Portugal's 6% Construction VAT Takes Effect on July 1, Capping Eligible Homes at €660,982 and Giving Non-Resident Buyers a Recoverable 7.5% Transfer-Tax Rate

From 1 July 2026, builders in Portugal can charge a reduced 6% rate of value-added tax on the construction and renovation of homes destined for the owner's permanent residence or for long-term rental, down from the standard 23%. The measure is the centrepiece of the government's housing tax package, enacted as Decreto-Lei n.º 97/2026 (Decree-Law 97/2026) — promulgated by the President in May and published in the Diário da República (Official Gazette) on 20 May — and it arrives bundled with a lower transfer-tax rate for foreign buyers, refunds for people who build their own home, and softer income tax on affordable rents.

The politics are straightforward: Portugal has too few homes and prices that have outrun local wages for a decade. The theory behind the package — what promoters have hailed as a "great victory" and some tax specialists have quietly questioned — is that cutting the tax loaded onto a newly built home will nudge developers to build more of the mid-market housing the country is short of. Whether it moves the needle on supply or simply on prices is the open question. What is certain is that the rules are now live, and they are dense.

The headline: 6% VAT instead of 23%

The core benefit is a reduced 6% IVA (Imposto sobre o Valor Acrescentado, value-added tax) on empreitadas — the construction and rehabilitation contracts — for homes intended for own permanent residence or for habitational letting. The rate applies to urban-planning operations that began between 25 September 2025 and 31 December 2029, where the tax becomes due from 1 January 2026 onwards.

There are ceilings. For newly built or rehabilitated homes sold on to a buyer for their own permanent residence, the sale price cannot exceed €660,982 — a figure pegged to the second bracket of the IMT Jovem (Young Buyers' Property Transfer Tax) scale and updated for 2026. Where the home is destined for rental, the qualifying rent is capped at €2,300 a month. Homes above those thresholds fall back to the standard 23%.

Mechanically, the relief runs through Portugal's reverse-charge system: the builder invoices the promoter without VAT, and the promoter self-assesses the tax (a process known as autoliquidação) and settles with the state. In late June, days before the rules took effect, the Autoridade Tributária (Tax Authority, AT) issued guidance clarifying how the regime works, while the government moved to widen eligibility so that all purchasers of the construction services can benefit — not only businesses with a right to deduct VAT — a change meant to simplify a scheme that accountants had flagged as confusing.

A flat 7.5% transfer tax for non-resident buyers

For internationally mobile buyers, the most consequential line is a change to IMT (Imposto Municipal sobre Transmissões, the property-transfer tax). Non-resident purchasers now face a flat 7.5% IMT rate on qualifying homes — but the difference can be recovered if the buyer becomes a Portuguese tax resident within two years, or rents the property out at the moderate rates the regime targets for at least 36 months. The package also stretches the window to pay IMT from a single day to 30 days, and grants an IMT exemption on controlled-cost housing valued up to €330,539 for those buying a first home.

None of this replaces the wider mechanics of a purchase. Anyone weighing a move should still read the transfer tax, stamp duty and financing rules in our 2026 guide to buying property in Portugal, and — for anyone borrowing — the non-resident lending track set out in our guide to securing a crédito habitação mortgage.

Build your own home? Claim the difference back

People building a house for themselves are not left out. Self-builders can reclaim the gap between the 23% they paid on construction costs and the 6% reduced rate, provided the finished home does not exceed the €660,982 ceiling and they move in within six months and keep it as their permanent home for at least a year. The refund window is not immediate: applications open in October 2026.

Landlords and tenants

The package leans on the rental market from several directions. Landlords letting at qualifying rents can opt for a flat 10% rate of IRS (Imposto sobre o Rendimento das Pessoas Singulares, personal income tax) on rents up to €2,300 a month, an arrangement running through 2029. A separate, more generous track — the Regime do Arrendamento Acessível (Affordable Rental Regime, RSAA) — takes over from the 2019 support scheme on 1 September 2026 and offers a zero income-tax rate on rents set at around 80% of the local median under a minimum three-year lease. There is also a capital-gains exemption for owners who roll the proceeds of a sale into rental property within a set reinvestment window.

Tenants get a smaller but real sweetener: the rent deduction on the annual IRS return rises to €900 for 2026 and to €1,000 from 2027. For the day-to-day rules that govern a lease itself — the deposit, the guarantor and the electronic rent receipt — see our guide to signing a rental lease in Portugal and the broader transition to the accessible-rental regime.

The catch: change your mind, pay the penalty

The 6% rate on a home you buy to live in comes with strings, and they fall on the buyer. Under Decree-Law 97/2026, a purchaser who takes the reduced rate must allocate the property as their permanent residence within six months and keep it that way for at least twelve. Break either condition and the Tax Authority applies an IMT surcharge equal to 10% of the property's taxable value — assessed automatically, rather than by clawing back the VAT you saved. The responsibility to keep the home compliant, in other words, shifts squarely onto the person who bought it.

There are humane exceptions. The surcharge does not bite where the change of residence is driven by "exceptional circumstances" — marriage or entering a civil union, divorce or its dissolution, or a growing number of dependent children. But absent one of those, treating a 6%-VAT home as anything other than your settled main residence for the first year is an expensive move.

What This Means for Expats

• Only new build and major renovation qualify: The 6% rate is on construction and rehabilitation contracts, not on buying an existing, already-finished home from a private seller. If you are purchasing a resale flat, this measure will not lower your bill.
• Non-residents: the 7.5% IMT is recoverable: If you buy before relocating, budget for the flat 7.5% transfer tax — but keep the paperwork, because becoming a tax resident within two years (or letting at moderate rents for three years) lets you recover the difference.
• Mind the €660,982 and €2,300 lines: Above the price ceiling for owner-occupied homes or the rent ceiling for lettings, the standard 23% VAT returns. These thresholds decide whether the benefit applies at all.
• Self-builders, diarise October 2026: If you are building your own home, keep every invoice — the refund of the 23%-to-6% difference cannot be claimed until the application channel opens in October, and only if you occupy within six months.
• Don't flip a 6%-VAT home: Selling, letting it out casually, or moving out inside the first year can trigger a 10% IMT surcharge on the taxable value. Plan to actually live in it, and check whether a life change qualifies for the exemption before you move.