Lisbon, May 29, 2026 (Lusa) – Portugal’s new partial Value Added Tax (VAT) refund scheme for self-built homes penalises families with bank loans because they can only apply after local councils issue the habitation licence, Jorge Batista da Silva, the head of the Association of Notaries, told Lusa.
The government published tax relief measures to increase housing supply in the official government gazette on 20 May 2026.
These measures cut VAT from 23% to 6% for building and renovating permanent housing for sale or rent at “moderate prices”, set at €2,300 for rent and around €661,000 for sale. The decree states that self-building qualifies for a partial refund of the VAT individuals pay “in construction contracts for own and permanent housing.”
Anyone building their own home will pay the standard 23% VAT rate on the contract, but can then claim a refund of the 17% difference from the Tax Authority (AT) to reach the reduced 6% rate, provided the total cost of the property and land does not exceed €660,982.
“It is a good measure because it allows people to enjoy a 17% discount on building their houses, but it will bring many problems,” said the head of the Association of Notaries.
Most self-builders lack their own capital and rely on a bank loan to finance the construction.
He said that borrowing the full amount from the bank “will severely penalise people because they will pay more interest.”
Homeowners can only claim the tax refund from the AT after registering the property at the land registry and applying for the habitation licence, which happens long after completing construction.
He added that land registry delays can reach “nine months”, while local councils can take “more than a year” to issue a habitation licence.
The AT has 150 days to refund the VAT difference after the licensing process concludes and the applicant submits the request.
Batista da Silva said: “With all this, no one really knows when they will receive the VAT refund, which still amounts to several thousand euros.”
The head of the association believes the best solution would be a phased VAT refund, invoice by invoice, without waiting for the habitation licence.
“Paying invoice by invoice would allow better cashflow management, meaning citizens would not face such prolonged interest payments on their bank loans,” he said.
The AT would verify later whether the applicant met the requirements under this system.
“If they did not, the citizen would have to return the money,” he added.
The head of the order said that “the measure is good and positive,” but “the is incorrect.”
“The state is offering taxpayers a 17% discount on the construction value, but a bank loan will immediately consume part of that amount. This makes no sense. Why does the system force taxpayers to borrow money to advance it to the state, only for the state to return it later?” he added.
Batista da Silva believes that “the government will have to review the system” for the VAT refund.
“People will rarely use the measure, or only those with capital will use it. Those without capital will face many obstacles. Problems could arise with the bank, the construction work, or the habitation licence, and costs might exceed the construction value limits. Many complications could happen along the way,” he warned.
He said the Association of Notaries aims to explain what can go wrong. “People hear the news and see that VAT went down, but they are not ready to deal with the complications in the process,” he concluded.
CT/LYT // AYLS
Lusa
