Israeli home prices are rising steadily, so new measures have been enacted that
aim to increase supply and reduce demand. They are not the same as previously
reported proposals.Home-sale exemptions
Israel has long granted
individuals an exemption from Israeli land-appreciation tax (capital-gains tax
on Israeli real estate) on the sale of one Israeli home every four years, if the
seller owns more than one home in Israel. If you own only one home in Israel,
you can claim an exemption every 18 months.
On February 16, the Knesset
passed the Real Estate Law (Increase in Supply of Residential Homes – Ad Hoc
There is now an alternative exemption for two more
home sales in calendar years 2011 or 2012, provided the sale price does not
exceed NIS 2.2 million (about $610,000) each. If the sale price is more, a pro
rata exemption is available.
The home also must be a qualifying home,
which is one used for residential purposes (or not used) in the four years
preceding the sale or 80 percent of the period of ownership. All ownership
rights to the home must be sold.
But the exemption also does not apply to
any part of the sale price that is deemed to apply to additional building
rights. If only part of the home is sold, the NIS 2.2m. exemption cap is reduced
To prevent tax planning by passing homes around, this exemption
does not apply to: (1) the sale of a home that was acquired by way of a gift in
the period from November 1, 2010, to the end of 2012; or (2) a sale to a
This exemption is fine for Israelis, but if you are a foreign
investor, you may still be liable to capitalgains tax in your home
Also, if you want to sell an Israeli home in 2011- 2012 and want
to sell another after those years, it seems you may have to wait four years
after the first sale to qualify for a further exemption.
When no tax exemption applies, land-appreciation tax is imposed on
sales of Israeli real estate at the rate of 20%, if it was purchased on or after
November 7, 2001. But land-appreciation tax is imposed at the individual’s
marginal tax rate (i.e., up to 45%), to the extent that the real estate was
acquired before that date. And for land with rezoning permission, 50% betterment
tax may also apply. These taxes deter land owners from selling
Consequently, a reduction in the rate of land-appreciation tax
to a maximum of 20% (instead of up to 45%) for real-estate sales has been
legislated, which will mainly apply to land. The seller must be an individual.
The real estate was purchased in the period from April 1, 1961, to November 6,
2001. The real estate is sold in the period from November 15, 2010, to the end
At the time of the sale, there is planning permission to build
at least eight homes. Within 36 months after the sale, the construction is
complete for eight homes or 80% of the planned homes, whichever is higher. The
sale must not be without consideration (sale price), nor to a relative. No other
tax exemption or reduction applies.
of Israeli real estate pay acquisition tax. Until now the maximum rate
was 5%. To dampen demand, the acquisition rates have just been ramped up,
especially for those who already own another home in Israel. Following are the
acquisition-tax rates for the period February 21-December 31, 2011.
people who have no other home in Israel, the acquisition-tax rates are more
lenient: first NIS 1,350,000 – 0%; NIS 1,350,000 to NIS 1,601,210 – 3.5%; above
NIS 1,601,210 – 5%.
For people with another home in Israel, the
acquisition rates are steeper: first NIS 1m. – 5%; NIS 1m.- NIS 3m. – 6%; above
NIS 3m. – 7%.
New immigrants still qualify for a 0.5% rate on the first
NIS 1,463,035 in the period between one year before immigration to seven years
A separate amendment makes reforms of a
more technical nature commencing March 31, 2011 (Amendment 70 to the Real Estate
For nonresidential real-estate deals in Israel, upon paying 40%
of the sale price, the purchaser must withhold tax at the rate of 15% of the
sale price (not the gain), if the real estate was acquired before November 7,
2001, and at the rate of 7.5%, if the real estate was acquired since that
When indexing the cost, the last known consumer price index (CPI)
data will be used (instead of waiting to know the CPI data for the month in
which the deal was done).
Real-estate self-assessment tax returns will
now need to be filed within 40 days (instead of 30-50 days), and the tax must
generally be paid within 60 days. The Israel Tax Authority must notify the
seller about the tax due within 20 days after the self-assessment is filed and
has eight months to open the self-assessment.
The taxpayer can appeal
within 30 days and the ITA then has another eight months, generally, to respond;
it can take another four months for “special reasons” approved by the ITA
To sum up
The government is keen to use fiscal measures to take
the edge off Israeli home prices. Some say prices have already peaked, in which
case the fiscal measures may well work. Time will tell.
consult experienced tax advisers in each country at an early stage in specific
firstname.lastname@example.org Leon Harris is a certified public accountant and tax
specialist at Harris Consulting & Tax Ltd.