Portugal’s proposed 2026 State Budget carries measures that may reshape the economics of property rentals, particularly in the Algarve. While these have not yet become law, planning ahead can give you first-mover advantages. In this blog, we’ll cover the most relevant proposals, assess their implications for people like you, Lagos landlords, and suggest tactical moves you can take now.
Key Proposals with Direct Impact on Rentals
- Youth IMT Exemption
Buyers under age 36 purchasing homes priced up to about €330,500 are proposed to receive an IMT (transfer tax) exemption. That could funnel younger renters-turned-buyers into the lower-to-mid rental bracket (The Portugal News). - Rental law simplification and term flexibility
The draft budget suggests revising the urban rental regime to guarantee owners rights to terminate contracts for noncompliance, while simplifying bureaucratic processes. - Adjusting IMT tax brackets upward
The plan proposes a 2 % update to IMT brackets, increasing the tax-exempt base and widening the thresholds. - Encouraging build-to-rent / public/private partnerships
The government intends to reshape public rental assistance and introduce investment models to stimulate moderate-rent stock. - Tenant deductions & rent caps
Proposed increase in tenant deductions for rent (to a max of ~€900) may improve renter retention and affordability (Portugal.com).Simultaneously, rent updates (caps) are set around 2.25 % for 2026 (The Portugal Post).
What It Means for Algarve Rental Property Owners
- Shifting returns between short-term and long-term
If moderate long-term leases qualify for more favourable tax treatment, the after-tax yield gap with short-term lets may narrow. - Increased buyer competition from renters
With youth IMT relief, more long term renters may become buyers, especially in the lower/mid segments of Lagos – this could reduce long-term tenant pool but leave short-term unaffected. - Pressure for moderate-rent stock
Landlords may face incentives (or pressure) to align with moderate-rent definitions, meaning ultra-premium units may be less prioritised in new development. - Regulation risk remains
Even with national direction, each Câmara Municipal retains power in zones (e.g., allowing or suspending new permits). Lagos’ PDM and coastal ordinances will still matter.
What Property Owners Should Be Doing Now
While these measures are still at the proposal stage, it’s wise for property owners and investors to get ahead of the curve.
- Review your current rental strategy and returns
If you currently let on a short-term basis, review your current returns compared to the proposed 10% income tax rate for moderate long-term leases. Also consider that the heightened tax exemption for youth buyers may reduce the tenant pool for long term Algarve rentals. - Evaluate your portfolio for “moderate rent” eligibility
The government will publish price ceilings to define what qualifies. Many Lagos apartments, especially T1 and T2 units outside the historic centre, may fit these criteria. Securing the right rent level could make your property eligible for lower taxation. - Plan for documentation and compliance early
When the new frameworks take effect, properties already set up with correct documentation may be able to benefit from newer tax rates. We recommend consulting your accountant for further information. - Re-run your investment forecasts
Use realistic rent growth limits (around 2.25% for 2026) and update your yield calculations. A lower, predictable tax rate can offset smaller rent increases, so it’s worth modelling the full picture rather than focusing on headline rent alone. - Stay in touch with your local estate agent
Policies like IMT relief for younger buyers and incentives for moderate-rent housing could shift the Lagos buyer profile in early 2026. Our team is tracking which segments are already seeing renewed interest, particularly smaller units that combine lifestyle appeal with rental potential.
