Avoid Portuguese capital gains tax by reinvesting in a rental? The 2026 exemption explained

What does the exemption do?

Decree-Law 97/2026, published on 20 May 2026, added paragraphs 7 to 9 to article 10 of the IRS Code (the Portuguese income tax code). They exclude from tax the gain on selling a home, including a second home, holiday home or inherited home, when the money is put into other Portuguese homes let long-term at a “moderate” rent. The rule applies to sales made between 1 January 2026 and 31 December 2029 (article 18(3) of the decree-law), so sales already completed this year can qualify.

Until now, the only reinvestment relief was for selling your own main home and buying another. The new relief is wider on what you sell and stricter on what you buy.

What are the conditions?

All of these must be met (article 10(7) and (8) of the IRS Code, as amended):

#	Condition	Source
1	You sell a property used as a home (imóvel destinado a habitação), in a sale between 1 Jan 2026 and 31 Dec 2029	Art. 10(7); DL 97/2026 art. 18(3)
2	The sale proceeds, minus any repayment of a loan taken to buy the property sold, are reinvested	Art. 10(7)(a)
3	The money buys ownership of other homes in Portugal intended for residential letting. Buying only; building or renovating does not count	Art. 10(7)(a)
4	The purchase happens between 24 months before and 36 months after the sale	Art. 10(7)(b)
5	You state your intention to reinvest, and the amount, on the tax return for the year of sale	Art. 10(7)(c)
6	A residential lease is signed within 6 months of the purchase, or of the sale if that is later, unless delayed by justified reasons such as urgent works	Art. 10(8)(a)
7	The rent never exceeds the moderate-rent cap: €2,300 a month in 2026	Art. 10(8)(a) and (c); DL 97/2026 art. 2
8	The home is let for at least 36 months, continuous or not, within the first five years	Art. 10(8)(b)
9	The home is not sold or given away within five years	Art. 10(8)(d)

The five-year periods run from the purchase, or from the sale if the sale is later.

How is the €2,300 cap set?

The cap is 2.5 times the 2026 national minimum wage of €920 (DL 97/2026, article 2(2)(a)). It may be updated by ministerial order using the annual rent-update factor. Three details in article 3 of the decree-law matter:

• The monthly figure is the annual rent divided by the months let in that year.
• Furniture, equipment and services linked to the home count towards the rent, even if charged under a separate contract.
• With several tenants, the total rent for the home is what counts.

For larger or premium homes, the cap can limit the rent you are allowed to charge, so check it against realistic rents before you buy.

What is the timeline?

Example: a sale completed on 1 October 2026, with the new flat bought on 1 February 2027.

Step	Deadline	Date in this example
Earliest qualifying purchase	24 months before the sale	1 Oct 2024
Sale of the old home	Between 1 Jan 2026 and 31 Dec 2029	1 Oct 2026
Purchase of the rental home	By 36 months after the sale	1 Feb 2027 (latest: 1 Oct 2029)
Declare intention and amount	Return for the year of sale, filed 1 April to 30 June	By 30 Jun 2027
Sign the residential lease	6 months from purchase (or sale, if later)	By 1 Aug 2027
Let for 36 months at or below the cap	Within 5 years from purchase (or sale, if later)	Between 1 Feb 2027 and 1 Feb 2032
Keep the property	5 years from purchase (or sale, if later)	Until 1 Feb 2032

Can non-residents use it?

The law’s wording suggests yes; the tax authority has not yet confirmed it. Article 10(7) refers to the taxpayer (sujeito passivo) and sets no residence condition. The only geographic requirement is that the new homes are in Portugal. Elsa Costa of the Order of Certified Accountants writes that being resident or non-resident is not, by itself, an obstacle. As of 24 September 2026 we have found no circular or binding ruling from the tax authority on the point. If you are relying on it for a large gain, consider asking for a binding ruling (informação vinculativa) before you buy.

Non-residents face one extra cost. Since 25 May 2026, non-resident buyers pay a flat 7.5% IMT (property transfer tax) on homes, with no exemptions. The difference between 7.5% and the normal IMT can be reclaimed if the home is let at or below the moderate-rent cap within six months of purchase and for at least 36 months in the first five years. The claim must be made within six months of signing the lease (article 17(10) to (12) of the IMT Code). You pay the higher tax up front and recover it later.

How is the rent taxed?

Rent from a lease at or below the cap, received up to 31 December 2029, is taxed at a special flat rate of 10% instead of the usual 25% for non-resident landlords, unless a lower rate already applies (article 45-C of the Tax Benefits Statute, added by DL 97/2026). The 10% rate currently ends in 2029, while the letting obligation for a purchase in 2029 runs to 2034. Plan on 25% for later years unless the rate is extended.

Worked example: selling a holiday flat and buying a rental

A non-resident sells an Algarve flat in October 2026 for €400,000. They bought it in 2012 for €200,000 with a €100,000 mortgage, which is repaid at the sale. Purchase costs were €12,000 (assumed). Other worldwide income is €30,000 a year.

The gain

Step	Calculation	€
Sale price		400,000
Purchase price × 2012 coefficient	200,000 × 1.20	−240,000
Purchase costs	assumed	−12,000
Agent 5% + 23% VAT	400,000 × 5% × 1.23	−24,600
Energy certificate		−200
Gain		123,200
Amount that must be reinvested	400,000 − 100,000 mortgage repaid	300,000

Three choices

	No reinvestment	Reinvest €200,000	Reinvest €300,000
Share of gain excluded	0%	200,000 ÷ 300,000 = 66.7%	100%
Gain still taxable	123,200	41,066.67	0
Taxable half	61,600	20,533.33	0
Plus other income	30,000	30,000	–
Average rate on the total	35.57%	27.90%	–
Portuguese tax	€21,910	€5,728	€0

Partial reinvestment gives a proportional exclusion (article 10(12)). The law says only that the benefit covers the part of the gain corresponding to the amount reinvested; we have assumed the share is the amount reinvested divided by the proceeds net of the mortgage. Tax figures assume 2026 rates. Model your own sale with the selling calculator.

If the €300,000 flat is let at €1,500 a month, the 10% rate applies to the taxable rent: at most €1,800 a year on €18,000, before deducting allowable expenses, compared with €4,500 at 25%.

What happens if I break a condition?

The exemption is withdrawn. The gain is taxed in the year the breach happens (article 10(9)), with compensatory interest (juros compensatórios, article 35 of the General Tax Law) counted from the year of the original sale (article 10(31)).

Breach	Year the gain is taxed
No qualifying lease within 6 months	Year the 36-month reinvestment period ends
Rent goes above the cap in the first five years	Year the cap is exceeded
Fewer than 36 months let within five years	Year the deadline is missed
Home sold or given away within five years	Year of that sale or gift

If you do not reinvest the full amount within 36 months, the exemption is lost on the part not reinvested; the new paragraphs do not say in which year that part is taxed, so ask your adviser.

A tenant leaving is not itself a breach. The home only needs 36 months of lets in the five years, so you have up to 24 months of void periods.

How does it compare with the main-home relief?

	Main-home relief (art. 10(5))	Rent-reinvestment exemption (art. 10(7))
Home sold	Your own and permanent home, your tax domicile for the 12 months before the sale	Any home, including second, holiday and inherited homes
Sales covered	No end date	1 Jan 2026 to 31 Dec 2029
Where you reinvest	Portugal or another EU/EEA country	Portugal only
What counts as reinvestment	Buying, buying land and building, or extending or improving another home	Buying only
Use of the new home	Your own and permanent home within 12 months	Residential lease within 6 months, rent ≤ €2,300/month
Minimum letting	–	36 months within 5 years
Holding period	–	5 years
Reinvestment window	24 months before to 36 months after	Same
Mortgage repaid deducted	Yes	Yes
Declared on return for year of sale	Yes	Yes
Non-residents	Only if the home sold was their Portuguese main home	Wording suggests yes; not yet confirmed by the tax authority

The two can be combined. Part of the proceeds can go into a new main home and part into a rental, each relief covering its share of the gain.

Who does it suit?

It suits you if you:

• are selling a Portuguese holiday home, second home or inherited home with a large gain, and want to stay invested in Portugal
• would be happy to own a long-term rental and let it through a letting agent or yourself
• are a Portuguese resident whose NHR status is ending and who is weighing sale against letting (see NHR ending)

It does not suit you if you:

• need the cash, for example to buy in the UK or fund retirement abroad
• want to use the new property for yourself or for holiday lets. Short-term holiday letting (alojamento local) is a separate legal regime from a residential lease and does not appear to qualify
• might need to sell within five years
• have a small gain. Transaction costs on the new purchase, including the 7.5% IMT that non-residents pay up front, can exceed the tax saved

Key points

• Homes sold between 1 January 2026 and 31 December 2029 can have their gain excluded if the proceeds, net of any mortgage repaid, buy Portuguese homes for long-term letting.
• Reinvest between 24 months before and 36 months after the sale; declare the intention on the return for the year of sale.
• Sign a lease within six months, never charge more than €2,300 a month, let for 36 of the first 60 months and keep the property five years.
• Breach means the gain is taxed in the year of breach plus compensatory interest from the year of sale.
• The law’s wording suggests non-residents qualify; the tax authority has not yet confirmed it.
• Moderate-rent income is taxed at 10% until the end of 2029.