IMT, IMI and Renovation Tax: What foreign owners actually pay
Pascal Niggli · 6 July 2026 · 12 min read
Foreign buyers now pay 7.5% flat IMT as non-residents. But buying in an ARU and renovating within three years can eliminate IMT entirely, cut VAT from 23% to 6%, and save over €40,000 in total tax.
Non-resident IMT 2026
7.5%
ARU tax savings (€55K reno)
€40K+
Reduced VAT rate
6%
Vetted contractors
Competitive quotes
How much IMT do foreign buyers actually pay in 2026?
Non-residents pay a flat 7.5% IMT under the Construir Portugal housing package. On a €300,000 apartment, that is €22,500 in transfer tax before the deed is signed.
That 7.5% flat rate is the biggest change in Portuguese property taxation in a decade. It applies regardless of whether the property is a primary residence or a holiday home. For many British, American, and Northern European buyers, this roughly doubles the IMT bill compared with the old progressive scale.
Already a Portuguese tax resident at time of purchase
Commits to becoming tax resident within 2 years of purchase
Places property on long-term rental market at or below €2,300 per month
⚠ WARNINGIf you claim the residency exemption and fail to meet it within two years, IMT becomes retroactively due at 7.5% plus interest. The Autoridade Tributária does check.
On top of IMT, every buyer pays Imposto do Selo (stamp duty) at a flat 0.8% on the purchase price or the VPT, whichever is higher. On a €300,000 purchase, that adds €2,400 before you have even turned a tap.
Can the ARU exemption eliminate IMT on a renovation property?
Yes. Properties in designated ARUs or buildings over 30 years old undergoing rehabilitation can qualify for a full IMT exemption on the first sale after rehabilitation.
This is the single most powerful tax lever available to foreign buyers in Portugal. The ARU regime provides four benefits at once:
ARU Regime Benefits
BenefitDetailSavings
IMT ExemptionFull exemption on first sale after completing ARU-qualifying rehabilitationUp to €22,500
IMI HolidayPrimary residence: 3 years if VPT below €125,000. ARU properties: up to 8 yearsUp to €5,600
Reduced VAT6% instead of 23% on labour and qualifying materials on ARU rehabilitation projectsUp to €8,500
IRS BenefitsIncome tax deductions for the renovation promoter. Amount varies by regime and income levelVaries
ARU qualification requirements
1
Property is in a designated ARU, or building is over 30 years old
2
Minimum investment of approximately 25% of the VPT on qualifying rehabilitation work
3
Property must achieve minimum post-renovation energy rating
4
Rehabilitation must begin within 3 years of acquisition
5
Municipality issues a certificado de reabilitação confirming compliance
i TIPA practical example: buy a run-down apartment in Alfama for €250,000 (VPT €150,000). Renovate within three years, spend at least €37,500 on qualifying work, achieve the required energy rating. The IMT exemption alone is worth €18,750 at the 7.5% non-resident rate. Combined with IMI and VAT savings, total benefit on a €60K renovation exceeds €30,000.
If you are buying in the historic centres of Lisbon, Porto, or Coimbra, always ask whether the property has an active ARU designation. Your solicitor should check this as part of standard due diligence. Most do not unless you ask.
How does renovation affect your annual IMI bill?
Renovation affects IMI in two opposing directions: it can trigger a temporary exemption saving thousands, but the subsequent VPT reassessment permanently increases the annual bill.
IMI is calculated on the VPT at a municipal rate of typically 0.3% to 0.45%. A property with a VPT of €200,000 at 0.35% pays €700 per year. Renovation pulls this in two directions.
The upside, Temporary IMI exemption
ARU properties: 3 to 8 years. Primary residence: 3 years if VPT below €125,000. Up to €5,600 saved over 8 years.
The downside, VPT reassessment
Pre-renovation VPT €100K can become €180K after renovation. Annual IMI rises from €350 to €630. +€280 per year permanently.
✓ NOTEIf your renovation qualifies for the ARU IMI exemption, time the caderneta predial update to coincide with the start of the exemption period, so the higher VPT and the exemption begin simultaneously.
What VAT rate applies to renovation work in 2026?
Standard VAT on construction is 23%. Qualifying residential rehabilitation projects under Construir Portugal benefit from a reduced 6% rate through December 2029.
23%
Standard rate
On €50K: VAT = €11,500
6%
Reduced rate (Construir Portugal)
On €50K: VAT = €3,000
You save: €8,500
6% VAT conditions (Construir Portugal)
Residential housing project
Project initiated between 25 September 2025 and 31 December 2029
Post-renovation sale price at or below €648,022
If rented, monthly rent at or below €2,300
There is a separate and older 6% VAT regime for properties in ARUs with an active ORU, which applies specifically to the labour component. The two regimes overlap in some cases but are legally distinct. Confirm the applicable rate with your contractor in writing before signing any works agreement.
How do renovation invoices reduce capital gains tax?
Documented renovation costs completed within 12 years of sale are deductible from the taxable gain. A €40,000 renovation can save €4,800 to €9,600 in real tax at sale.
This is the tax rule that foreign owners miss most often, and the one that costs them the most money when they sell. If you spent €40,000 on renovation five years before selling, that €40,000 comes directly off your taxable gain.
Invoice requirements
1
Invoices must be in the owner's name
Must include the owner's NIF and the property's full address. Invoices in a contractor's or third party's name do not qualify.
2
Work must have increased property value
Structural improvements, new bathrooms or kitchens, rewiring, plumbing, roofing, and energy upgrades qualify. Painting and decoration generally do not.
3
Issued by registered contractors
Contractor's NIF on every document. The Autoridade Tributária rejects informal receipts and undocumented cash payments entirely.
⚠ WARNINGCollect invoices as you go, not when you sell. Every invoice from every trade, supplier, and architect should be filed with your NIF and property address. Five years from now, the invoices are either in a folder or they are gone.
Beyond renovation invoices, these purchase costs are also deductible from capital gains: IMT paid at acquisition, stamp duty, notary and registration fees, legal fees, energy performance certificate, and estate agent commission on sale. Keep everything.
What does AIMI mean for renovation investors with multiple properties?
AIMI applies to individuals whose combined Portuguese property VPT exceeds €600,000, at rates of 0.7% to 1%. Every renovation that increases VPT pushes you closer to the threshold.
AIMI Rates · Portugal 2026
Combined VPTAIMI RateAnnual Liability
Up to €600,0000%€0
€600,001 to €1,000,0000.7%Max €2,800/year
Above €1,000,0001.0%On excess
If your combined VPT is at €580,000 and a renovation pushes one property's VPT up by €50,000, you have just created a permanent annual AIMI liability of €210 on the amount above €600,000. This is not a reason to avoid renovating, but it is a reason to model the post-renovation VPT before work starts.
Worked example: buying and renovating in Lisbon
A non-resident buying a €280,000 ARU apartment in Estrela and renovating for €55,000 can save approximately €40,000 to €45,000 in total tax versus the standard route.
Scenario: Non-resident buys a 90m² apartment in Estrela, Lisbon, for €280,000. Property is in an ARU, built 1965. Full renovation budget: €55,000. Buyer becomes tax resident within two years.
At Purchase
ItemAmount
IMT€0 (ARU exemption)
Stamp duty (0.8% of €280,000)€2,240
Notary & registration~€1,500
Total purchase taxes (vs €24,240 without ARU)€3,740
During Renovation
ItemAmount
VAT at 6% on €55,000 (ARU + Construir Portugal)€3,300
Standard 23% VAT (what you would have paid)€12,650
VAT saving€9,350
Annual Ownership
PeriodIMI
Years 1–3 (ARU exemption)€0/year
Year 4+ (reassessed VPT €180K at 0.35%)~€630/year
At Sale (Year 7, €420K)
ItemAmount
Adjusted acquisition cost (€280K x 1.05) + €55K + €5.2K€354,240
Taxable gain€65,760
50% exclusion (subject to progressive rates)€32,880
Approximate CGT (depending on worldwide income)€5K–€10K
Total Tax Benefit via ARU Route
€40,000–€45,000
Across IMT exemption, VAT reduction, IMI exemption, and capital gains deduction.
Frequently asked questions
Yes. IMT paid at purchase is a deductible cost when calculating mais-valias. Stamp duty, notary fees, registration fees, and legal fees are also deductible. Keep all receipts from the day you sign the promissory contract.
Potentially. The Construir Portugal package reduced VAT on qualifying residential rehabilitation from 23% to 6% for projects initiated between September 2025 and December 2029, subject to a sale-price ceiling of €648,022. Properties in ARUs with an active ORU may also qualify under the older rehabilitation regime. Confirm which regime applies with your contractor and fiscal representative before work begins.
Yes. Documented renovation costs completed within 12 years of selling are deductible from the taxable gain. Invoices must be in the owner's name with NIF and property address. The Autoridade Tributária rejects informal receipts and undocumented cash payments. The rule applies only to value-adding works, not routine maintenance or decoration.
From 2026, non-resident buyers pay a flat 7.5% IMT under the Construir Portugal package. Residents pay progressive rates starting at 0%. Buyers who commit to residency within two years or rent the property at moderate prices can claim the progressive rate instead. The flat rate applies automatically at the notary unless you present documentation of your residency status or rental commitment.
It can. When the Autoridade Tributária reassesses the VPT after renovation, the higher value increases annual IMI. Properties qualifying for the ARU exemption receive a 3-to-8-year IMI holiday to offset this, but the higher annual bill will apply once the exemption expires. Model the post-renovation VPT increase before deciding on renovation scope.
This guide reflects Portuguese tax law as of July 2026, including the Construir Portugal housing package and the 2026 State Budget. It is intended as orientation for foreign property owners and is not tax advice. Tax rules change frequently and individual circumstances vary. Confirm specifics with a licensed Portuguese fiscal representative or tax advisor before making any purchase or renovation decision.
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Pascal is the co-founder of remodel.pt. Originally from Switzerland, he has lived in Portugal for several years and has first-hand experience with permit, VAT, and contractor issues foreign owners run into. He built remodel.pt to be the resource he wished existed when he started.
This guide provides general cost information based on remodel.pt contractor network data. Actual renovation costs vary by property condition, scope, materials, and contractor. This is not a substitute for a detailed scope assessment and written quotation from a licensed contractor. Permit and tax information is general guidance, not legal or fiscal advice. Consult a licensed architect and tax advisor for your specific project.
Last updated: July 2026
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