Homebuyers Could Save €70k as Portugal Plans 6% VAT on New Homes

Portuguese families hunting for an affordable flat and builders stuck in a holding pattern are watching one number more than any other: 6 %. The Government’s plan to slash Value Added Tax on homebuilding to that rate — and to make the cut retroactive — has become the most talked-about line in the 2025 budget debate, promising relief for buyers while stirring complex legal and European questions.

Why builders are holding their breath

Inside the sector, every new blueprint is being costed twice: once under the standard 23 % VAT and a second time assuming the promised 6 % rate. Developers say that difference can add more than €70,000 to the final price of a mid-range Lisbon apartment. The proposal covers construction for sale, build-to-rent schemes with monthly rents up to €2,300, and even self-build projects, though a ceiling for the latter is still being negotiated with the Ministry of Finance. By limiting eligibility to homes priced below €648,000, officials hope to steer the benefit toward what they call “moderate-priced housing” and away from speculative luxury towers. Industry groups, from AICCOPN in the north to the APPII in the capital, warn that projects are already being delayed in anticipation of the cheaper rate — a slowdown the retroactive clause is meant to prevent.

The retroactive twist: what it really means

Infrastructure Minister Miguel Pinto Luz insists that invoices issued after the date of the Council of Ministers’ decision — not the date Parliament finally stamps the law — should qualify for the reduced tax. In practice, contractors who have been charging 23 % since early autumn could re-issue their bills at 6 % once the statute is published, claiming back the difference from the tax authority. Finance chief Joaquim Miranda Sarmento concedes the Treasury will forgo revenue in the short term but argues that keeping cranes moving is worth the cost. The measure is slated to run until 2029, giving the market a four-year window to lock in lower tax before a scheduled review.

Brussels, courts and the fine print

Portugal’s pitch must still dovetail with the EU VAT Directive, which caps the number of goods and services that can enjoy reduced rates. Brussels is generally permissive on residential housing, yet the wording distinguishes sharply between specific services (such as renovation of a private dwelling) and a broad “construction project”. Recent Court of Justice rulings — notably cases C-378/21, C-794/23, and the Portuguese-focused C-433/22 HPA Construções — have shown that judges will allow retroactive corrections when the higher rate was charged in error, provided fiscal neutrality is preserved. However, they have also struck down national schemes that stretch the definition of eligible work. Lisbon’s legal drafters therefore face a balancing act: write rules generous enough to move the housing needle yet tight enough to survive scrutiny in Luxembourg and avoid infringement proceedings from the European Commission.

Market effects: hope, caution and spreadsheets

Economists at leading banks calculate that shaving 17 percentage points off VAT can trim construction budgets by roughly 12 %, depending on how much of the contract relates to labour rather than materials taxed at the full 23 %. Developers say the savings make sub-€300,000 starter flats viable again in Porto’s periphery and allow build-to-rent projects in suburban Lisbon to reach yields of 4-5 % without chasing premium rents. Consumer advocates, however, caution that without strict enforcement, the cut could simply fatten margins. The Government’s answer is a compliance clause: the reduced rate is forfeited if the home ultimately sells above the €648,000 threshold or if rent exceeds the €2,300 ceiling within the first three years. By tying the tax break to the final price tag rather than the developer’s promise, officials hope the discount will reach buyers instead of balance sheets.

Timeline: how soon could homeowners feel it?

Even with an early-2026 legal start and the retroactive kicker, the Ministry of Infrastructure says the “visible” impact will surface only in 2027 because of licensing lags. Municipal planning departments typically take nine to twelve months to green-light a building permit; financing and ground-breaking add more delay. Still, promoters argue that banks are already loosening credit lines for projects pencilled at 6 % VAT, signalling that the change is influencing investment decisions now. Homebuyers who sign a promissory contract today could therefore move into a lower-taxed property in roughly two years, provided that Parliament, Brussels and the courts all keep the legislative train on track.

What still could derail the plan

Three variables worry analysts. First, the final wording must satisfy the EU’s 24-category limit on reduced rates, or lawyers in Brussels will pounce. Second, Portugal’s own Supreme Administrative Court has a history of re-interpreting housing VAT rules, as seen in its March 2025 ruling that forced several rehab projects to pay back tax. Third, political consensus is fragile: the ruling coalition backs the cut, but opposition parties have signalled amendments aimed at tightening the price cap or excluding second homes. Any of those hurdles could dilute, delay or even sink the retroactive promise. For now, though, the prospect of 6 % VAT has become the lodestar of a construction sector desperate for certainty, and of households clinging to the hope that the next wave of housing will finally be within reach.