IMT Revenue Becomes Key Pillar of Municipal Finances in Portugal

In recent years, revenue from IMT (Municipal Tax on Onerous Property Transfers) has become one of the fundamental pillars of municipal finances in Portugal. The sharp increase in this tax, especially since 2019, reflects not only the evolution of the real estate market but also the direct impact of public policies and economic dynamics in the housing sector.

Evolution of IMT Revenue Since 2019

Between 2019 and 2024, IMT revenue recorded an unprecedented increase. In 2019, municipalities collected around €1.001 billion from this tax. By the end of 2024, the amount had reached €1.7328 billion, setting a new historical record. This nearly 70% growth occurred even in a context of declining real estate transactions, highlighting the decisive influence of rising home prices on the total revenue collected.

During this period, the number of homes sold dropped from 181,478 in 2019 to approximately 156,325 in 2024, according to data from the National Institute of Statistics (INE). Despite this decline, the average transaction value rose significantly, boosting IMT revenue to never-before-seen levels. The tax became the largest share of municipal tax revenues, surpassing the traditional IMI (Municipal Property Tax), which remained relatively stable between €1.4 and €1.5 billion annually.

Factors Behind the Growth of IMT Revenue

The growth of IMT revenue is directly linked to the appreciation of the Portuguese real estate market. Housing prices have increased by more than 10% per year on average since 2019, a trend fueled by strong demand, foreign investment, a lack of supply, and policies encouraging home ownership, particularly for young people.

Measures such as IMT exemption for young buyers had a dual impact: on one hand, they increased demand among this segment of the population; on the other hand, they contributed to rising prices, as property developers absorbed the tax benefit and reflected it in the sale values. Despite forecasts of a drop in IMT revenue due to these exemptions, the opposite occurred: in 2024, the tax revenue grew by 0.8% compared to the previous year, defying budget projections.

Furthermore, the State covered the cost of the exemptions by financially compensating municipalities for the potential loss of revenue, which allowed local governments to maintain or even increase their fiscal intake.

The Role of IMT in Municipal Finances

The weight of IMT in municipal budgets has become increasingly evident. In 2024, the total municipal tax revenues reached €4.07 billion, of which €1.73 billion came from IMT. This amount represents approximately 42% of total municipal tax revenues, making IMT the main source of local funding, ahead of IMI.

The growth in IMT accounted for about 70% of the total increase in municipal tax revenues between 2019 and 2024. In 2022 alone, the tax on property transactions was responsible for 80% of the rise in municipal tax revenues, demonstrating municipalities' growing dependence on this tax to balance their budgets.

Implications for the Market and Taxpayers

The increase in IMT revenue has a direct impact on the housing market and on Portuguese families. On one hand, rising home prices make housing less accessible, especially for young people and middle- to low-income families. On the other hand, strong municipal revenues can be channeled into investments in infrastructure, social housing, and public services—although this depends on the political choices of each municipality.

The stagnation of IMI, a tax levied annually on property owners, contrasts with the volatility of IMT, which depends directly on the volume and value of real estate transactions. This difference means that municipalities are more exposed to real estate market fluctuations, potentially facing budgetary difficulties in periods of lower market activity.

Future Outlook for IMT Revenue

The future of IMT revenue will depend on the evolution of the real estate market, public housing policies, and national and international economic conditions. Continued appreciation of real estate could sustain the upward trend of the tax, but potential changes to rates, exemptions, or market regulations could reverse this scenario.

The growing dependence of municipalities on IMT raises concerns about the sustainability of local finances and the need to diversify revenue sources. The debate over balancing incentives for real estate transactions, housing accessibility, and financial stability for municipalities is expected to be a key issue on the political agenda in the coming years.

IMT revenue has consolidated its position as a central element of municipal finances in Portugal, reflecting the dynamics of the real estate market and fiscal policy choices. The challenge now is to ensure that this growth contributes to greater social equity and the sustainable development of cities and local communities.