In a major move for property owners in Portugal, the government has officially abolished the controversial 15 percent Local Accommodation Tax (AL), commonly levied on holiday rental properties.

This decision, approved by the Council of Ministers, brings immediate relief to property owners as it applies retroactively to December 31, 2023.

The announcement came from Antonio Leitao Amaro, the Portuguese Prime Minister, who stressed that this would not only eliminate the 15 percent contribution, but also remove the restrictions that prevented a reduction in the municipal property tax (IMI) for these properties.

The repeal was eagerly awaited by the expatriate community and real estate investors after Parliament gave legislative approval two months earlier.

No tax payments due for 2023

The tax, which was originally due by June 15, was extended by the current government by four months to October 15 to allow time for this change in the law. With the new law, local accommodation owners are now exempt from paying the tax for the 2023 tax year.

In addition to this revocation, the new legislation introduces several homeowner-friendly measures. In particular, it allows the reinvestment of capital gains from the sale of a property in a primary residence, with possible exemptions from IRS (income tax). This is particularly beneficial for those who sell a second home and invest the proceeds in their primary residence.

Workers who move more than 100 kilometers from their current place of residence can now deduct the cost of the new rent from the rental income of their original property under the law. This change is intended to make it easier for people to move for work, which could be particularly helpful for expatriates who have to move frequently for work reasons.

For expatriates who own or wish to invest in holiday properties in Portugal, this new law is a welcome development as it has the potential to increase the attractiveness and profitability of such investments.