Housing package: Tenants and landlords seek market regulation and policing measures

Property owners who are landlords believe that lowering VAT on construction will free up the market but tenants associations argue that the housing crisis cannot be solved solely through tax measures.

These opinions came after a government bill on housing was signed into law on Monday by the President of the Republic, António José Seguro, after being approved by parliament in January.

However, overall landlords and tenants hope that the housing package will finally bring regulation to the rental market.

This appeal was made by their respective associations the day after the President of the Republic, António José Seguro, promulgated the proposed law. “There is a real lack of legislation on rentals, and we have absolutely nothing on this, not even a proposal presented,” said Luis Menezes Leitão, president of the Lisbon Association of Landlords (AIP). (Pictured)

That opinion is shared by the Lisbon Tenants Association (AIL), whose secretary-general, António Machado, states that “without measures to regulate the rental market and without oversight, this will not work, it’s a false issue, not just for tax reasons.”

Furthermore, he argues that, given the current crisis, calling the housing market “just a nickname” is not the case until it is treated like other markets that have regulators. “Whether they function better or worse is another matter, but they have regulators and oversight,” he emphasised.

Menezes Leitão laments that the housing package, approved by parliament in January, has only now been promulgated by the Head of State. “I regret that it took so long,” he says, adding that he hopes that from now on, at least the VAT measure for construction will be unblocked.

“It was a measure that had been announced a long time ago, even by the previous government, and it has been completely blocking construction projects, because obviously nobody was going to undertake a construction project at 23%, when in a few years they could build at 6%,” he emphasized.

In turn, António Machado does not believe that the measures in this package will solve the housing problem in Portugal. “The lack of housing has nothing to do with fiscal measures, but rather with other measures that put houses ready to live in on the market,” he points out.

Reduced VAT on new build

The law now applies a reduced VAT of 6% for construction projects involving residential properties, where the price does not exceed €648,000 in the case of purchase for primary and permanent residence, or where the rent does not exceed €2,300 in the case of residential rental.

For this reduction to be valid in sales, the houses must be sold within a maximum period of 24 months from the issuance of the occupancy permit.

In the case of rental, the properties must be placed on the market within two years and be rented for a minimum of 36 months. These periods may be consecutive or intermittent, provided they are completed within the first five years after the issuance of the permit.

In the case of “self-construction,” i.e., where construction services are directly acquired for a property intended for primary and permanent residence, the Government’s proposal foresees that the purchaser may request a refund of the difference between the standard VAT rate and the reduced rate. The request must be submitted to the Tax Authority within 12 months of the issuance of the usage license, with the tax authority obliged to refund the tax within 150 days.

IRS

From this year until the end of 2029, the autonomous tax rate applied to income tax (IRS) for rents at moderate values ​​will be reduced from 25% to 10%, provided that rents do not exceed €2,300 and that the gains were obtained between 2026 and the end of 2029. This reduction applies to all new and existing lease agreements that meet the minimum legal term of one year.

Until now, only landlords with contracts exceeding 10 years benefited from a reduced rate of 10%. In the case of lease agreements covered by the RSAA (Regime de Reabilitação Urbana de Arrecadação – Urban Rehabilitation and Access to Housing), where rents are less than 80% of the average rent for the municipality, the rents are exempt from income tax.

The Government exempts capital gains on real estate from income tax when the proceeds are applied to properties for residential rental at moderate values. The limit for deductions from income tax for tenants related to rental expenses will increase to €900 next year and to €1,000 from 2027 onwards.

Source: Jornal Económico; Image Luis Menezes Leitão/Facebook