The +Housing Program and tax changes with respect to personal income tax

On October 6, Law No. 56/2023 was published, which promises to introduce measures that guarantee the availability of more living space in Portugal.

Among the measures approved, the changes made to the tax law are particularly noteworthy, and the question immediately arises whether these measures will actually be enforced.

Changes in the taxation of real estate investments

With regard to the taxation of real estate investments, various changes have been approved, including changes to the reinvestment regime, the introduction of new tax incentives and the removal of pre-existing advantages.

As part of the real estate investment reinvestment regime, in addition to the already''stipulated requirements, it is now also required that the owner sold the property has been a permanent resident for the previous 24 months prior to the date of sale, and that he or she has not benefited from tax advantages in the year of profit and for the last three years. Another novelty in this regime is the suspension for two years, from January 1, 2020, of the calculation of the time periods for reinvestment (24 months before and 36 months after the transaction date).

New tax exemption

A new tax exemption is created whereby gains from the sale of real estate sold to the state, autonomous regions, state-owned housing enterprises or local governments for residential purposes are not subject to tax, provided that''profits are not made by residents in a territory with a more favorable tax system or that these sales are not the result of the exercise of a prior right of acquisition.

In addition, the tax benefits previously existing with respect to the taxation of gains from the sale of real estate located in an urban development area, the amount of which was 5%, cease to apply.

Taxation of rental income

In relation to the taxation of rental income, income from rental units intended for permanent residence and which were previously used for short-term rentals is exempt from taxation under the personal income tax. To apply this''The exemption requires that a short-term rental property be registered and used as such before December 31, 2022, and that the conclusion of the rental agreement and the corresponding registration in the Financial Portal occur before December 31, 2024.

The level of taxation on rental income from residential property is reduced from 28% to 25% and the tax rate is reduced depending on the length of the lease.

So if the lease term is five years or more but less than ten years, the tax rate is 15%, if the lease term is ten years or more but less than twenty years, the tax rate is 10%, and if the lease term is twenty years or more, the tax rate is 5%.

Text from Carla Matos (Partner at CCA Law Firm for private clients) and Patricia Cabriz (Associate Partner at CCA Law Firm for private clients).