Over the past few months, more than a few well-known highend homes were placed
on the market for sale in Israel. This comes as a natural reaction to the tax
reform, and we can expect to see this trend continue into 2014.
Michael Levy, for one, was reported to have sold his NIS 23.3 million home in
Herzliya Pituach this past summer. Another home in the same locale, owned by a
Russian businessman, was recently placed on the market for NIS 100m.
even those with far more modest homes are impacted by this extensive and
unprecedented reform. The new rules institute a tax-exemption ceiling of NIS
4.5m., which means that even if you are eligible for an exemption from
appreciation tax, the full exemption is only applicable to apartments sold for
NIS 4.5m. or less. Any payment received for the sale of a home beyond this
amount will be liable to appreciation tax of 25 percent.Am I too late?
This aspect of the reform goes into effect on January 1, 2014, which is why many
have been eager to sell before the end of the current year.
you would like to minimize your tax liability, it is still not too late.
Appreciation tax will only apply to the capital gains or appreciation that you
have accrued within the period beginning on January 1 and onward, subject to
For example, a home that was purchased for NIS 4m. on
January 1, 2012, and which will be sold on January 1, 2015, for NIS 7m., will
have appreciated by NIS 3m. The home was owned for three years, and the yearly
appreciation rate is therefore NIS 1m. Two of these years were prior to 2014 and
therefore may enjoy the tax exemption. The amount of appreciation liable to tax
is NIS 1m., at a rate of 25%; i.e., taxes due would be NIS
However, if this same home were to sell for the same price just
half a year earlier, on July 1, 2014, then our calculation would be altered as
follows: The appreciation amount of NIS 3m. would be distributed over 2.5
years, at a yearly appreciation rate of NIS 1.2m.
However, because the
home was only owned for half a year after 2014, the appreciation attributed to
that period would be just NIS 600,000, for which the tax due (25%) would be NIS
It is thus clear that selling sooner after January 1, 2014,
results in lower appreciation tax. This is not to say that everyone should run
out and place their home on the market, since each person has their own
individual circumstances. However, if you were considering selling over the next
few years, it is worthwhile to make the calculations regarding the tax benefits
of selling sooner rather than later.Foreign residents no longer exempt
Notably, there is another reason the luxury homes mentioned earlier were put on
the market: Both sellers are foreign residents. Until today, foreign residents
were able to enjoy the “single apartment” exemption afforded Israeli residents.
If the seller owned only one home in Israel, he or she would be eligible for the
exemption, under certain terms. However, that is set to change now as
Any foreign resident who owns a home in his country of residence
will no longer be eligible for an exemption from appreciation tax, even if he or
she owns just one home in Israel. Furthermore, the law stipulates that the way
to prove you don’t own a home in your country of residence is by providing the
Israeli authorities with a formal confirmation proving as much from the foreign
How exactly one would go about getting such a
confirmation, and what type of confirmation would be acceptable, remains to be
seen. As such, all foreign residents are currently deemed to be home owners in
their countries of residence. Therefore, they will not enjoy the tax exemption,
until they prove that they don’t own any property in the country of
The rationale behind this change is twofold: Firstly, Israelis
owning more than one home in Israel will no longer be entitled to the
appreciation-tax exemption. Allowing foreign residents who own additional homes
abroad to enjoy the exemption would create an imbalanced advantage for foreign
Secondly, foreign residents who enjoyed the exemption until
now were still liable to pay capital-gains tax in their country of
These foreign countries were benefiting from gains and profits
made in Israel, while the State of Israel missed out on this source of income.
Starting in 2014, these tax monies will be redirected into Israeli government
Since in most cases foreign residents will not be subject to
double taxation, and since tax will have been paid in Israel, they won’t be
taxed again in their countries of residence.
Do you spend a lot of time
both in Israel and abroad? In today’s global world, classification of foreign
and Israeli residents isn’t always clear and simple.
But that’s a topic
for a separate column.
The above provides general information only, and
detailed advice must be obtained prior to any action
email@example.com Dr. Haim Katz, a senior partner in a law firm
with offices in Tel Aviv and Jerusalem, specializes in real estate, inheritance,
international trusts, commercial and family law. Sam Katz is a jurist who lives