The Portuguese State Budget for 2026 came into force on 1 January 2026, introducing a number of important fiscal, economic and social measures.
As the Government’s main financial planning instrument, the State Budget establishes the rules governing public expenditure, taxation and social support. Many of the measures approved have a direct impact on individuals, families and businesses throughout Portugal.
In this article, we highlight some of the most significant changes introduced by the 2026 State Budget and explain what they may mean for taxpayers.
Portuguese State Budget 2026: The main measures you should know about
Every year, the State Budget introduces new policies that shape the country’s financial management and public finances.
It determines matters such as taxation, public investment and the allocation of resources to essential public services, including:
- Healthcare;
- Education;
- Public security;
- Infrastructure;
- Social protection.
Many of these measures have a direct financial impact on taxpayers, influencing income tax, social contributions and other aspects of personal and business finances.
Below are some of the most important changes introduced for 2026.
1 – Updated Personal Income Tax (IRS) Brackets
The 2026 State Budget introduces:
- A 3.51% adjustment to the IRS tax brackets;
- A 0,3 percentage point reduction in the tax rates applicable to the 2nd through 5th tax brackets.
These changes are intended to reduce the amount of tax withheld from employees’ and pensioners’ monthly income, allowing taxpayers to retain a higher net monthly salary.
We discuss these changes in greater detail in our dedicated article.
2 – Changes to IRS Withholding Tax
The Government has also updated the IRS withholding tax thresholds by 3,1%.
The objective is to reduce the effects of tax bracket creep, where an increase in gross salary could otherwise result in a disproportionate reduction in net monthly income.
For a more detailed explanation of the new withholding tax rules, please refer to our article on IRS withholding tax in 2026.
3 – Increase in Social Benefits
The Social Support Index (IAS – Indexante dos Apoios Sociais) has also been updated under the 2026 State Budget.
For 2026, the IAS increases to €537.13.
As the IAS is used as the reference value for calculating numerous social benefits, this adjustment results in increases to benefits such as:
- Family allowance;
- Unemployment benefits;
- Various other social security benefits.
4 – Pension Increases
In addition, regular pension increases for 2026 are as follows:
- 2.80% for pensions up to €1,074.26 (2 × IAS);
- 2.27% for pensions between €1,074.26 and €3,222.78;
- 2.02% for pensions above this amount.
5 – New Rules for Mortgage Loans
Homeowners with existing mortgage agreements may benefit from revised mortgage renegotiation rules.
Under the State Budget, banks are required to monitor borrowers’ debt service ratio (taxa de esforço).
Where a borrower’s financial burden increases significantly, financial institutions must present proposals to help customers renegotiate their mortgage.
Possible solutions include:
- Extending the loan term;
- Changing the type of interest rate;
- Debt consolidation;
- Mortgage refinancing.
These measures are intended to support households facing higher borrowing costs.
These measures are some of the news predicted on the Portuguese State Budget for 2026. To see other measures that are in effect, please refer to the official document published by the Government at this link.
Additional Mortgage Lending Rules Introduced by the Bank of Portugal
Mortgage lending in 2026 has also been significantly affected by new regulatory guidelines issued by the Bank of Portugal (colocar este link: Portal do Cliente Bancário do Banco de Portugal), introducing stricter lending requirements.
The main changes are divided into three key areas.
New Bank of Portugal Guidelines (Effective from 1 August 2026)
The banking supervisor has introduced new measures aimed at reducing household over-indebtedness.
Lower Debt Service-to-Income (DSTI) Limit
The recommended maximum Debt Service-to-Income (DSTI) ratio has been reduced from 50% to 45%.
This means that the total monthly repayments for all loans should generally not exceed 45% of a borrower’s net monthly income.
Revised Maximum Mortgage Terms
The maximum repayment periods have been simplified into two age categories:
- Borrowers up to 35 years of age: maximum mortgage term of 40 years.
- Borrowers over 35 years of age: maximum mortgage term of 35 years.
This represents greater flexibility for younger borrowers while tightening the limits for older applicants.
Financing of Bank-Owned Properties
The previous exception allowing 100% financing for properties repossessed by banks has been abolished.
Bank-owned properties are now subject to the same general lending limit as other residential properties, meaning financing is generally limited to 90% of the property’s value for owner-occupied housing.
Conclusions
These are only some of the most significant measures introduced by the Portuguese State Budget for 2026.
As tax legislation and financial regulations continue to evolve, both individuals and businesses should remain informed of the latest developments to ensure compliance and make the most of any available benefits.
If you have any questions about how these changes may affect your personal or business finances, our team will be pleased to assist you.