Portugal just made long-term letting significantly more attractive, and most investors are still modelling the old numbers. The 2026 State Budget cut the headline rate on qualifying residential leases from 25% to 10% — a 60% reduction in the rate, applied not only to new contracts but to leases already running.
That is not a marginal adjustment. It re-prices the central strategic question in Portuguese residential investment: whether to let long-term or run the property as short-stay accommodation. This article works through both regimes on the same apartment and quantifies exactly how much the gap narrowed.
Key takeaways: From 1 January 2026, Category F residential rental income is taxed at 10% where rent is up to roughly 2,300 €/month on a contract of at least three years, down from 25%. It applies to contracts already in force. In our Lisbon worked example, short-let's net income advantage fell from 39% to 16%.
What changed on 1 January 2026?
The autonomous IRS rate on residential rental income fell from 25% to 10% for leases within the moderate-rent regime, according to Doutor Finanças' analysis of the 2026 State Budget. For a landlord letting a typical Lisbon two-bedroom, that is the single largest change to Portuguese rental taxation in years.
The Budget also swept away the old structure. The previous ladder of reductions tied to contract length — 15% for leases of five to ten years, 10% for ten to twenty, and 5% for twenty or more — no longer exists. It has been replaced by a single 10% rate for qualifying moderate-rent leases, regardless of duration beyond the three-year minimum.
For most landlords that is a simplification and an improvement. The old ladder rewarded commitments that few private investors were willing to make; twenty-year leases are rare. The new rate delivers most of the benefit at a three-year commitment, which is an ordinary contract length.
Citation capsule: Portugal's 2026 State Budget cut the autonomous IRS rate on qualifying residential rental income from 25% to 10%, a 60% reduction, and abolished the previous ladder of duration-linked discounts. The new rate applies to leases already in force on 1 January 2026, not only to newly signed contracts.
Who qualifies for the 10% rate?
Two conditions define a moderate-rent lease. The monthly rent must be up to approximately 2,300 €, and the contract must run for a minimum of three years. The precise ceiling is derived from indicators including property type, location, the national minimum wage and the IAS, so 2,300 € is the working reference rather than a single hard-coded figure.
Critically, the regime applies to contracts already in force on 1 January 2026, not only to newly signed leases. A landlord with a running three-year contract at 1,150 € does not need to re-sign anything to benefit. That retroactive reach is unusual and worth checking against your existing portfolio.
Two administrative requirements are non-negotiable. The contract must be communicated to the tax authority, and rent receipts must be issued electronically. Landlords who let informally are not merely outside the 10% rate — they are outside Category F treatment entirely.
| Condition | Requirement |
|---|---|
| Monthly rent | Up to approximately 2,300 € |
| Contract duration | Minimum three years |
| Use | Residential letting |
| Existing contracts | Included if in force on 1 January 2026 |
| Registration | Contract communicated to the tax authority |
| Receipts | Electronic rent receipts issued |
How Category F actually works
Category F covers income from a standard lease and is taxed autonomously by default — at a flat rate, separately from your other income. The taxable base is gross rent minus a narrow set of deductible expenses.
That narrowness is where leveraged investors get hurt. Mortgage interest is not deductible under Category F. Neither is depreciation, nor furniture. Deductible costs are limited to those effectively incurred to obtain or maintain the income: IMI, condominium fees, insurance, maintenance and the stamp duty on the lease.
The consequence catches almost every new leveraged landlord. A property can have negative pre-tax cash flow — as in the Euribor scenarios where the mortgage swallows the rent — and still generate a tax bill, because the largest cash outflow is invisible to the taxable base. Tax is charged on economics the investor never experiences. It is not an error in the model; it is the model.
Taking the Lisbon example from our Euribor analysis: 13,800 € of gross rent, 1,700 € of deductible costs, giving a 12,100 € taxable base.
An extra 1,815 € a year, on an unchanged property with an unchanged tenant. On the roughly 63,000 € of equity deployed in that deal, the tax change alone adds about 2.9 percentage points to cash-on-cash return.
Landlords may still opt to aggregate rental income with their other income at progressive IRS rates. Before 2026 that occasionally beat the 25% autonomous rate for low-income taxpayers. At 10% it essentially never does, because the lowest IRS bracket sits above that. For most landlords, the aggregation question is now closed. Calculate your own position with the rental income tax calculator.
How Category B works for short-lets
Short-stay accommodation (alojamento local) is business income and falls under Category B. Under the simplified regime, apartments and houses carry a coefficient of 0.35, meaning only 35% of gross revenue enters the taxable base. In designated containment zones, where municipalities restrict new registrations, the coefficient rises to 0.50.
That coefficient is generous, and it is the main reason short-lets have historically won on after-tax income despite much higher operating costs. But the base is then taxed at progressive IRS rates rather than a flat 10%, and Category B brings social security obligations that Category F does not.
The regulatory backdrop has also settled. The extraordinary contribution on short-lets (CEAL) was revoked by Decree-Law 57/2024 with retroactive effect to 31 December 2023 and was never actually collected, and Decree-Law 76/2024, in force from 1 November 2024, removed most of the 2023 Mais Habitação restrictions. Short-letting is not under the pressure it faced two years ago — the change in 2026 is on the long-term side of the ledger.
The same apartment, both regimes
Take one Lisbon two-bedroom and run it both ways. Long-term at 1,150 €/month gives 13,800 € gross. As a short-let the same unit might gross 24,000 €, but with roughly 35% absorbed by cleaning, platform fees, utilities and management.
| Long-term (Cat F, 25%) | Long-term (Cat F, 10%) | Short-let (Cat B) | |
|---|---|---|---|
| Gross income | 13,800 € | 13,800 € | 24,000 € |
| Operating costs | 1,700 € | 1,700 € | 8,400 € |
| Net before tax | 12,100 € | 12,100 € | 15,600 € |
| Taxable base | 12,100 € | 12,100 € | 8,400 € |
| Tax | 3,025 € | 1,210 € | 2,940 € |
| Net after tax | 9,075 € | 10,890 € | 12,660 € |
| Short-let advantage | +39% | +16% | — |
Note: short-let taxed at 0.35 coefficient with a 35% assumed marginal rate, before social security contributions. Long-term assumes a qualifying moderate-rent lease.
The gap did not close, but it narrowed by more than half. And that 16% remaining advantage buys a great deal of work: guest turnover, cleaning logistics, seasonal vacancy, platform dependency and exposure to municipal containment rules that can change. For a full operational comparison, see our guide to short-term vs long-term rental in Lisbon.
Which regime should you choose?
The decision is now much closer than the gross figures suggest, and it turns on three questions rather than on the headline rate.
How much management can you actually supply? A 16% net premium for short-letting is thin compensation for active operations. If you would hire a management company at 20–25% of revenue, the premium disappears entirely and long-term letting wins outright.
Does the property qualify for the moderate-rent rate? Above roughly 2,300 €/month, the 10% rate is unavailable and the comparison reverts to something closer to the old arithmetic. Prime Lisbon and Cascais units let above that ceiling are a genuinely different case.
What is your tolerance for regulatory variance? Long-term letting at 10% is now a stable, low-effort, low-variance position. Short-letting depends on municipal containment rules that have moved twice in three years. The 2026 change effectively pays landlords to accept less regulatory risk.
What we see in listings screened since January is that the properties most affected are the ordinary ones — the 900 € to 1,400 € units in the Lisbon and Porto metro areas that sit comfortably inside the moderate-rent ceiling. These are exactly the deals that were marginal on cash flow, and an extra 1,800 € a year is often the difference between subsidising a property and being paid to own it. The trophy assets above the ceiling gained nothing.
Model both paths with the rental income tax calculator and the short-term vs long-term rental calculator.
Sources
- Doutor Finanças, 10% IRS sobre rendimentos prediais: o que muda com o OE 2026?, retrieved 2026-08-27, https://www.doutorfinancas.pt/impostos/irs/10-irs-sobre-rendimentos-prediais-o-que-muda-com-o-oe-2026/
- PwC, Portugal — Individual: Income determination, retrieved 2026-08-27, https://taxsummaries.pwc.com/portugal/individual/income-determination
- Vida Económica, Tributação de rendas em 2026: a taxa de retenção de 10%, retrieved 2026-08-27, https://www.grupovidaeconomica.pt/pt-pt/tributacao-de-rendas-em-2026--a-taxa-de-retencao-de-10-
- Host Wise, Impostos em Alojamento Local: guia completo atualizado para 2026 (IRS, IVA, SS), retrieved 2026-08-27, https://www.hostwise.pt/blog/impostos-alojamento-local
- RFF Lawyers, The New Extraordinary Contribution on Local Accommodation, retrieved 2026-08-27, https://www.rfflawyers.com/en/know-how/newsletters/the-new-extraordinary-contribution-on-local-accommodation/4793/
- Montepio, Rendas no IRS: como declarar e quanto pagar em 2026, retrieved 2026-08-27, https://www.montepio.org/ei/pessoal/impostos/senhorio-saiba-como-sao-tributadas-e-declaradas-as-rendas-no-irs/
Frequently asked questions
What is the rental income tax rate in Portugal in 2026?
From 1 January 2026, residential rental income under Category F is taxed at an autonomous rate of 10% where the lease qualifies as moderate rent: monthly rent up to approximately 2,300 € and a contract of at least three years. The previous rate was 25%, so qualifying landlords see a 60% cut.
Does the 10% rate apply to existing contracts?
Yes. The 2026 regime applies to contracts already in force on 1 January 2026, not only to newly signed leases, provided the rent and three-year duration conditions are met. You do not need to re-sign, but the contract must be registered with the tax authority and receipts issued electronically.
What happened to the old long-lease discounts?
The 2026 Budget removed the ladder tied to contract length, which gave 15% for leases of five to ten years, 10% for ten to twenty and 5% for twenty or more. It was replaced by a single 10% rate for qualifying moderate-rent leases, regardless of duration beyond the three-year minimum.
Is short-term letting still more profitable than long-term?
Usually yes on net income, but by much less than before. In our Lisbon example, short-let produced 39% more net income under the 25% Category F rate. After the 2026 cut to 10%, that advantage falls to about 16%, before social security contributions and the additional management burden.
Can I deduct mortgage interest from Portuguese rental income?
No. Under Category F, financial charges including mortgage interest are not deductible, and neither is depreciation or furniture. Deductible expenses are limited to costs incurred to obtain or maintain the income, such as IMI, condominium fees, insurance and maintenance. This is why leveraged landlords can owe tax on a property with negative cash flow.