Reduction on Income Tax for long term rentals in Portugal

Long term rental
By Joana CIDADES . 3 years
Categories :
Investing Portugal

Renting contracts of 10 years may pay less on Income Tax


The taxation on landlords for Local Housing Allowance has suffered an increase of 35%  imposed by the Government, who is now considering to low the tax paid by those landlords who choose to place their properties on long term rental market. A special reduction of 28% over the property yield is being considered, for those with an F category on Income Taxes.


According to Jornal de Negócios, the contracts covered by this measure will solely be those concerning long term residential renting, for about ten years. However these details are still not defined. The Portuguese Government is also considering the implementation of a rent assurance, demanded several years ago.


This is a measure whose main focus intends to reduce the impact caused by Local Housing Allowance, especially in Lisbon and Porto – where the touristic boom has been stronger, leading landlords to choose short term rentals as a first option for their properties. The main cause? Local Housing Allowance is much more profitable than traditional renting.


Given that these two renting options are taxed in very different ways, with Local Housing Allowance taking the first place of investment, it is guaranteed it will affect the final decision of landlords on how to rent their properties.


The Local Housing Allowance is taxed by the category 13 on Income Taxes, and considers 35% of the gross return. The traditional renting is considered by category F of property yield, beneficiating from a special tax of 28% over the net income. The landlords who accept to rent their properties for long term (about ten years) may benefit from this special reduced taxation.


Source: Jornal de Negócios