State Budget (SB) 2023 approved: what changes in housing and real estate

The State Budget for 2023 (SB2023), presented by the absolute majority Socialist Government, was given the green light last week in Parliament and brings a set of measures that will make a difference in the lives of families, in the new year that is already upon us. How? By freezing the price of public transport passes, limiting the rise in rents and energy bills, relieving the pressure of interest hikes on mortgages and supporting young people through reductions in IRS and subsidies for rented housing. But what exactly will change in housing and real estate in 2023?
But what specifically changes in the area of housing and real estate? What tax changes will affect families' wallets? What aids will be in force in the rental market? And what support is on the table for those who are paying higher house payments?

Mortgage credit: aids to be known in 2023
IRS relief for those with mortgages

To help families who have a home loan with a variable rate and are paying more expensive house instalments due to the rise in interest rates, the Government has designed a support for the costs of home loans in the State Budget for 2023 that will really come into play. Specifically, it will reduce withholding taxes for families who have cumulatively

a loan for the purchase of a home for their own and permanent residence;
a gross monthly salary of up to 2,700 euros.
In order to benefit from the reduction in the withholding tax rate, the Portuguese will only have to comply with the above-mentioned requirements and communicate their adhesion to their employer.

The measure may cover up to 1.4 million people and will have an impact on the IRS revenue of around 250 million euros next year. It should be noted that this measure is an anticipation, as the tax reduction will be compensated in the settlement of accounts with the Tax Authorities in 2024.

Renegotiation of mortgage loans: the new rules for 2023
In 2022, families started to feel the house instalment rising due to the increase in interest rates. This is because the majority of Portuguese (around 90%) have variable rate mortgages indexed to Euribor, which is escalating for all maturities as the European Central Bank decides to increase key interest rates - it has already made increases of 200 base points up until October and intends to continue doing so.

It was in this context that Costa's Government decided to design measures to try and help families that are seeing their budgets squeezed, whether because of the rise in interest rates, or because of the rise in inflation (it reached 10.1 per cent in October in our country). And one of them brings new rules for renegotiating mortgages, covering 1.3 million households. The measure has already come into force and should take effect until the end of 2023.

According to the diploma approved by the Government and already promulgated by the President of the Republic, only housing credit contracts with the following characteristics can be renegotiated under the conditions of the new Decree-Law n.º 80-A/2022, already published in Diário da República:

• Housing credit contracts for the purchase of their own and permanent home;
• Variable rate loans indexed to Euribor;
• Home loans up to 300 thousand euros of capital in debt.

This way, "banks will have to periodically evaluate the evolution of the effort rate in variable rate contracts", says the presentation of the State Budget for 2023. And they should verify if one of the three situations is observed:

• Effort rate exceeds 50% (in which case it will not be necessary to compare with past situations);
• Effort rate increases at least five percentage points and exceeds 36%;
• An effort rate higher than 36% and there has been an increase of three percentage points in the interest rate at which the mortgage loan was contracted. In other words, when the effort rate "increases as per the Bank of Portugal stress test, and also results in an effort rate higher than 36%", the document states.
• "In the event of a significant worsening and if conditions are met, [banks] are required to make proposals to customers," the document said. Among the proposals for housing credit renegotiations could be the option of refinancing, term extensions, or changing the type of rate and consolidation, for example.

The government also included in the OE2023, now approved, the exemption from stamp duty (IS) in renegotiations of the home loan to extend the term or refinancing debt. It should be noted that the current IS exemption is already granted to bank switching operations. The aim is that the Stamp Duty exemption applies to taxable events occurring until 31 December 2023.

Repaying home loans: no commissions in 2023
Those who have savings in the bank can choose to amortise their variable rate mortgages without paying commissions. The same law on renegotiating home loans also provides for the temporary suspension of the early repayment commission on variable-rate credit contracts, regardless of the amount of the credit. In other words, families will not have to pay 0.5% of the capital they intend to amortise until the end of 2023.

"This measure allows better conditions for early repayments, enabling the transfer of credit, namely by obtaining better credit conditions, or the use of savings that families have available to reduce indebtedness," said the Government, estimating that this change could benefit about 1.3 million households.

Amortize house credit: it will be easier to rescue PRR
A proposed amendment to the State Budget for 2023, presented by the PSD, was approved, which extends the range of situations for the use of the balance of savings plans, such as the Retirement Savings Plan (PPR), in the repayment of the home loan.

"During the year 2023 the partial or total mobilisation of the balance in a savings account is allowed for the payment of instalments of credit contracts guaranteed by mortgage on property intended for the participant's own and permanent home," reads the PSD proposal.

The proposal waives the minimum requirement of five years for the previous mobilisation of these savings plans, also determining that those who do so will not be subject to penalties for having used the tax benefit associated to these savings plans.

Renting a house: what changes in 2023
Limitation to 2% of the increase of the rents
In the presentation of the State Budget for 2023, the Government also makes reference to the limit of 2% in the updating of the rents during the next year. This measure covers all the lease contracts, in which the revision of the rents in line with inflation is contemplated, covering about 1 million families.

With this limit, tenants will only see their residential and commercial rents updated up to the maximum limit of 2%, instead of the 5,43% indexed to inflation. But, it should be noted, that it is always up to the landlords to decide whether or not to update the rents. Tenants, in turn, may accept, revoke or present a counter-proposal.

In order to compensate landlords for this limitation to the update of the rents next year, the Executive has also designed tax benefits, which will exempt from taxes between 9% and 30% of property income under IRS and 13% of income under IRC. The overall impact of this measure on the state budget is 45 million euros and will only be reflected in the 2024 accounts.

Landlords who break contracts not entitled to tax relief
In order to protect tenants, MPs also approved a PS proposal that prevents landlords from enjoying the tax benefit that compensates the 'brake' on the increase of rents by 2% next year, if they interrupt contracts before the deadline. In other words, landlords will no longer benefit from the tax exemptions on income from property in terms of IRS or IRC. 

Therefore, if the lease is interrupted before its expiry or renewal by initiative of the landlord, the income in question will be subject to the treatment that is given when a landlord interrupts a contract that benefits from the special 28% rate reduction under the long term lease tax regime.

• Rent: advance payment may only cover 2 months
• When a lease contract is signed, it is generally foreseen to pay the rent and the deposit in advance. And, now, there will be well defined limits for this practice: according to the proposal of the Left Block for the State Budget for 202023 approved by Parliament, landlords will only be able to require two months of advance rent and security deposit.

The aim of this proposal is to combat "abuses of guarantees" that are currently requested by landlords to tenants at the time of signing a new lease. And, thus, improve access to the rental market in Portugal.

IMI and IMT: tax changes for 2023
Local Lodging: increase of up to 100% in IMI for units located in areas of urban pressure
The IMI rate of properties located in areas of urban pressure and used for Local Lodging (AL) may be increased by up to 100% of the rate for the year to which the tax relates, according to the PS's amendment proposal to the State Budget for 2023, which was given the green light in Parliament. In practical terms, this means that if the local authority chooses to increase IMI by 100%, an accommodation located in an area of urban pressure that paid 0.35% of IMI will pay 0.7%, for example.

All municipalities that choose to increase IMI in the Local Property should inform the Tax and Customs Authority of their decision. This measure is added to other situations already contemplated in the IMI Code that allow municipalities to apply increased rates of IMI on property.

IMI: municipalities may now decide on the exemption of classified real estate
As of 2023, a municipal procedure will be required to recognize the right to exemption from IMI in the case of properties of municipal interest, according to the PS amendment proposal approved in the State Budget for 2023. This measure arises because the IMI is a revenue of the municipalities and, therefore, the municipalities should make this assessment, "when the classification is a competence of the municipalities or when the buildings individually considered are part of sets or sites classified as national monuments.

In this sense, "the existence of a municipal procedure of recognition of the right to exemption" is now required. The result of the approval must then be communicated to the Tax and Customs Authority for the purposes of registry and payment of this tax, as it is the AT that issues the payment notes for this tax.

IMT exemption in the resale of property will have tighter rules
The Left Bloc has seen approved an amendment proposal that will tighten the IMT exemption rules for resale of property. As of next year, only those who prove that in the last two years they have resold property acquired for this purpose will be eligible for IMT exemption. The law currently in force reduces that requirement to only one year.

"It is considered that the taxpayer normally and habitually exercises the activity when he proves its exercise in the previous two years through a certificate issued by the competent tax service, when that certificate states that, in each of the previous two years, buildings purchased for that purpose before were resold," says the proposal of the blockists.

Public investment in housing: what are the main measures?
According to the presentation of the draft State Budget for 202023, the Government intends to apply €3.4 billion to public investment, of which €573 million is earmarked for the promotion of affordable housing (around €313 million in loans), through:

• supporting access to housing (with the reinforcement of the 1st Right programme);
• promoting accessible public housing: simplifying the verification model for applications to the Accessible Rental Programme and reinforcing Porta 65;
• IRS and IRC exemption for student rental income: at stake is the attribution of a tax exemption to property income obtained through affordable rental for student accommodation under municipal programmes.
• "Housing continues to be a priority, namely at the level of public residential supply, together with the increase of the public park for rental at affordable costs. Very relevant steps will be taken to continue to promote the balance of the rental market and the promotion of building rehabilitation," said the Government when it delivered the State Budget proposal 2023 in October.

Therefore, in the area of housing, the Government "ensures an unprecedented strengthening of support for young people's rental and the mobilisation of housing ready to live, to provide answers already next year, along with the continued development of hundreds of public responses throughout the country," said the Minister of Infrastructure and Housing, Pedro Nuno Santos, at the closing of the discussion of the proposal of the State Budget 2023, Parliament.

These are the other measures focused on the promotion of affordable public housing in the proposal of the State Budget for 202023:

• Housing promotion policies financed by the Institute of Housing and Urban Rehabilitation (IHRU): the transfer of funds in favour of IHRU amounting to €586.2 million is foreseen under housing promotion policies, financed by revenues from EU funds amounting to €453.6 million and by revenues from loans from the European Investment Bank and transfers from DGTF amounting to €132.6 million;
• Housing and urban rehabilitation financing: the IHRU is authorised to contract loans, up to a limit of €85 million for the period from 2023 to 2026, to finance active operations within the scope of its activity and for the promotion and rehabilitation of the housing stock;
• Loans from municipalities for housing and urban rehabilitation operations: "Municipalities may grant real guarantees on real estate inserted in the legal trade, as well as on the income generated by them, within the scope of financing municipal programmes to support urban leasing," the proposal states. The loan amounts are intended exclusively for financing investment in affordable rental programmes and in housing solutions promoted under Decree-Law No. 37/2018, of 4 June, which establishes the 1st Right - Support Programme for Access to Housing. This value is not considered for the purpose of calculating the total debt of the municipalities. The loan agreements entered into between the final beneficiaries and the IHRU, within the scope of the RRP financing with reimbursable funds, aimed at the public stock of affordable housing, are exempt from prior supervision by the Court of Auditors, being sent to it within 30 days from the beginning of its execution.

Foreigners living in Portugal: what changes?
Capital gains? Approved proposal that equates non-residents to residents
The proposal now approved in the State Budget for 2020 ends the differentiated tax treatment between residents and non-residents on capital gains generated by the sale of real estate for personal income tax purposes, which had already been condemned in a ruling of the Court of Justice of the European Union.

This measure requires amendments to the Personal Income Tax Code in order to "equalise the taxation regime applicable to real estate capital gains made by non-resident taxpayers to that currently applied to residents, thus putting an end to the identified discrimination between resident and non-resident citizens", explains the PS in the proposal for amendment.

Under the current regime, residents are taxed on 50% of capital gains, with the amount in question being added to other income and subject to the general IRS rates. Capital gains from the sale of property by non-residents are taxed in full at an autonomous rate of 28%.

Simplified renewal of residence permits
The renewal of residence permits will continue to be simplified in 2023, with the proposal approved in the State Budget for 2023. The measure provides that to continue to provide foreign citizens residing in Portugal with a means of electronic identification to access digital public services, the possibility of adhering to the Mobile Digital Key at the service stations of the Foreigners and Borders Service (SEF) should be maintained.

"Until the Portuguese Agency for Migration and Asylum (APMA) and the Institute of Registration and Notary Affairs (IRN) assume the competences for granting and renewing residence permits (...) a simplified procedure for processing applications for granting and renewing residence permits remains in force for 2023," the proposal states.

It is also provided that "permits to be issued following decisions on applications" concerning minors are exempt from payment of fees, with the exception of those concerning the reunification of holders of residence permits for investment.