OECD recommends raising Portugal’s IMI, limiting capital‑gains exemptions, and taxing vacant or underused homes to improve housing market efficiency, reduce windfall gains and tackle inequality.
The OECD has proposed a package of tax and regulatory changes to help address Portugal’s deepening housing crisis, recommending a shift away from transaction taxes toward stronger annual property taxation and tighter limits on capital‑gains exemptions for home sales.
In its Economic Survey of Portugal released this Tuesday, the organisation highlighted several measures intended to improve market efficiency, raise public revenue and reduce intergenerational inequality. Core recommendations include a significant increase in IMI (Imposto Municipal sobre Imóveis), higher taxation of capital gains on housing sales, and tougher levies on vacant or underused properties in high‑demand areas.
Outdated property values and weak incentives
The OECD points to outdated tax values — the property valuations used to calculate IMI, last revised in many cases in 2015 — as a major factor keeping effective property taxation low despite rising house prices. To restore balance and increase revenues, the report suggests revaluating properties annually based on recent sales or rental data.
The organisation also criticises current incentives for owners of vacant buildings or underused housing as too weak to encourage putting these units back on the market. With low taxes on property and exemptions on some capital gains, older homeowners have often realised large, largely untaxed increases in wealth, the OECD argues, while younger people face higher barriers to buying homes.
Capital‑gains exemptions under scrutiny
Specifically, the Economic Survey calls attention to tax exemptions that allow homeowners to avoid capital‑gains tax on the sale of a primary residence if proceeds are reinvested in another home. The OECD writes that such exemptions “contribute to high windfall gains from property appreciation and increase intergenerational inequality.” It recommends Portugal considers reviewing these rules — even if only to cap exemptions above certain thresholds — to limit untaxed windfalls and level the playing field for new buyers.
From transaction taxes to property taxes
The report recommends a gradual transition from transaction‑based taxes (such as IMT) to property taxes (IMI). The OECD argues that annual property taxes are generally less distortive than transaction taxes, and that shifting the tax mix could make markets more efficient, create fiscal space for public investment or allow reductions in other taxes.
While Portugal currently raises a relatively large share of public revenue from transaction taxes compared with the OECD average, revenues from property taxes remain low, the study notes. It also flags that although local municipal surcharges on unoccupied properties can be as high as three times the regular IMI rate, their real impact has been limited by small tax bases, minimum rates and poor identification of vacant buildings.
Other policy steps recommended
Beyond taxation, the OECD calls for reforms to make supply respond more effectively to demand: simplifying building permits, rebalancing rental regulations to encourage supply, and strengthening incentives for owners to place vacant or underused dwellings on the market.
What it means for homeowners and buyers
If Portugal follows these recommendations, homeowners could face higher annual property bills and more limited capital‑gains exemptions in future transactions. For younger or first‑time buyers, stronger annual taxes and tighter exemptions could slow the accumulation of untaxed wealth by older homeowners and potentially improve affordability over time — provided reforms are paired with measures to boost housing supply.
The OECD’s proposals aim to rebalance incentives across generations while increasing fiscal capacity to support housing and broader public investments. How and when the Portuguese government may act on these recommendations remains to be seen, but the survey adds fresh pressure to address persistent tensions in the country’s housing market.
