only if a five-year, rent-capped rental commitment actually fits your investment goals.
A 10% tax rate on moderate-rent rental income
Landlords letting residential property under qualifying moderate-rent leases (again, broadly below €2,300 per month) can see their effective income tax rate on that rent fall to 10%. For landlords operating through a business structure with organised accounting, including companies, qualifying rental income may benefit from a 50% exemption.
This is one of the more usable measures in the package. It improves the net yield on long-term residential letting and may make converting short-term/local accommodation units into long-term rentals worth modelling, particularly in Funchal, where moderate-rent caps are easier to live with than in Lisbon.
Reduced 6% VAT for residential construction
Qualifying residential construction and rehabilitation works can now benefit from the reduced 6% VAT rate instead of the standard 23% (regional reduced rates apply in the autonomous regions, where Madeira’s reduced rate is 5%). The main qualifying routes for private clients are homes built for sale as the buyer’s own permanent residence at moderate prices (currently up to roughly €660,000), and homes built for long-term rental at moderate rents (up to roughly €2,300 per month).
Individuals building their own permanent home can also use a VAT reimbursement mechanism to recover part of the VAT after completion where contractors did not apply the reduced rate directly. The value caps will bite hardest in prime locations, so run the numbers before assuming eligibility.
Other measures worth knowing
Longer IMT payment deadline. IMT may now be paid on the assessment date or within the following 30 days, useful flexibility when sequencing funds for completion.
Simplified Accessible Rent Regime (RSAA). Replacing the old Affordable Rent Programme, the RSAA can deliver full IRS or IRC exemption on qualifying rental income, subject to strict conditions.
Housing Lease Investment Contracts (CIA). Aimed mainly at corporate and institutional investors, CIA contracts with the housing institute IHRU (up to 25 years) can unlock IMT and stamp duty exemptions on acquisition, IMI exemption for up to eight years with a 50% reduction thereafter, the reduced VAT rate on construction, and recovery of 50% of VAT on technical services. For structured build-to-rent projects, this is the deepest incentive stack in the package.
What this means if you are relocating to Madeira
If you intend to become a Portuguese tax resident anyway, the package is broadly neutral or even helpful: buy, register your move within two years, and the punitive IMT rate falls away, while the extended payment deadline eases completion logistics. Coordinate the property purchase with your visa and residency timeline, and with any IFICI (NHR 2.0) assessment, so each step supports the others.
What this means for investors
Non-resident investors who do not plan to relocate face a clear fork: accept the 7.5% IMT cost, commit the property to rent-capped affordable letting, or structure around the regimes designed for professional landlords (RSAA, CIA, the 50% corporate exemption). Several measures are time-limited, some run only until 31 December 2029, so the modelling window is now.
FAQ
What is the new IMT rate for non-residents in Portugal? A flat 7.5% IMT rate applies to most non-resident buyers of residential property from 2026, instead of the ordinary progressive rates. Stamp duty of 0.8% applies in addition.
Can I avoid the 7.5% IMT rate as a foreign buyer? Yes, for purchases under €1,150,853 — if you are or become a Portuguese tax resident within two years, were previously a Portuguese tax resident, or let the property at qualifying affordable rents.
Does the higher IMT rate apply in Madeira? The regime is national, so it covers residential purchases in Madeira. Regional specifics (such as Madeira’s VAT rates) apply to some related measures, so take local advice.
What is the new 10% tax on rental income? Rental income from qualifying moderate-rent residential leases (broadly under €2,300/month) can be taxed at an effective 10% rate; companies and organised businesses may instead get a 50% exemption.
Is the capital gains reinvestment relief automatic? No. The gain stays exempt only while conditions are met — qualifying lease, rent caps, and a five-year holding period. Breaches trigger taxation plus compensatory interest.
Could the non-resident IMT surcharge be challenged? There are credible EU-law arguments that taxing only non-residents at a higher rate breaches the free movement of capital. Buyers who pay it should preserve evidence to support a possible refund claim.
How MCS can help
MCS advises expats and international investors on every stage of buying, holding and letting property in Madeira and Portugal, acquisition tax planning, residency timing, rental structuring, and corporate ownership. We can model whether the new incentives genuinely work for your project, and protect your position on the contested IMT surcharge.
This article is provided by Madeira Corporate Services (MCS) for general informational purposes only and does not constitute legal, tax or investment advice, nor does it create a client relationship with MCS. It reflects legislation in force at the date of publication, including Decree-Law 97/2026 of 20 May 2026, which remains subject to regulatory implementation, administrative guidance and possible amendment or judicial review. Figures, thresholds and rates are indicative and may change. While MCS takes care to ensure accuracy, no warranty is given as to completeness or currentness, and MCS accepts no liability for actions taken in reliance on this content. Tax outcomes depend on individual circumstances; always obtain professional advice tailored to your situation before making any property, tax residency or investment decision. Book a consultation with MCS for advice specific to your case.
Ambrosio Jardim has, since 1998, worked mainly in the areas of commercial law (corporate, mergers and acquisitions, joint ventures, restructuring and planning), national and international tax law and real estate…. Read more
