Recent announcements from the Portuguese Government, including a proposed reduction of income tax on residential rental income to 10% or even 0% in some cases, have captured the attention of UK landlords. The move contrasts strongly with UK policy direction and raises two important questions:

1] Is Portugal positioning itself as a more attractive reinvestment destination for UK landlords?

2] Does the UK Government risk being forced into similar reforms if rental supply continues to fall?

This article explores these issues from a landlord-focused, strategic perspective …

 

Portugal Is Actively Encouraging Landlords

Portugal has made a decisive shift towards using incentives rather than penalties to shape its rental market. Key measures include:

A proposed 10% tax rate for residential rental income within a defined moderate rent bracket up to €2,300 per month

A 0% tax rate for rents at least 20% below local medians

Existing reduced rates of 10% for 10-to-20-year leases and 5% for leases over 20 years

Reduced taxable bases for company structures

It is a clear strategic signal. Portugal wants to increase rental supply, encourage affordability, and reward landlords who commit to long-term or moderate-rent housing.

This approach is in stark contrast to the UK’s direction over the past decade.

 

 

Why UK Landlords Are Taking Notice

UK investors face a combination of rising costs and increasing penalties:

Section 24 mortgage interest restrictions

Income tax rates of 20 to 45% on rental profits

An additional 2% tax increase on landlords was announced in the recent Budget

Higher financing costs, with the UK base rate almost double that of the EU

Growing regulatory burdens

Persistent shortages in rental stock due to sustained landlord exits

 

Meanwhile, Portugal benefits from:

A significantly lower tax burden on rental income

A lower interest rate environment

A government that openly acknowledges the role of landlords in solving housing supply issues

A portfolio generating rental profits taxed at 10% instead of 40% can dramatically improve net outcomes. When combined with lower borrowing costs, it is easy to see why some UK landlords are exploring overseas reinvestment, with Portugal now high on the list.

 

Could Portugal Be a Better Reinvestment Choice for Some UK Landlords?

For many landlord profiles, the answer is increasingly yes. Portugal may be attractive to those who:

Are exiting the UK market because Section 24 makes leveraged buy-to-let unviable

Prefer stable, long-term rental yields

Value predictable taxation and low operating burdens

Want exposure to growing European rental markets

Are comfortable investing internationally using appropriate legal and tax structures

Not every investor will be suited to the Portuguese market, but its direction of travel is hard to ignore. Portugal is becoming more landlord-friendly at the same time the UK is becoming less so.

 

Will the UK Need to Introduce Similar Incentives?

The UK Government may eventually have no choice.

The UK rental sector is under significant pressure:

Tenant demand is rising

Supply is shrinking

Rents are increasing at record rates in many regions

Councils are struggling with housing obligations

Homelessness pressures are increasing

Most commentators attribute at least part of the supply decline to taxation and regulation

If supply continues falling, the Government may need to consider reforms such as:

Revisiting or reversing Section 24

Offering lower tax rates for long-term tenancies

Encouraging affordable or moderate rents through tax incentives

Introducing measures to support reinvestment into the rental sector

Portugal’s approach demonstrates that a government can stimulate rental supply by rewarding landlords rather than penalising them. If the UK continues to push landlords out of the market, similar corrective measures may eventually become unavoidable.

 

A Strategic Turning Point

Portugal’s rental tax reforms serve both as an invitation and a warning.

For UK landlords looking for stable returns, lower taxation, and a supportive policy environment, Portugal is becoming a credible reinvestment destination.

For UK policymakers, Portugal’s shift highlights how far the UK has diverged from landlord-friendly policy and how unsustainable that may be if rental supply continues to shrink.

If the UK wants a functional rental market, it may ultimately need to pivot towards incentivising landlords, not deterring them.

 

Note: This article first appeared on property118.com on 8/11/25 https://www.property118.com/