Portugal scraps 15% tax on holiday rentals, backdated to 2023

In a significant move for property owners in Portugal, the government has officially abolished the controversial 15 per cent tax on Local Accommodation (AL), commonly applied to holiday rental properties.

This decision, approved by the Council of Ministers, brings immediate relief to property owners, with it being backdated to December 31, 2023.

The announcement came from Antonio Leitao Amaro, Portugal’s Minister of the Presidency, who highlighted that this not only eliminates the 15 per cent contribution but also removes the restrictions that prevented reductions in the Municipal Property Tax (IMI) for these properties.

The repeal has been eagerly awaited by the expatriate community and property investors, following Parliament’s legislative authorisation that was granted two months earlier.

No tax payments due for 2023

The tax, originally due by June 15, had its payment deadline extended by four months to October 15 by the current government, allowing time for this legislative change. With the new law in place, owners of Local Accommodation properties are now exempt from paying the tax for the 2023 financial year.

In addition to this revoke, the new legislation introduces several homeowner-friendly measures. Notably, it allows capital gains from the sale of a property to be reinvested in a primary residence, with potential exemptions from IRS (Income Tax). This is particularly beneficial for those who sell a second home and invest the proceeds into their main home.

For workers who move more than 100 kilometres away from their current home, the law now allows them to deduct the cost of their new rent from the rental income of their original property. This change is designed to make it easier for people to relocate for work, which could be especially helpful for expatriates who often need to move for work reasons.

For expatriates owning or considering investing in holiday rental properties in Portugal, this new law is a welcome development, potentially increasing the attractiveness and profitability of such investments.