What are the new tax changes in Israel's real estate market? - opinion

For the purchase of land, a shop, an office or a building, etc., the purchase tax rate is generally 6% of the purchase price.

Calculating taxes (photo credit: INGIMAGE)
Calculating taxes
(photo credit: INGIMAGE)
Every real estate transaction in Israel has at least two taxes. Land appreciation tax, which falls on the seller and purchase tax, which is levied on the purchaser. Purchase tax rates vary, depending on the legal status of the purchaser (individual, a public institution, a company, etc.), the type of real estate property purchased (residential, commercial or land), and whether the purchaser is an Israeli or foreign resident at the time of the purchase. The purchase tax rates go up to 8% on properties worth over NIS 5,348,565 (or 10% for a luxury place worth over NIS 17,828,555).
For the purchase of land, a shop, an office or a building, etc., the purchase tax rate is generally 6% of the purchase price. Under certain conditions, the purchaser may be entitled to a partial refund of the purchase tax paid for the purchase of land.
If the purchase is of a residential home, the purchase tax is calculated according to tax brackets.
The tax is higher or lower depending on the number of residential homes owned by the purchaser’s family unit (a family unit is parents and their minor children) and whether or not the purchaser is an Israeli resident.
These tax brackets are updated on the 15th of January each year, the latest being last week. There were also important changes last July – see below.
Until recently, the purchase tax for foreign residents, or Israeli purchasers with more than one apartment, was considerably higher than the purchase tax for Israeli residents purchasing their sole home. Whereas the first tax bracket for an Israeli resident purchasing his sole home started at 0%, the first tax bracket for a foreign resident, or an Israeli purchasing an additional apartment, started at 8%.
In July 2020, in the midst of the COVID-19 crisis, the tax brackets were changed, effectively lowering the tax for foreign residents and for purchasers who are buying additional apartments. The first tax bracket was lowered to 5% and only reaches 8% and beyond in smaller stages than before. Therefore, someone purchasing an additional apartment as an investment, or a foreign resident, in the amount of NIS 2,000,000 would have paid NIS 160,000 purchase tax under the old tax brackets and will now pay NIS 107,053 purchase tax under the new tax brackets.
THERE ARE some exceptions to the definition of “sole apartment” and so it is recommended to consult a real estate tax attorney prior to purchasing a residential home. Other tax ramification should also be checked out and planned in advance.
If a residential property is purchased from a building contractor, but under the sales agreement the contractor is not obligated to complete the interior, but rather to leave it as a shell to be completed by the purchaser, then the purchase tax rate is generally 6%.
Furthermore, there are some situations which may confer an individual a partial exemption from purchase tax. Some examples of this include: a person with disability (subject to the degree of disability), a blind person, a victim of a terror attack, a family member of a soldier who died in the line of duty, a gift to a “family member” (as defined of in the law and regulations).
One of the most common partial exemptions used by foreign residents who intend to make aliyah is the reduction in purchase tax granted to a new immigrant to Israel (an “oleh hadash”), providing he meets certain criteria.
The partial exemption from purchase tax is available to an oleh once for purchasing a residential home and once more for purchasing a place of business.
However, according to the regular tax brackets for Israeli residents, the first tax bracket for the purchase of a sole home, is 0%, so it may be advisable that the oleh, not use the aforementioned partial aliyah exemption but instead use the regular tax brackets for Israeli residents when purchasing a sole residential home.
For example, the purchase tax for the purchase of a NIS 2,000,000 apartment where the purchaser is entitled to the lower tax brackets should be NIS 8,825, whereas the tax using the partial aliyah exemption should be NIS 17,103. In this case, the oleh can keep the partial aliyah exemption until he or she purchases a second residential home (providing he or she does so within seven years of making aliyah).
As always, consult experienced tax advisers in each country at an early stage in specific cases.
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The writers are Israeli real estate attorneys. Nicole Levin is also an expert on Israeli historic buildings.