Only 11% of renters would benefit from the increased income tax deduction. Incentives for owners risk raising rents

The proposal to cut taxes for landlords with rents of up to 2300 euros covers 99% of rental contracts in Portugal. In contrast, the increase in IRS deductions would only cover 11% of renters.

The Technical Budget Support Unit (UTAO) warned of the budgetary and effectiveness risks associated with Government proposal to reduce IRS and IRC applicable to rents up to 2300 euros per month.

In an analysis sent to the Budget and Finance Committee, technicians estimate that the measure could cost around 309 million euros per year to the State coffers and have effects contrary to those intended, encouraging a rise in rents.

Based on data from 2024, 529 thousand housing lease contracts were declared, which generated 2.47 billion euros in lace. These incomes yielded 502.8 million euros to the State, with an autonomous IRS rate of 28%. The drop in the rate to 10% on contracts up to 2,300 euros would imply a drop of 279.1 million euros in IRS, in addition to an estimated impact of 29.8 million euros in IRC, says the .

According to the Tax Authority, 74.7% of landlords declare income up to 500 euros and 93.3% up to 1000 euros. A ceiling of R$2,300 would cover 99% of contracts and 92% of the sector’s tax revenue. UTAO admits that tax cuts could attract part of the informal market to the formalitymitigating the loss by around 22.8 million euros, but considers the effect limited.

Regarding the effectiveness of the measure to lower rents, technicians have reservations. Set a threshold for “moderate income” at 2300 euroswhich is above the market median, can lead to values ​​converging close to the ceiling, especially in a context of tight supply. In other words, as a landlord who charges, for example, R$1,000 in rent, is entitled to the same tax benefit as one who charges R$2,000, the measure may end encourage landlords to raise rents up to the maximum limit covered by the tax cut.

Only 11% of tenants benefit

While tax benefits for landlords cover almost the entire market, the same cannot be said for measures for renters. According to the report, the increase in the maximum value of the deduction of rental expenses in Income Tax will benefit only 11% of renters.

The current law defines that tenants can deduct from the IRS the equivalent of 15% of the amount supported by rent, up to a maximum value of 700 euros, with a predicted increase to 800 euros in 2027. The executive’s proposal argues that the maximum value of the deduction increase to 900 euros this yearrising again to 1000 euros in 2027, writes .

“The increase in the planned deduction limit only benefits households with collectible income exceeding 30 thousand euroswhich represent around 11% of households with deductions for rent costs in 2026 and 2027”, can be read in the report.

In addition to the fall in IRS and IRC, the government’s housing package also proposes a reduction in VAT on construction, with an estimated cost of between 200 and 300 million euros per year.