Capital Gains Tax on Portuguese Property: How to Avoid It by Reinvesting in Moderate-Rent Housing

1. What is the purpose of this measure?

Portugal lacks affordable rental housing. To address this, Decree-Law No. 97/2026 of 20 May 2026 mobilises private investment and encourages owners to channel their capital towards the rental market.

Normally, selling a property generates a capital gain taxed under IRS: 50% of the gain is added to taxable income and taxed at progressive rates. The decree-law adds to Article 10 of the Personal Income Tax Code (CIRS) a new exclusion from this taxation, where the sale proceeds are reinvested in a home intended for rental at a moderate rent.

2. Who can benefit from it?

Unlike the classic exemption, this regime does not require the property sold to be your primary residence. It applies to the sale of any residential property: a second home, an inherited property, a home that is already let, or an investment property.

The classic regime remains in place: the sale of a primary and permanent residence is still exempt if the proceeds are reinvested in a new primary residence, within the same period of 24 months before or 36 months after the sale.

The rule targets taxpayers subject to IRS. The position of non-resident sellers, however, deserves a case-by-case analysis.

3. Conditions for reinvestment

Four conditions must be met:

• The amount reinvested: this is the sale price, less any loan principal repaid on the property sold. Reinvestment may be partial, in which case the exclusion is proportional.
• The property acquired: a home located in Portugal, intended for residential rental.
• The deadline: the purchase may take place up to 24 months before the sale or up to 36 months after it.
• The declaration of intent: you must state your intention to reinvest, and the amount, in the tax return for the year of the sale.

The monthly rent must not exceed 2.5 times the 2026 minimum wage, i.e. €2,300. This ceiling is likely to be updated.

4. Obligations after reinvestment

The exclusion is only secured if you comply, over time, with the following commitments:

• Let the property within 6 months of the reinvestment (or of the sale, if the sale comes later).
• Keep it let for at least 36 months, consecutive or not, during the first 5 years.
• Respect the rent ceiling throughout those first 5 years.
• Neither sell nor gift the property during those first 5 years.

5. What happens if the conditions are not met?

The benefit is lost, and the capital gain becomes taxable, in four cases:

• no residential lease is signed within 6 months;
• the property is not let for at least 36 months during the first 5 years;
• the rent exceeds the ceiling at any point during that period;
• the property is sold or gifted during those first 5 years.

The gain is then taxed in the year in which the obligation is no longer met. According to initial analyses, compensatory interest is added to the tax, calculated from the year the gain was realised. A late breach can therefore be costly: it is best to document every step from the outset.

6. Additional tax advantages

The same decree-law provides other measures that complement this regime for owners and investors:

• 10% rate on moderate rents: rental income from residential leases at a moderate rent benefits from a 10% autonomous rate, until 31 December 2029, unless a more favourable rate applies.
• Simplified Affordable Rental Regime (RSAA): for lower rents, this new regime, applicable since 1 September 2026, provides instead for an exemption from IRS and corporate income tax (IRC), subject to conditions. The rent must then stay below a lower ceiling (80% of the median rent in the municipality), with the ceilings to be set by ministerial order. For a given lease, you must choose the most advantageous regime: the two cannot be combined.
• IMT for non-resident buyers: the flat 7.5% rate can be partly refunded if the property is let at a moderate rent (lease within 6 months, 36 months of letting during the first 5 years). The request must be filed within 6 months of signing the lease.

7. Points to watch

• Temporary measure: it covers sales made between 1 January 2026 and 31 December 2029.
• Rent ceiling: the €2,300 applies to 2026 and may change.
• Evidence: keep the declaration of intent, the leases, their notification to the tax authority and proof of rent.
• Clarifications to come: some practical aspects should be clarified by the tax authority. Have your plan validated before selling or buying.

Conclusion

Reinvesting in moderate-rent housing opens a new path for owners who wish to sell without bearing capital gains tax. In return, it requires a lasting commitment: letting, respecting the rent ceiling and holding the property for several years.

For investors, it forms part of a broader package (10% rate on rents, partial IMT refund for non-residents), to be weighed according to each person's profile.

If you are considering selling or buying a property in Portugal, book an appointment to benefit from specialised legal advice and make the most of these new measures. You can also drop me an email.

@Mounia Mikou Unip Lda 517662779