Portugal Slashes Rental Tax to Bring 60% of 'Ghost' Leases Into the Formal Market

Tenants across Portugal are still striking handshake deals, landlords remain wary of the taxman and the State is scrambling to coax thousands of “ghost” flats into the open market. Behind the headlines: a rental sector where up to 60 % of leases elude any formal contract, depriving public coffers of revenue and families of basic protections.

Snapshot – what matters now

• Informal rentals dominate: OECD estimates up to 60 % of leases are off-the-books.

• New fiscal carrots – 10 % IRS rate and 6 % VAT on construction – aim to lure owners back to legality.

• Red-hot demand: foreign buyers account for ≈10 % of transaction value since 2019; short-term lets keep squeezing long-term supply.

• Energy poverty endures despite the mild climate; 1 in 8 homes sits vacant.

• Permit delays vary wildly, from 272 days in Funchal to 548 days in Coimbra.

Why the grey market keeps expanding

Low trust between landlords and public institutions, fears of slow eviction processes and memories of pre-1990 rent freezes have all pushed owners toward cash-only arrangements. The OECD calls Portugal’s rental segment “sub-developed and fragmented” – only 12 % of families declare living in rented homes, the lowest share in Western Europe. Yet household numbers have jumped 13 % since 2010, fragmenting family units and fuelling demand. In Lisbon alone, a 2023 field survey found that 74 % of tenants spend over one-third of their income on housing, often without any written contract.

A patchwork of new incentives – and their limits

Successive governments have tried sticks and carrots. The headline measures adopted between 2023 and late 2025 include:

• IRS rate cut from 25 % to 10 % on “moderate rents” (≤ €2 300) for contracts of at least 3 years.

• Elimination of AIMI surcharge on properties rented below that threshold.

• Communication by Tenant (CLS) mechanism – renters can now alert the tax authority and register contracts the landlord ignores, securing deductions worth €900 in 2026 and €1 000 the following year.

• Streamlined eviction procedures via the Balcão do Arrendatário e do Senhorio online desk.

Economists applaud the lower tax on rental income but warn that €2 300 is “moderate” only for prime neighbourhoods. Without tougher audits, many fear owners will pocket the rebate while still dodging contract registration.

When cheap energy isn’t enough: the hidden cost of poor housing

Portugal enjoys one of Europe’s mildest climates, yet the OECD flags “high levels of energy poverty”. Leaky windows, thin walls and outdated heating mean families shell out more on utility bills than their northern neighbours. Nearly 1 in 5 dwellings was built before modern efficiency standards; vacant homes in rural areas often lack insulation altogether. The informal market aggravates the problem: renters hesitate to complain about cold, damp or mould when no paper trail secures their stay.

Global money, local pain: foreign demand and tourism

Relatively low price tags – €1 951 / m² on average versus €4 000 in Madrid – have lured investors from France, Germany and the U.S. Golden-visa applicants gravitate toward the top end, but their purchases ripple down the price ladder. Meanwhile, short-term rentals regained momentum after the 2024 rollback of the Mais Habitação freeze on new AL licences. In cities such as Porto, the share of flats listed on holiday platforms doubled in five years, shrinking the pool for long-term tenants and keeping median new-lease rents at €12.58 / m².

2026 outlook: what may change next

Legislators are mulling an expansion of the CLS system to cover room-by-room sublets and student housing, a sector particularly prone to handshake deals. The Finance Ministry is also studying a progressive property-transfer tax for non-resident buyers – a 7.5 % flat IMT has already been floated – to cool speculation. Urban-planning reform, approved in December, promises “single-counter” permit procedures aimed at cutting average licensing times by half. Whether these tweaks can persuade owners of the 12 % vacant stock to re-enter the formal market remains the billion-euro question.

Where rents are still within reach

For families willing to trade sea views for slower-paced towns, the interior offers relief:

• Guarda: average lease under €5 / m²; university demand steady.

• Bragança & Vila Real: one-bed flats from €350; rail link to Porto upgraded in 2024.

• Beja: despite a 40 % jump last year, median rent hovers near €450.

Public-private partnerships are eyeing these districts for built-to-rent schemes, supported by new BEI credit lines. Analysts say success hinges on improving transport and digital connectivity so residents can work remotely while paying half Lisbon prices.

Voices from the field

Maria Ferreira, 32, shares a 1960s walk-up in Amadora with two flatmates under a verbal agreement: “We pay on time, he leaves us alone – but I can be kicked out with a week’s notice.” Landlord João Santos counters that he “cannot wait two years for an eviction order” if things go sour. Architect Rui Valente argues that the focus should shift to speeding up permits and cutting VAT on renovation: “Put more bricks in the ground and informal renting will shrink by itself.”

One point unites them: without sustained political will and credible enforcement, the maze of tax breaks and micro-reforms risks becoming yet another footnote in Portugal’s long housing saga.