Transfer Tax Windfall Pours Millions into Portugal's Municipal Budgets

The money flowing into Portugal’s town halls is rising far faster than most residents expected. A buoyant property market has lifted the Municipal Property Transfer Tax, or IMT, to record highs, sparking a debate over whether the windfall is a short-lived boom or a sign of deeper change in the housing landscape. At the same time, the Government is preparing to tighten the tax net on foreign buyers—an idea cheered by some frustrated locals but viewed with caution by economists.

A windfall driven by deeds and valuations

The Ministry of Finance’s budget monitor shows that between January and August the State collected €1.43 B in IMT, a jump of 28.8 % on the same period of 2024. That extra €320 M helped push overall tax takings up 9.1 %, exceeding official forecasts published last winter. Two individual months were especially striking: May-to-June added €231 M, and July-to-August another €200.77 M. Even in a country accustomed to brisk real-estate activity, those monthly leaps are unusual.

Municipalities pocket IMT directly, so the surge is being felt immediately in local coffers. According to the latest treasury data, property transfer tax now makes up 52.5 % of all municipal revenue, dwarfing receipts from IMI (annual property tax) or the single circulation levy on cars. Some councils are already signalling they will use the bonus to speed up infrastructure repairs delayed during the pandemic years.

What is fuelling the spike?

Market analysts link the tax boom to a cocktail of factors: a backlog of deals postponed when interest rates peaked in 2023, the first signs of cheaper credit after the European Central Bank’s summer rate cut, and a wave of energy-efficient refurbishments that raised transaction values. Real-estate consultancies estimate that residential prices rose 5–8 % in the first half of 2025, with Lisbon and Porto again outrunning the national average. Crucially, it is not just expensive flats selling—volume has returned to the mid-range brackets, where every additional signature pays IMT.

Regulatory tweaks also matter. From January the Government adjusted the IMT tables by 2.3 %, lifting the exemption threshold on a main home to €104,261 and expanding the age-based relief for buyers under 35. Those measures protected many first-time Portuguese purchasers from the tax, but they inadvertently highlighted how much revenue is generated by the upper brackets, which capture investors and higher-income households.

A new squeeze on non-resident buyers

On 25 September Prime Minister Luís Montenegro announced a proposal to raise IMT for non-resident purchasers—excluding emigrants who keep Portuguese tax status. Details are scarce, yet the political message is clear: foreign capital is welcome, but it must contribute more to the public purse amid a housing shortage. The idea will be inserted into the 2026 budget bill now being drafted in Parliament.

Housing Minister Miguel Pinto Luz insists the aim is not to scapegoat foreigners but to level the playing field for locals. Industry lobbyists counter that a sudden cost hike could scare away investment and cool construction pipelines. Data from the national statistics office show non-residents bought just 4.9 % of homes in Q2, the lowest share since 2021 after the end of golden visa residency programmes. That shrinking slice suggests the extra tax may deliver only moderate gains yet could still reshape demand in coastal hotspots such as Algarve, Lisbon and Madeira.

Boom or bubble? The outlook according to experts

Banks, economists and property consultants are divided on how long the IMT bonanza can last. The Bank of Portugal’s May Financial Stability Report judges that an adverse scenario would have a limited impact thanks to conservative loan-to-value ratios and a 4 % macro-prudential buffer introduced last year. Private consultancies are more upbeat, projecting transaction growth of 10 % in 2025 as mortgages become cheaper and energy-efficient homes command premiums. Even so, most agree price gains will moderate to 2–4 % in 2026, hinting at a plateau rather than a crash.

Where consensus does exist is on supply: Portugal is not building enough affordable housing. Construction firms face bureaucratic delays and high material costs, keeping new-build pipelines thin. That structural shortage means that as long as employment remains robust, demand—and therefore IMT—should stay elevated, albeit at a calmer pace than this year’s eye-catching 28.8 %.

Reading the fine print of the 2025 IMT brackets

For residents planning a purchase, the current rules still matter more than future political battles. On a primary home the tax is zero up to €104,261, then rises in progressive bands to a top marginal rate of 7.5 % on values beyond €1.13 M. Urban properties bought for investment are hit with a flat 6.5 % rate, while rural land attracts 5 %. First-home buyers under 35 can combine the exemption with stamp-duty relief and the State-backed public guarantee programme launched in January.

Whether Parliament ultimately hikes the levy for foreigners or leaves the table untouched, one outcome is already visible: municipalities have grown used to the river of money. For citizens juggling rent increases and mortgage quotes, the key question is whether those extra millions will translate into more housing supply—or simply fill budget holes elsewhere.