Maximizing Your Savings: Lowering Purchase Tax in Israel

Maximizing Your Savings:

Tips for Lowering Purchase Tax in Israel

I am excited to present to you a special guest blog written by seasoned real estate lawyer, Yair Givati, based right here in Jerusalem.

I have had the pleasure of working alongside Yair on multiple property deals.

In this blog post, Yair will be sharing his insights and providing valuable information on a topic that is essential for anyone considering purchasing property in Israel.

Purchase Tax

As a homebuyer, one of the most significant expenses you will encounter outside the property itself is purchase tax.

The tax rate in Israel can reach up to 8%-10% of the property’s value, which can be a substantial amount.

However, there are “various” ways to save on purchase tax, legally.

In this article, we will explore five ways to save on purchase tax and help you keep more money in your pocket.

Utilizing Residency Rights

If you are planning to move to Israel and purchase a property, utilizing residency rights can help you save on purchase tax.

By law, Israeli Residents are eligible for a discount on purchase tax. Israeli citizens who have been living abroad for an extended period of time, and who will get the status of returning residents are entitled to the purchase tax rates starting as low as 0% on their single residency property purchase in Israel.

To be eligible for the lower tax rates, you need to move to Israel within two years of signing the purchase agreement. You must also meet the criteria set by the Israeli government to qualify as a resident or a returning resident.

These criteria include being in Israel for 183 days a year or having the center of your life established in Israel. 

Utilizing Aliyah Rights

If you are Jewish and planning to make Aliyah (immigrate to Israel), you can save on purchase tax by utilizing Aliyah rights.

When purchasing a property, you are entitled to a reduced purchase tax rate starting from 0.5% and capped at 5%, if you make Aliyah within one year of signing the purchase agreement.

When purchasing a new build, the period for using the reduced purchase tax rate could be extended for up to three years from signing the purchase agreement.

To qualify for Aliyah rights, you must be recognized as Jewish under the Law of Return. Additionally, if you previously resided in Israel or made Aliyah in the past, there has to be a significant period of time since you left to qualify.

Buying a Shell Apartment

Another way to save on purchase tax is by purchasing a shell apartment from a builder and finishing it yourself. When purchasing a shell apartment, as long as you meet certain criteria, you could be eligible to pay purchase tax rates as a land purchase, which is significantly lower than the total value of a finished apartment (5% or 6% in total).

You can then finish the apartment according to your preferences, which can be more cost-effective than purchasing a finished apartment, and design your dream home the way YOU want it.

Buying Over the Green Line

If you are neither an Israeli citizen nor an Israeli resident, you can save on purchase tax by purchasing a property over the Green Line. The Green Line refers to the 1949 Armistice Line between Israel and the West Bank.

In these areas, there is no purchase tax or capital gains tax to pay, which is different from other areas of Israel. However, it’s important to note that purchasing over the Green Line can have legal and political implications. Therefore, it’s essential to seek legal advice before making such a purchase.

Buying with Partners

Lastly, if you are buying a property with partners, you can potentially keep any discounts in purchase tax for future use.

As long as you do not own any other property, purchasing up to one-third of an apartment with partners is not considered owning a property.

There is a big difference in tax between 3 people each owning 1 apartment, and 3 people owning 3 apartments together. 

Conclusion

In summary, incorporating tax planning into your purchasing process is crucial, and you can effectively lower your purchase tax by employing one or more of the methods discussed above.

However, it is critical to seek guidance from a legal expert who can explain the consequences of each option before making a final decision.

Feel free to reach out to Yair Givati at yair@givatilaw.co.il to see how he can help you with your real estate purchase. 

(This article is not data-based but rather based on Yair Givati's personal market experience and opinions. No decisions should be made without thorough due diligence and professional financial advice.)

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